‍Top Brands Exit Russian Market, Yet Their Products Still Abound: A Closer Look‍

‍MOSCOW, Feb 22 (Reuters) - Even as European, North American, and Japanese companies withdraw from the Russian market in response to the country's actions in Ukraine, the presence of Western brands persists through the circulation of their goods. Trucks carrying Coca-Cola products continue to cross the border into Russia, tourists return from abroad with the latest designs from Zara, and local online marketplaces still offer IKEA furniture stocks.

While the departure of Western companies has undoubtedly caused shifts in the market landscape, the impact on Russian consumers appears to be minimal. However, some challenges have arisen, such as longer delivery times and increased prices for certain goods. Despite these obstacles, the demand for Western brands remains, and consumers continue to find ways to access their favorite products.

The primary change resulting from the exit of European, North American, and Japanese companies from the Russian market has been the alteration of supply routes. However, despite this shift, the products themselves remain readily available both online and in stores. Consumers simply need to be aware of where to find them.

Importantly, the vast majority of these goods are not subject to sanctions, and the cross-border flows facilitating their entry into Russia are legal. Moscow has demonstrated a willingness to accept these goods regardless of the route they take, underscoring the government's stance on the matter.

The continued availability of these brands highlights the challenges companies encounter in controlling supply chains when exiting a market. Despite efforts to disengage, the persistence of these products in the Russian market reflects the complexities of global commerce and the difficulty of fully severing ties with a region.

ZARA IN MINSK

After Moscow's deployment of troops into Ukraine, Zara-owner Inditex made the decision to close its 502 stores in Russia. Subsequently, these stores were sold to the UAE-based Daher Group. Despite these closures, small-scale imports and online sellers have stepped in to keep these brands alive in the Russian market, as revealed by a Reuters review of six major online marketplaces and discussions with a dozen buyers and sellers.

One such example is Albina, aged 32, who traveled to Minsk last summer with an empty suitcase. Within 24 hours, she returned with 33,000 roubles ($442) worth of Inditex-brand clothing from Zara, Bershka, and Massimo Dutti for herself and her friends. This anecdote illustrates the resilience of these brands in the face of market disruptions, as consumers continue to find ways to access their favorite products through alternative channels.

While many Western brands have ceased operations in both Russia and Belarus, Inditex, the parent company of Zara, has notably continued its presence in Belarus, despite the country's close alliance with Moscow. When questioned about this decision, Inditex did not provide a response.

Albina, the individual mentioned earlier, shared her experience of purchasing clothing from various locations, including Paris and Dubai, as well as utilizing a network of online sellers. She described the existence of Instagram and Telegram pages, where individuals facilitate orders from locations such as Europe, Istanbul, or Dubai. These sellers collect orders, charge a commission of 15% to 30%, and arrange delivery to the customers in Russia. This informal network highlights the lengths to which consumers are willing to go to access desired products from Western brands, despite geopolitical tensions and the withdrawal of official operations in certain regions.

The interplay between currency dynamics, specifically the strength of the Russian rouble and the weakness of the Turkish lira, has significantly benefited Russian consumers in recent times. Last year's favorable exchange rates contributed to a surge in deliveries from Turkey through services like CDEK Forward, a delivery service for foreign e-commerce sites, as highlighted by its marketing director Dinara Ismailova in a statement to Reuters.

Ismailova noted that the announcement of brands leaving the Russian market triggered a sense of panic among consumers, leading to a sharp increase in order volumes. Consequently, CDEK Forward, specializing in handling small, private deliveries, experienced a notable expansion in turnover. Last year, its turnover doubled in monetary terms, with a substantial portion of this growth attributed to clothing purchases. In fact, the turnover of goods through the service tripled, illustrating the significant demand for imported clothing among Russian consumers.

Ismailova likened the experience of using CDEK Forward to purchasing items directly from a Zara store in New York and shipping them to friends in Moscow. This comparison underscores the convenience and accessibility of international goods facilitated by services like CDEK Forward, enabling Russian consumers to access desired products despite geopolitical challenges and the withdrawal of Western brands from the market.

ONLINE MARKETPLACES

As supply chains faced disruptions, Russia enacted legislation allowing for parallel imports, enabling retailers to import products from abroad without the trademark owner's authorization. E-commerce platforms have capitalized on this opportunity, offering a wide array of imported goods, often advertised as such by sellers.

Wildberries, a leading e-commerce platform, is known to sell old stock from Inditex brands, with nearly 17,000 items listed in its Zara catalogue. These items are reportedly clearance stocks that were present in Russia when Inditex suspended its activities there. However, Wildberries did not provide a comment when contacted.

Another common Western product available through platforms like Wildberries, Ozon, and Yandex Market is Coca-Cola, often promoted as imported to assure buyers of its authenticity. Despite Coca-Cola Co ceasing production and sales in Russia last year, other entities have been importing Coca-Cola products, sourced from various countries including Europe, Kazakhstan, Uzbekistan, and China. Notably, prices for imported Coca-Cola products can vary, with different prices observed for cans originating from Denmark, Poland, and Britain in one Moscow supermarket.

A senior employee at a major retailer disclosed how companies have adapted to the changing landscape, establishing new contacts, signing contracts with new partners, and launching logistical supply chains with Turkish, Polish, and Kazakh companies. Despite the increased availability of Coca-Cola from various countries, the employee noted that consumers ultimately bear the brunt of these changes, often facing higher prices due to these new logistical challenges and arrangements.

'FRIENDLY' IMPORTS

Ram Ben Tzion, CEO of the digital vetting platform Publican, highlighted the evolving landscape of parallel imports, emphasizing that as new routes are developed, the associated logistics, travel, and scaling costs will decrease. Despite lingering inefficiencies in trade, Ben Tzion asserted that these new relationships are likely to endure, with parallel importing mechanisms becoming consolidated and expanded over time.

Ben Tzion noted the emergence of border truck queues and the establishment of new entities in nearby states, underscoring the growing accessibility of imported goods in Russia. He suggested that companies like Coca-Cola may observe a surge in demand from neighboring countries, where most parallel imports originate, but may choose not to take action due to the profitability of these markets.

While Coca-Cola declined to comment on the matter, trade data from "friendly" countries not imposing sanctions on Russia indicates a significant increase in exports to the country. For instance, China-Russia trade reached a record 1.28 trillion yuan ($186 billion) last year, while Turkey's exports to Russia surged by 61.8% to $9.34 billion, and Kazakhstan's rose by 25.1% to $8.78 billion. Notably, Russia has ceased publishing its own trade figures.

However, Ben Tzion cautioned that informal supply routes could lead to the influx of poor-quality goods into Russia, as regulatory oversight diminishes. This highlights a potential risk associated with the proliferation of parallel imports, as the absence of robust regulations may compromise product quality and consumer safety.

REPLICAS

While some brands grapple with the challenges of combating copies and unauthorized imports, others have taken strategic steps to adapt to changing market dynamics. For instance, Coca-Cola's Russian competitors have capitalized on increased bottling capacity and introduced new cola beverages to the market.

In the case of Swedish furniture giant IKEA, the company sold its remaining stock to Yandex Market, the e-commerce division of tech giant Yandex, upon exiting Russia. Yandex Market facilitates direct contact between suppliers who previously sold goods via IKEA stores and customers. However, some former suppliers are exploring the option of selling lightly modified IKEA items under different names, exemplified by a bedding set advertised as "ARUA (analogue of IKEA BERGPALM)."

IKEA has acknowledged the existence of goods being marketed as similar to its products online and stated that it is investigating the matter. Despite the emergence of new opportunities for Russian firms, there remains a strong consumer fixation with Western brands, which may impede efforts to stimulate local production. Ram Ben Tzion suggested that while there is a desire to transition to "Made in Russia" products, it will be challenging to wean consumers off Western brands like Coca-Cola in favor of domestic alternatives.

Source: Reuters‍