The future of the Russian Federation is not very bright

If a new crisis arises in Russia in the next five years, the volume of the Russian fashion market, currently estimated at more than 2 trillion rubles, will decrease by 10–15%, analysts at Yakov and Partners (formerly McKinsey) predict. Significant growth is only possible if there is a noticeable increase in the well-being of the population, the return of departed international brands to the market and the restoration of damaged logistics. These are extreme options, market participants believe, counting on stabilization or moderate growth. If the conservative scenario is implemented, the dominance of chains and brands in the lower and middle price segments will increase in the market, analysts say.

Analysts from Yakov and Partners, in their review, which was reviewed by Kommersant, described three possible scenarios for the development of the fashion market in Russia over a five-year horizon. The first assumes a possible new crisis in the economy, which will lead to an even deeper drop in consumer income and worsening logistics problems that arose after the start of the Russian-Ukrainian military conflict. In this case, the market volume, which amounted to 2.04 trillion rubles at the end of 2022, will decrease by 10–15%.

Fashion chains also include similar forecasts in their strategy, but “consider them extreme,” says a Kommersant source among retailers. According to him, most participants are still focusing on at least a slight increase as a base scenario. This option is also included in the forecasts of Yakov and Partners. They note that in the event of even a minimal recovery in demand, a reduction in global logistics problems, optimization of production costs and an increase in tourist flows to Russia from “friendly” countries, the clothing and accessories market can expect growth of 5–7% until 2028.

This is better than in 2022: then the market, according to Yakov and Partners’ calculations, shrank by 3–5%. Analysts do not provide data on the state of the segment in 2023. But a number of retailers surveyed by Kommersant believe that by the end of 2023 the drop will be about 2%.

The most optimistic and most speculative scenario is market growth by 20–25% by 2028. This, according to Yakov and Partners, will be possible with a noticeable increase in the well-being of the population, the restoration of previous economic ties with Western countries and the return of international brands that have left the country. The company clarifies that back in 2021, the share of 70 large foreign brands that left the Russian Federation in 2022 accounted for more than 20% of the total revenue of all fashion chains in the country, or over 450 billion rubles.

The company admits that even if the base scenario, which assumes market growth of 5–7% over five years, is implemented, “the transformation of the segment cannot be avoided.” It says the market will be dominated by retailers operating in the low and mid-price segments, while the presence of higher-end brands will decline. This is due not only to sanctions on the supply of clothing and accessories to the Russian Federation costing more than €300 or $300 per item, but also to the growing costs of chains.

Only since the beginning of 2023, the average cost of sewing collections has increased by approximately 30%, explains Elena Nikitina, deputy general director of the Kanzler chain. According to her, this was influenced by several factors – the rise in the exchange rate, which led to increased costs of buying fabrics from abroad, and increasing import costs. The founder of the Russian brand First in Space, Polina Meshcheryakova, speaks of an increase in production costs of 40–50%. According to her, the cost of production within the country is also increasing, including due to the need to increase wages in order to retain seamstresses.

Now the average salary of a seamstress in Moscow is 120 thousand rubles, while a year ago – 80 thousand rubles, and two or three years ago – a maximum of 60 thousand rubles, adds the founder of the brand scaling agency STAB Stanislava Nazhmitdinova . According to her, sewing collections in Kyrgyzstan and Uzbekistan is also problematic due to the high demand for local seamstresses from Russian chains.

Retailers and experts interviewed by Kommersant do not expect a reduction in costs in the foreseeable future. In such a situation, retailers will have to raise prices in stores, says Ilya Yaroshenko, president of the Baon chain. And this, Elena Nikitina does not exclude, will entail a flow of some consumers from the above-average price segment to the middle and even low ones.

Khalil Aminov, Alina Savitskaya