Russian consumers now go for luxury brands

While British consumers are beset by headlines detailing the value being wiped off their homes, last month Russia’s richest woman, allegedly shelled out £50m to purchase Witanhurst – the second-biggest house in London behind Buckingham Palace. Her purchase reflects Russia’s emergence as one of a number of relatively nascent markets benefiting from sustained growth and comparative economic strength as the UK slides into a downturn.
Russia’s growing importance to brands was illustrated by BMW’s decision to build on its presence there by launching its 7 Series in Moscow’s Red Square last month. The country is the car manufacturer’s third fastest growing market, in stark contrast to the relative stagnance of the UK’s high-end car sector.
The automotive brand, which sold 121,577 cars in the UK in 2007, aims to sell 20,000 in Russia this year, and has set itself a growth target of 20% a year from 2009. Meanwhile, it is trying to reduce the number of vehicles on sale in British dealerships to minimize costs during the downturn.
Head of brand communications and group marketing services at BMW, says that ‘dynamic growth rates’ are making emerging markets more important for the group. In the first six months of 2008 BMW and Mini brands have seen a 33% increase in Russian sales. China has risen by a quarter and India has leapt 269% from a base of just 424 vehicles.
With the constant research and media focus on the impact of the credit crunch on consumer spending, it is easy to overlook the fact that premium markets have held up well. This is particularly true in the automotive sector, and BMW estimates that the sector will grow by 40% between 2005 and 2019. The volume (non-premium) market will grow 20%.
The premium segment is affected by the economic climate, but not as much as the volume segment. The development of the Russian economy has boosted the whole automobile market, but high-end BMW models, such as the 7 Series, the X5 and the X6 are particularly well-known in Russia. Compared with other countries, BMW’s market share is very high in the country.
Indeed, the luxury market as a whole is buoyant in Russia. Russian consumers are becoming more brand dependent. It used to be the case that the number of feathers you had in your hat was an indicator of your income and lifestyle. Now people use brands as a statement of their wealth in Russia.
BMW argues that the increased spending power of Russian consumers does not equate to a decline in activity in other markets, but many believe that marketing muscle will shift as emerging markets begin to account for bigger proportions of consumer spend. As new markets start to catch up with more established ones, it is only a matter of time before this occurs. Founding partner at ad agency VCCP also concurs with this and which has already picked up several accounts such as that of Qatar Financial Centre, in emerging markets.
Other international brands are also increasing their marketing spend in Russia. More brands are running campaigns tailored to the increasingly fragmented Russian market. While media inflation is relatively high, the growing budgets are not simply down to rising costs. Five years ago, marketing activity for many international brands was focused solely on Moscow and St Petersburg, but economic growth has widened this to other regions. Fashion players such as Gucci, Dior and Calvin Klein have capitalized on Russia’s spending power, both there and in the UK. As affluent Russians are buying into their existing brands, none of these companies is adapting their strategy; the bread-and-butter boutique events and fashion previews offer sufficient opportunity to tap into this ‘new money’.

Elsewhere, one leading international estate agent confides that Russian money is holding up the premium end of the market, as buyers circle to snap up multimillion pound real estate freed up following the collapse of investment bank Bear Sterns. As the credit crunch continues to bite, both in the UK and globally, emerging markets will be hard to ignore.