Summary
- This content was produced in Russia where the law restricts coverage of Russian military operations in Ukraine
Trucks moving Coca-Cola travel across the border into Russia, tourists return from abroad laden with Zara’s newest designs, and local online marketplaces jump at IKEA’s furniture stocks. Western brands may have exited the country, but their goods haven’t.
Despite European, North American and Japanese firms leaving Russia over its invasion of Ukraine, the impact on Russian consumers is little, although delivery times can be longer and some goods more costly.
The biggest change has been to supply routes, but the products continue to be available both in stores and online. Shoppers just need to know where to look.
Crucially, the bulk of goods concerned are not subject to sanctions and these cross-border flows are authorized. And Moscow is glad to allow them in, whatever route they take.
Brands’ continued availability indicates the challenge firms face in controlling supply chains when leaving a market.
ZARA IN MINSK
Zara-owner Inditex (ITX.MC) closed down its 502 Russian stores after Moscow invaded Ukraine, and then sold them to UAE-based Daher Group.
Now, small-scale imports and online sellers are sustaining them, according to a Reuters review of six major online marketplaces and conversations with a dozen buyers and sellers.
Albina, 32, carried an empty suitcase to Minsk last summer and came back 24 hours later with 33,000 roubles ($442) worth of Inditex-brand Zara, Massimo Dutti, and Bershka clothes for herself and friends.
While the majority of Western brands that have suspended Russian operations have also pulled out of Belarus – a strong Moscow ally – Inditex has not. The company failed to respond when queried about this.
Albina told Reuters she has also purchased clothes in Dubai and Paris and used a network of online sellers.
“There are pages on Instagram, on Telegram, there are girls I know who moved to live in Europe or Istanbul or Dubai,” she said. “They collect orders, let’s say in Istanbul, they take 15%-30% (as commission), then get them delivered here and you pay for the delivery.”
Last year’s strong rouble and weak Turkish lira were beneficial to Russian consumers.
Currency dynamics were partially behind a seven-fold jump in deliveries from Turkey on CDEK Forward, a delivery service from foreign e-commerce sites, its marketing director Dinara Ismailova told Reuters.
“As soon as brands said they were leaving, some kind of panic started, and the number of volumes and orders rose sharply,” Ismailova said.
Dealing with small, private deliveries, CDEK Forward’s turnover grew two folds in money terms in 2022, with 80% of that arising from clothes, while its goods turnover tripled.
“It’s comparable to if you personally went to a Zara store in New York, bought something there and sent it on to your friends in Moscow,” Ismailova said.
ONLINE MARKETPLACES
As supply chains collapsed, Russia legalized so-called parallel imports, permitting retailers to import products from abroad without the trademark owner’s permission.
E-commerce sites sell a wide variety of imported goods, and sellers usually advertise that they import products from abroad.
Market leader Wildberries sells old stock from Inditex brands and has around 17,000 goods in its Zara catalogue. A source immediate to Inditex said these were clearance stocks that were in Russia when it halted operations there.
Wildberries failed to reply to a request for comment.
One popular Western product Wildberries and its peers Yandex Market and Ozon (OZON.O) sell is Coca-Cola, often advertised as imported so shoppers know it is the real thing.
While Coca-Cola Co (K.N) halted the production and sale of drinks in Russia in 2022, others have been importing them, with labels on cans and bottles showing they have come from China, Europe, Kazakhstan, and Uzbekistan.
One quirk of this arrangement is that prices vary. In one Moscow supermarket, three cans of Coca-Cola were going for three different prices, imported from Poland, Denmark, and Britain respectively.
A senior employee at a top retailer described how firms have adapted.
“Contacts were quickly established and new contracts with new partners signed, new money flows and logistical supply chains with Turkish, Polish and Kazakh companies were launched,” he said on condition of anonymity.
Coca-Cola is obtainable from even more countries now.
“However, as usual, it is the buyer who pays more for these new inconveniences,” the employee added.
‘FRIENDLY’ IMPORTS
As new routes are created the extra logistics, travel and scaling costs will drop, and though trade continues to be relatively inefficient, these new relationships are going to last, said Ram Ben Tzion, CEO of digital vetting platform Publican.
“The parallel importing mechanisms have been consolidated and expanded, meaning that pretty much everything is accessible and still will be in the future,” Ben Tzion said, citing border truck queues and new entities springing up in nearby states.
“Coca-Cola can easily notice the ‘surge in demand’ from countries neighbouring Russia, where most parallel imports come from,” Ben Tzion said. “It is not in their interest to do anything about it.”
Coca-Cola would not comment.
“Friendly” countries not placing sanctions have scaled up exports to Russia, their trade data shows. Russia itself has suspended the publishing of such figures.
China-Russia trade reached a record 1.28 trillion yuan ($186 billion) in 2022, while Turkey’s exports to Russia rose 61.8% to $9.34 billion and Kazakhstan’s jumped 25.1% to $8.78 billion.
Informal supply routes could result in more poor-quality goods going into Russia, however, as regulators lose oversight, Ben Tzion said.
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Some brands face years of fighting copies and illegal imports. Meanwhile, Coca-Cola’s Russian competitors have ramped up bottling capacity and unveiled new Cola beverages.
Swedish furniture giant IKEA sold its stock to Yandex Market, tech titan Yandex’s (YNDX.O) e-commerce division, when it exited Russia. IKEA brand owner Inter IKEA Group said it sold the remaining stock for an unannounced amount to Yandex as it downsized IKEA Retail Russia.
Yandex Market says it puts suppliers who formerly sold goods via IKEA stores in direct contact with customers.
But former suppliers are also willing to sell slightly modified IKEA items under different names. One already advertises a bedding set it dubs “ARUA (analogue of IKEA BERGPALM)”.
IKEA said it was following up on goods being advertised as similar to IKEA online.
Although fresh opportunities are opening up for Russian companies, the fixation with Western brands may hamper efforts to increase local production.
“Over time, market forces will continue to drive the products Russians are used to into the market and while there is an aspiration to move to ‘Made in Russia’ it will be very difficult to actually get people hooked up on Russian coke,” said Ben Tzion.
($1 = 74.7045 roubles, 6.8775 yuan)
