Rich Russians spend on luxury; They seek to prevent savings from disappearing

As sanctions imposed on Russia cause the ruble to fall and keep stock markets closed, the wealthiest Russians are turning to buying luxury jewelry and watches in an attempt to preserve the value of their savings.

In recent days, sales at Russian Bulgari SpA stores have surged, the Italian jeweler’s chief executive said, after the international response to the Ukraine invasion severely restricted cash flow into Russia.

“In the short term, this probably boosted the businessJean-Christophe Babin said in an interview with Bloomberg, describing Bulgari jewelry as a “safe investment”.

“It is difficult to predict how long it will last, because in fact with SWIFT’s measures, fully implemented, it could be difficult, if not impossible, to export to Russia.”, he said, referring to restrictions on Russia’s access to the SWIFT financial messaging system.

Even as consumer brands like Apple Inc and Nike Inc and energy giants like BP PLC, Shell Plc and Exxon Mobil Corp. pause operations in Russia, Europe’s biggest luxury brands are, so far, trying to operate in the country.

Bulgari, owned by LVMH SE, is not alone. Cartier de Richemont continues to sell jewelry and watches, Omega watches are still available, as are Rolexes. They all continue to make sales and try to take an apolitical stance.

“We are there for the Russian people and not for the political worldBabin said. “We operate in many different countries that have periods of uncertainty and stress.”

Like gold, which can serve as a store of value and hedge against inflation, luxury watches and jewelry can maintain or even increase in price amid economic turmoil caused by war and conflict.

Watches from the most exclusive brands can change hands on the secondary market at triple or quadruple their retail price. However, the impact of the invasion on the value of luxury goods is possibly creating a public relations problem.

“It is true that luxury brands could decide not to serve the Russian market. Rationally, this would represent a cost for them, which could be outweighed by the positive image they would obtain in other markets.”, said Bernstein analyst Luca Solca.

Sales within Russia and to Russians abroad account for less than 2% of total revenue at LVMH and Swatch Group and less than 3% at Richemont, a level “relatively immaterial”, according to a report this week by Eduardo Aubin and his fellow analysts at Morgan Stanley.

That’s due, in part, to Russia’s disparities in income and wealth, with a small number of billionaire oligarchs living well beyond the means of ordinary people. The average monthly salary in Moscow is about 113,000 rubles ($1,350 at the pre-invasion exchange rate), and much lower in rural regions.

A Swatch Group spokesman said the company was closely monitoring the situation in Russia and Ukraine and declined to comment further. Spokespeople for Richemont, Rolex, Hermès, LVMH and Kering declined to comment.

The pressure on the big brands is growing. The LVMH-backed trade publication Business of Fashion urged retailers to close Russian stores and not ship products online. In a widely shared editorial, editor-in-chief Imran Amed said the move would be “largely symbolic” but would show “a commitment to a strong moral position.”

So far, the reaction has been minimal. Balenciaga, a Kering SA brand whose creative director Demna Gvasalia is Georgian, removed all fashion content from its Instagram page days before its fall/winter show in Paris. In its place is the Ukrainian flag and a call to donate to the World Food Program.

Meanwhile, Bulgari, established in 1884 by Sotirio Bulgari and bought in 2011 by LVMH, is likely to raise prices in Russia at some point, according to the CEO.

“If the ruble loses half of its value, our costs will continue to be in euros, we cannot lose money on what we sell, so we will have to adapt the prices“, said.

Regardless of how much sales they experience, luxury watch and jewelry makers may soon find it difficult to restock stores, with Moscow closing its airspace to European Union countries, and the world’s largest logistics companies mainland stopped their shipments to Russia.

Bulgari plans to keep its stores open and go ahead with the development of a new hotel in Moscow despite the war. However, if the crisis lasts for months “it will be increasingly difficult to supply the countryBabin pointed out.