A year after the Russian invasion of Ukraine, the luxury goods market seems to have escaped relatively unscathed.

A new report by Bloomberg Intelligence (BI) has found that the war between Russia and Ukraine had only a limited direct impact on the luxury goods market, with mild depreciation and minor revenue losses.

The war between Russia and Ukraine has not been the only factor influencing the market over the past 12 months as minimal presence in the Russian market, China’s zero Covid policy and subdued travel retail continue to put pressure on sales, costs and supply chains exercised .

In 2021, Russia ranked 12thth worldwide in sales of personal luxury goods, while China was number two in the market at $58 billion (£51 billion).

The outlook for the year ahead looks good – with the immediate easing of zero-Covid restrictions in China in early January, the recovery in the luxury goods sector has accelerated, more than offsetting the drop in sales in Russia.

Deborah Aitken, BI Senior Industry Analyst (Consumer Products) and Andrea Ferdinando Leggeri, BI Senior Associate Analyst (Consumer Products) explained: “Luxury goods sold in Russia have been limited to less than 1-3% of company sales, although it which gives wider implications of sanctions in response to the war against Ukraine.

“The lag in travel recovery was felt in 2022, while inflation-driven cost increases were passed through to consumers, elevated interest rates and currency volatility risk meant that entry-level shopping for emerging brands came under pressure.

“Some entry-level brands have started to struggle in the US (Michael Kors, Dr. Martens and Canada Goose), while higher-ranking luxury pyramid brands are less price-elastic.

“The recovery in luxury goods earnings in Western Europe is still being fueled by the euro’s weakness as Americans spend in Europe to ‘bargain’.

“It suggests the US — the world’s largest luxury market — could lose share to Europe in 2023.”

According to BI’s report, the impact of Russia’s limited exposure to the luxury goods sector was only felt at the store level and was quickly dealt with.

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The largest luxury brands had a presence in flagship stores in Moscow, although brand availability was more consistent at wholesale partners or online.

Luxury brands limited headcount and quickly left Russia, with most leaving by March 2022.

The report states: “After the first six weeks of 2022, trade comparisons for 2023 are normalizing against a 2% average decline in organic sales growth last year, while amortization of intangible assets is limited and mostly booked in 2022.”

Premium fashion brands have been a bit more vulnerable to exposure to Russia as e-marketplace Farfetch shut down entirely in Russia in mid-2022.

The share of large luxury goods manufacturers in Russia was limited to 1-3% of sales, while global purchases by Russians averaged 5%.

LVMH and Kering were the most exposed pylons, and Richement underperformed — with half of its portfolio made up of ultra-high-end jewelry brands like Cartier.

The BI report concluded, “China’s reopening after the end of the zero-Covid policy in January is a potential boon for luxury goods makers, which may meet the consensus target for 9% median sales growth and 12% EPS in 2023.” the reopening is accelerating.

“LVMH is representative of the impressive market recovery since the global spread of Covid-19 in early 2020 and compared to the phased reopening in 2021 and 2022.

“A year later, it became apparent that the Russian invasion of Ukraine had much less of an impact on luxury goods sales than it did on sentiment.

“China’s reopening could address most of the 25% of demand we think is missing from the luxury goods market both locally and internationally as spending and travel need to continue to rebuild.

“LVMH accounts for 47% of the MSCI Europe Textiles, Apparel & Luxury Goods Index, Richemont 16%, Hermes 12% and Kering 9%.”

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