In the first half of 2022, Russia's war against Ukraine led to a significant number of Western companies operating on the Russian market announcing that they will temporarily or permanently cease their activity in the country. Recently, however, there have been increasing signs that some brands are "sneaking back" into the country. Russian economic experts expect that by the spring of 2023, a significant number of previously “pulled out" companies will resume some form of economic activity in the country.

Around 20 per cent of Western companies doing business in Russia before the war decided to temporarily or permanently withdraw from the Russian market. „77.6 per cent of the 1,382 foreign companies have not closed their businesses in Russia despite unprecedented pressure, blackmail and sanctions,” Russian State Duma Speaker Vyacheslav Volodin said on his Telegram channel in August.

The decision to leave the market required serious consideration on the part of the companies. On the one hand, it is a very costly operation, and on the other, Moscow does not promise an easy return for those who leave, should they change their minds. The Russian Centre for Strategic Research calculates that between February and September 2022, the cost of foreign businesses choosing to leave Russia was between 70 billion and 90 billion dollars.

They pulled out, but actually not

The „departure” of companies took several forms. Some opted for a definite and permanent exit from the market, other foreign brands transferred their activities to Russian companies, but there were also a good number of companies that continued their business through some reorganisation of their Russian subsidiaries and changing their names.

It now seems that, in addition to the above, more and more Western brands are starting to „sneak back” into the Russian market. This might be a result of the serious economic crisis in Europe, which is gradually reducing the political pressure on business, Russian economic analysts say, adding that political pressure, as well as sanctions against Russia, is believed to have played a significant role in the departure of certain Western companies from the country.

Moscow has also sought to fill the „gap” in the Russian economy caused by the departing firms through import substitution (substitution of a given product with a Russian-made one) and parallel imports (imports independent of the former supplier), apparently effectively. Among other reasons, economic figures show that the capital, which has a high concentration of Russian spending capacity, has not suffered any major losses in terms of clothing, footwear or cosmetics. Russian, Italian, Turkish, Arab and Belarusian brands have taken the place of closed multinationals in the shopping centres.

Typically, US companies continued business in Russia

There are currently 152 international brands operating in Russian shopping centres, of which 22.4 per cent are American, 15.1 per cent Italian, 10.5 per cent French, 9.9 per cent German and Turkish, figures published by the NF Group consultancy firm reveal. In other words, Americans account for the largest share of international brands operating in Russia.

New name, new life

The protection of brand names is sometimes cited as a marketing reason for name changes for fear that customers will turn away from the brands that have remained in Russia. Another, rather strong reason is the restriction Russia imposed by law in March on the distribution of some brands, while certain brands were exempted from the restriction in a decree. After a name change, Reserved and Mohito (the former rebranded as RE while the latter under the name M) have been operating for quite some time, while it is now almost certain that early next year, Zara will reopen several hundred stores under a new brand name. Daher, which acquired Bershka, will also reopen, while Lancome, Yves Saint Laurent, Kerastase, Giorgio Armani and Redken, among others, are also expected to resume the delivery of goods to Russia soon, and thus the state will halt parallel imports.

Reebok‘s stores in Russia were purchased by the Turkish FLO Retailing holding, with the company pledging that it will reopen stores although under a different moniker. The new owner is Alexander Govor, who also took over McDonald’s fast food chain in Russia and opened hundreds of stores under a new name. It should be noted that the American company did not make hasty decisions when the war broke out, as it has reserved the right to buy back the shares for 15 years.

Although Samsung suspended its activities, the company now appears to have changed its mind. Although no official statement has yet been made, the firm advertised dozens of new jobs in Russia in October. According to press reports, IKEA intends to relaunch its sales in Russia within two years.

Nike, one of Russia’s main sportswear suppliers has also pulled out of the market though only optically, according to Russian economic press outlets. Its stores were bought by the Sport Point retail chain that runs the shops under the NSP brand name. The range of products on offer is perfectly identical to that of Nike. Adidas is in the process of closing its last stores in Russia, but economic analysts predict that a hitherto unknown Russian company will appear and acquire the shops.

 

Option of returning left open

In practice, what can be seen over the last several months shows that there are few foreign companies that have cut their economic ties with Russia for good. Less than 3 per cent of Japanese companies announced their permanent departure, and the vast majority of agreements of foreign companies selling their assets in Russia were signed on condition that the company in question could return and buy back their assets in the next 2 or 3 years.

However, returning to Russia, in whatever manner, will not be smooth for all brands, even if Moscow endorses the move. Business prospects will be rather bleak if in the mean time their market segment has been taken over by a prosperous Russian- (or other Eastern-) owned company.