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Rich Russians turn to luxury jewellery, watches to shield savings

Rich Russians turn to luxury jewellery, watches to shield savings

As a result of the sanctions on Russia, which have caused the ruble to plummet and the stock markets to remain closed, the country’s rich are turning to luxury jewelry and watches in an attempt to maintain the value of their investments.

According to the company’s chief executive officer, Bulgari SpA’s Russian shops have seen an increase in sales in recent days after the international reaction to the country’s invasion of Ukraine, which severely limited the flow of funds.

According to Jean-Christophe Babin, CEO of Bulgari, “it has undoubtedly increased the company in the short term.” He described Bulgari’s jewelry as a “secure investment” in an interview with Bloomberg.

As for how long it would persist, “it is difficult to predict,” he said, referring to limits on Russian access to the SWIFT financial messaging system. “However, with the SWIFT measures completely implemented, it may become difficult, if not impossible, to export to Russia,” he said.

When major consumer brands such as Apple and Nike are pulling out of Russia, and oil giants such as BP and Shell are pulling out of the nation, Europe’s greatest luxury brands are attempting to maintain their presence in the country so far at least.

Bulgari, which LVMH SE owns, is not alone in this regard. Jewelry and watches from Cartier, owned by the Richemont family, are still available, as are Omega timepieces from Swatch Group and Rolexes from the Swiss watchmaker.

“We are in Russia to serve the Russian people, not the political establishment,” Babin said in a statement. “We have operations in several different countries, all of which are experiencing moments of uncertainty and anxiety.”

Luxury watches and jewelry, like gold, which may act as a store of value and a hedge against inflation in times of economic instability caused by war and conflict, can maintain or even rise in value in times of economic turmoil induced by war and conflict.

Depending on its popularity, a famous watch may sell on the secondary market for three or four times its retail price. However, the effect of the invasion on the value of high-end goods is creating a possible public relations problem.

“It is possible that premium companies would opt not to service the Russian market,” says the analyst. “Rationally, this would be a cost to them, but one that may be overcome by the favorable communication image they get in other areas,” Bernstein analyst Luca Solca said in an email to CNBC.

According to a report published this week by Edouard Aubin and colleagues at Morgan Stanley, sales in Russia and to Russians living abroad account for less than 2 percent of overall revenue at LVMH and Swatch Group and less than 3 percent at Richemont, representing a “relatively immaterial” proportion of overall revenue.

In part, this is due to income and wealth discrepancies in Russia, with a tiny number of rich oligarchs living much above the means of the majority of the population. According to pre-invasion currency rates, the average monthly pay in Moscow is around 113,000 rubles ($1,350), and it is far lower in rural areas.

A spokeswoman for the Swatch Group said that the business was carefully watching the situation in Russia and Ukraine and refused to provide any more information. Richemont, Rolex, Hermes, LVMH, and Kering SA representatives refused to comment on their companies’ business in the Russian Federation.

The amount of pressure on the large brands is increasing. Business of Fashion, a trade newspaper supported by LVMH, asked merchants to close their Russian storefronts and refrain from shipping their items online. Editor-in-chief Imran Amed said in an editorial that the decision would be “primarily symbolic,” but that it would demonstrate “commitment to a strong moral stand.” The column was widely shared.

So yet, there has been a little outpouring of support. A few days before Balenciaga’s autumn/winter presentation in Paris, the brand’s creative director, Demna Gvasalia, of Georgian descent, removed all fashion-related information from its Instagram profile. The Ukrainian flag has been placed in its place, along with a plea to contribute to the World Food Program. Luxemburg-based LVMH said that it would donate 5 million euros ($5.6 million) to the International Committee of the Red Cross to help conflict victims in Syria. According to the company, LVMH is also offering financial and operational aid to its 150 workers in Ukraine.

Bulgari, founded in 1884 by Sotirio Bulgari and acquired by LVMH in 2011, is expected to hike prices in Russia at some time in the future, according to the company’s CEO.

In the event that the ruble loses half its value, “our expenses will stay euro costs,” he said. “We cannot lose money on the products we offer, therefore we will have to adjust the pricing,” he added.

Luxury watch and jewelry manufacturers may soon find themselves unable to keep up with demand, no matter how strong their sales are. Moscow has blocked its airspace to nations in the European Union, and the continent’s largest logistical companies have ceased supplies to the country. Burberry Group Plc has announced that all shipments to Russia have been suspended until further notice due to operational difficulties.

The Bulgari Group intends to keep its shops open and to proceed with the construction of a new hotel in Moscow despite the ongoing conflict. Nonetheless, if the situation continues for many months, “it will be tough to supply the nation,” Babin said.

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