Global Luxury Spending Could Decline Due To The Ukraine War

Nearly one month after Russia’s military invasion of Ukraine, the conflict’s impact on global businesses has spread to luxury industries.

Most high-fashion brands, including LVMH Group, Burberry, and Kering, closed their stores in Russia earlier this month, while announcing their donations to international humanitarian efforts in Ukraine.

How the Russia-Ukraine conflict will eventually affect the global luxury industry will depend on how long it lasts, experts say.

“We see a more likely, immediate, and relevant impact on Russians personal luxury spending locally, strongly driven by local currency devaluation and restrictions in place,” says Claudia D’Arpizio, senior partner and global head of fashion and luxury at Bain & Co., a Boston-headquartered management consulting firm.

Russian luxury customers account for approximately 2%-3%, or about €7 billion (AU$10.28 million) of the total global luxury goods market, she says.

The war will also likely damp consumer confidence in European countries and North America because of increases in energy prices, stock market volatility, the interruption to tourism, and other economic uncertainties, says Federica Levato, a partner at Bain and leader of its luxury practice in Europe, the Middle East and Africa.

“Upon persistence of the crisis, financial stability could be also affected, particularly generating higher stock market volatility. American consumer confidence could potentially decline and eventually also their luxury spending,” she says.

Since Russia’s invasion, more than 19,000 have been killed, 10 million people have been displaced, and more than AU$119 billion in property has been damaged.

Near-term, the luxury brands have taken an economic hit from their decision to close stores in Russia.

In early March, LVMH temporarily closed its 124 stores in Russia. Other fashion houses—including France’s Kering, Chanel, Hermes International, Swiss group Richemont,, and Italy’s Prada—all announced that they had suspended their operations in Russia through their social media accounts.

However, it is unlikely that the luxury brands will stop doing business in Russia, says Kate Newlin, a principal of New York-based Kate Newlin Consulting.

“When you think about luxury, you think of Russian oligarchs as a major segment of customer,” Newlin says. “It will be a larger bet for LVMH to walk away than, for example, McDonald’s.”

LVMH did not respond to a request for comment. The conglomerate, which owns brands such as Dior, Fendi, and Louis Vuitton, donated €5 million to the International Committee of the Red Cross to help those affected by the war in Ukraine in early March.

British fashion house Burberry declined to comment on the war’s impact on its business. On March 11, it donated to two more organizations, Save the Children, and UNICEF, in support of their Ukraine humanitarian appeals, following an earlier donation to the British Red Cross Ukraine Crisis Appeal.