War in Ukraine: French luxury giants are in an awkward position due to "ambiguous" relations with Russia

French luxury giants LVMH and Kering are more dependent on the Russian market, and although Russia has invaded Ukraine, they are not in a hurry to withdraw from the Russian market, especially because LVMH boss Bernard Arnault has a special relationship with Russian President Vladimir Putin.

The French newspaper Le Monde reports that fashion companies operating in Russia are under increasing pressure. Since February 28, Paris Fashion Week has officially debuted, and some luxury giants have taken the opportunity to showcase their fall/winter 2022-2023 collections, however, calls to end all relations with Russia are increasingly loud.

Olga Chaika, manager of Tsum, a luxury department store based in Kiev, ukraine's capital, urged fashion brands to "wake up" and "stop business dealings" with Russia. On March 1, fashion industry media Vogue Business news website retweeted her appeal. The Tsum underground garage had been used in combat when the hospital was in use. On Instagram, a social network favored by fashion fans, hundreds of netizens are also calling on the most famous luxury brands, including Louis Vuitton and Dior, to "support Ukraine" and "stop selling their goods in Russia."

Not decisive enough

The reaction of major luxury brands has not been decisive enough. At least for now. In Milan, February 27 is the penultimate day of Italian Fashion Week, and only Giorgio Armani has made a statement. The 87-year-old Italian designer let his models walk the catwalk "in silence" "as a sign of respect for those caught up in the war in Ukraine." On March 1, at Paris Fashion Week, the first catwalks, organized by LVMH subsidiary Dior and Kering subsidiary Saint-Laurent, were also held in calm. However, the brands also do not mention the war in Ukraine.

A woman walks through a discount season advertisement on the streets of Paris, France, on Jan. 12. (Source: Xinhua News Agency)

On the first day of Paris Fashion Week, Ralph Toledano, president of the French Haute Couture and Fashion Federation, representing luxury giants, called out to the fashion industry to encourage it to "be serious when organizing the catwalk at a time when the war has plunged the Ukrainian people into fear and pain". According to information obtained by Le Monde, the federation drafted the six-line press release in close consultation with the top brass of LVMH, Kering, Hermès and Chanel, and the word Russia was not included in the final text.

Because, since the Russian tanks entered Ukraine, the big names in the luxury world have fallen into an embarrassing situation. They were initially worried about the EU's tightening of economic sanctions on Russia, and although the luxury industry was not covered in the final EU sanctions package, all luxury brands have tried to openly downplay their ties with Russia since then, but have not said "give up" lightly. 20 years ago, like China, Brazil and India, Russia became a "gold rush" for luxury brands. However, from the data point of view, it is already "the scenery is not there".

The luxury giants do not realize much revenue in Russia

According to the Global Wealth Report written by Crédit Suisse, in 2020 the Russian state has 269,000 million millionaires. LVMH claims that of its total sales of 64.1 billion euros, sales achieved in Russia account for "less than 2 percent.". In Russia, LVMH has 120 stores and employs 3,500 people (150,000 in total). The Pinault-owned Kering Group estimates that sales in Russia are only 1% of its total, a minuscule proportion compared to the €17.6 billion achieved globally in 2021.

In this way, these luxury giants do not realize much revenue in Russia, so why not withdraw from the market? Moreover, Dutch energy giants Shell, BP and U.S. Apple have "abandoned" their operations in Russia. Why do LVMH and Kering still have subsidiaries in Russia? To find out why, Le Monde contacted Kering, LVMH, Hermès and Chanel, as well as L'Oréal, the world's largest cosmetics giant, but none of them got an answer. It should be noted that L'Oréal also has a factory in Russia.

Fear of offending the elite

All of these businesses have shown great caution with this issue. Apparently for economic reasons. Because, despite the lack of "eye-catching" sales figures in Russia, these luxury giants "still rely heavily on Russia," a fashion expert noted. "Some Russian oligarchs" have made a fortune in luxury boutiques in Paris, Courchevel and the Côte d'Azur, Dubai and Doha, buying bags, perfumes and clothing. According to one person familiar with the industry, in the eyes of luxury giants, leaving Russia could offend the elites, which in turn could affect their medium-term operating income.

For LVMH, the world's largest luxury giant, a break in relations with Russia is unimaginable. In particular, its founder and CEO, Arnaud, has a very special relationship with Russian President Vladimir Vladimir Putin. The French billionaire was hosted at the Kremlin on November 24, 2016. It came a month after Putin canceled his visit to Paris after a "contest" with then-French President François Hollande. Hollande, the owner of the Elysee Palace at the time, agreed to receive Putin in Paris, but only if their meeting was a "working meeting focused on Syria." Under the plan to visit Paris, Putin will preside over the inauguration of the Orthodox Holy Trinity Cathedral and attend the opening of an exhibition of the collection of Russian businessman Sergei Chtchoukine at the Fondation Vuitton in Paris.

Arnault "heart" Moscow

However, the visit ultimately failed. That's okay, though. A month after Putin canceled his visit, Arnault came to Moscow to visit Putin. According to the Russian news agency Ria Novosti, Putin told him, "I want to thank you for organizing this exhibition in Paris." Arnault then told Putin that he planned to exhibit at the Wieden Foundation 200 paintings collected by the Morozov brothers, which were nationalized during the Russian Revolution. Thanks to this meeting, the exhibition was finally able to take place in Paris.

After that, Arnault and his family came to Moscow again. On 22 March 2017, Arnault, together with his wife, Hélène Mercier, a professional pianist, and one of his sons, Frédéric Arnault, collaborated with the Orchestre philharmonique de Moscou at the Maison internationale de la musique) held concerts to play Mozart's repertoire for the 2,000 people present.

In this way, it seems unlikely that the LVMH group, which is run by Arno, will openly express opposition to Putin's invasion of Ukraine. Will Kering's "shot" force it to react somewhat? On March 2, Kering, a rival to LVMH, announced that it would make a "large donation" to the United Nations High Commissioner for Refugees (UNHCR) to rescue Ukrainians. A few hours later, LVMH announced in a press release that it had made "the first batch of 5 million euros of emergency donations" to the Comitéinternational de la Croix-Rouge to rescue "the victims directly and indirectly caused by this conflict", which the press release made clear. However, the word Russia was not mentioned in the press release.

(Editor: Wen Geng)