Page 24 - bneMag Dec22

24 I Companies & Markets bne December 2022
Avtodom dealer, according to a statement released on the Russian Industry and Trade Ministry’s Telegram channel.
"Avtodom, the new owner of Mercedes-Benz’s Russian subsidiaries, will be able to attract other companies as partners to organise joint production on the basis of the facility in the Yesipovo industrial park," the statement said. After the deal is done, the new owner will be able to service the brand’s cars sold in Russia, Deputy Minister Albert Karimov said. This is also a return to the 90s, as originally all foreign cars were imported by dealers and it was only later that the manufacturers entered the market and worked directly with Russian consumers.
Truck producer Volvo Group has not decided whether it
will leave Russia and is in negotiations with the Industry
and Trade Ministry, a ministry spokesperson said when business daily Vedomosti reported that Volvo Group, which stopped producing trucks in Russia at the end of February, was considering selling the business fully or partially. "The company keeps in touch with the Industry and Trade Ministry but it is too early to speak of decisions," the official said.
Retail & CFA
Of all the FDI into Russia, retail is the most advanced. During the wild 90s of the Yeltsin-era Russia’s exports of oil and gas meant the ruble was overvalued as it suffered from a mild case of the Dutch disease.
That meant it was profitable to export to Russia and it skipped over the first phase of emerging markets FDI when manufacturers set up light manufacturing to capitalise on cheap wages. Russia has been running behind technologically ever since as a result. It was only recently that wages fell below those in China, where light manufacturing investment started to appear in earnest catering to the burgeoning consumer market that was growing thanks to e-commerce.
During the first decade of the Putin-era, the government increased public sector salaries by about 10% a year to close the income gap with the private sector, leading to a consumption- driven boom. Foreign retailers poured into this 140mn strong consumer market and made money hand over fist.
The most iconic retail investment was the opening of Swedish furniture flagship store in 2000 in the same month as Putin was elected president for the first time as the crown jewel in IKEA’s eastern European empire. And it is telling that while the network of 11 IKEA megastores has suspended trading, the company says it intends to re-enter the Russian market in two years and is not looking for a buyer for its Russian business.
Finding a buyer for foreign-owned Russian assets is one option, but in many cases the local management have simply taken over in an MBO and in these deals often the foreign owner includes a clause to buy back the assets in several years' time in case things improve.
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The US luxury luggage purveyor Samsonite sold its Russian business to the “suitcase king” CEO Andrey Yazykov, who started life as a trader, importing Samsonite luggage in the early 90s before going on to be the brand’s biggest distributor.
Samsonite will not leave the Russian market, as Yazykov will continue to import the luggage via parallel import schemes and his new company Chemodan Pro (“Suitcase Pro” in Russian) will offer the same guarantees and customer service that Samsonite used to offer its customers.
The story is similar with Russian clothes distributor Jamilco, which plans to buy the Russian business of British children's clothing and goods chain Mothercare, which is pulling out after decades of successful trading.
Turnover in the clothes, fashion and accessories (CFA)
sector has probably been the heaviest out of all the sectors. Multinational clothing firms are heavily invested in Russia, but they are also amongst the most sensitive to “reputational risk”, as a political boycott by sensitive consumers can be debilitating for their global sales.
Jamilco was founded by the son of a Damascus perfume trader that imported perfumes into Soviet Russia. His son went up-market and after making his first fortune importing Levi jeans in the first years following the Soviet Union’s collapse, he moved on to franchises of leading Western fashion brands including Christian Dior, Cerruti and Naf Naf, among others.
Mothercare is a household name, as Russians don't skimp when it comes to spending on their children and the brand has become a by-word in Russia for quality products. Like the suitcase king, Jamilco’s decision to buy out Mothercare is another opportunistic investment by a leading distributor of international goods on the Russian market.
According to local reports, the distributor is in talks with the Kuwaiti company Alshaya Group, which owns the master franchise brand Mothercare in Russia. According to one of the daily's interlocutors, as a part of the deal Jamilco will receive the lease rights for the stores of the Mothercare brand, as well as unsold goods, but the stores will be rebranded with a new name.
Spain's Inditex, the owner of the international fashion Zara brand, has reached an initial agreement to sell the Russian division to Daher Group, the company said in a statement at the end of October. "Inditex has reached an initial agreement to sell its business in the Russian Federation to Daher group," the company said. After fulfilment of the deal, Inditex will discontinue operations in Russia.
Russia’s leading multi-sector conglomerate, Sistema, announced it had agreed to buy 47.7% Melon Fashion Group in another opportunistic deal. According to the agreement, Sistema will buy the stake in the company from Swedish