November 2011

Dress for success: Cracking Russia’s apparel market

By Alex Sukharevsky and Karl-Hendrik Magnus

Russians love clothes.

While consumers naturally slowed down their shopping during the economic downturn, by the end of this year, the Russian apparel market is likely to be back to its 2008 peak of $50 billion. Already, Russians spend more of their income (3.1%) on apparel than those in any other country surveyed by Eurostat, including Poland, Hungary, China, Germany and the US.

Moreover, Russia’s apparel market is on track to grow a neat but not gaudy 8% a year through 2015, slightly ahead of income growth (7%). The market for men’s and children’s clothing should grow even faster. And the sense of aspiration is strong: Almost half of consumers say that they want to see premium brands when they shop, even if they can’t buy them.

At the same time, though, Russian retail is seriously limited. According to a McKinsey analysis, apparel makes up only 3,500 square meters of retail space per 100,000 Russians, just 10% of the figure in the US. (Even Brazil, which has a lower per capita income than Russia, has twice the square footage.) The relatively miniscule amount of selling space hints at major growth potential as the economy evolves.It also explains why investment continued at a good clip even as the global economy soured: New players, such as Uniqlo in 2010 and Gap in 2009, entered the market, and large retailers—both foreign and Russian— expanded. In 2010, the largest Russian retailer had 560 stores, up from 133 from 2009. The largest foreign player had 153 stores, a 14-store increase over 2009. Of the 20 largest apparel retailers, only three cut their investment in 2009-2010 and most increased by double digits.

Foreign brands remain focused on larger cities in Russia’s central region, which includes Moscow and accounts for about half the country’s GDP and a third of retail trade. Russian players, though, are more adventurous, spreading out across the country.

And there is more variety, too.

To get the explanations of these points, and to see the exhibits, download the full report.