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By
Reuters
Published
Oct 16, 2008
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INTERVIEW-Russian luxury market showing cracks-Mercury

By
Reuters
Published
Oct 16, 2008

PARIS (Reuters) - Russia, the fourth largest luxury goods market and one of the world's fastest growing, is being hit by the financial crisis, the managing director of the country's biggest luxury goods group, Mercury, told Reuters.

After months of resilience, Russian shoppers have finally started to rein in spending on pricey items such as fashion apparel, Alexander Reebok said in a rare telephone interview.

"We are dealing with relatively wealthy individuals who continue to buy luxury goods regardless of the crisis but still there is a little slowdown," Reebok said in perfect English.

Mercury, which started as a jewellery shop in Moscow 15 years ago, now generates more than 1 billion euros ($1.37 billion) in annual sales and is widely regarded as a gatekeeper for the entry of foreign luxury goods into Russia.

It sells a wide selection of the world's top luxury goods from Gucci and Prada handbags to Maserati and Bentley cars and Chopard jewellery.

But the group wants to be low-profile, and it does not have an elaborate website, just displaying a logo against a red background.

Mercury also owns the prestigious department store Tsum, Moscow's answer to Saks in New York, as well as the leafy Barvikha luxury village on the thoroughfare that leads to plush dachas belonging to multi-millionaires and politicians.

Reebok said business remained solid at Tsum but trading had started slowing down and had even begun to decline at some stand-alone shops that are not part of malls.

He declined to give the names of brands affected.

This week, Tsum's extravagant food hall, usually abuzz with the Moscow elite, was empty. Mounds of black caviar and whole lobsters were left untouched in fridges.

"Freestanding shops have a bit of a slowdown," Reebok said.

"Usually we enjoy some growth versus the previous year. This year, there could be not much growth and even (some shops) come below that of previous years," he said referring to self-standing boutiques.

Reebok said the slowdown had become more noticeable in recent weeks. "The negative effect is coming up only now," he said.

Russia has been among the biggest casualties of the financial crisis, with stock market falls of 70 percent since May.

Much of Russia's luxury market is concentrated in Moscow, whose centre is crowded with sports utility vehicles and designer stores. It accounts for about 85 percent of sales.

Looking ahead, Reebok said Christmas this year would be tough to call. Sales could either hold up or slightly improve.

"We think it should not be worse than 2007 and perhaps even improve," he said about Christmas trading. He declined to give forecasts for 2009.

As Mercury is focused on its own home market, it does not benefit from the lavish spending of Russians abroad.

Analysts say Russians are now the world's top spenders in western Europe, ahead of the Japanese, Americans and Chinese.

ART HAS UPSIDE

But if the sales of certain luxury goods may be weakening in Russia, Russian investors' appetite for art shows no sign of abating.

This month, Mercury acquired control of the centuries-old auction house Phillips de Pury & Co that once held sales for Marie Antoinette and Napoleon and until two years ago belonged to French luxury goods group LVMH .

"I think there is a lot of potential (in the art market) ... particularly the contemporary art market," Reebok said.

He acknowledged the financial crisis had made art an even more attractive investment.

"You buy art because you appreciate it and because you know that the value of it will remain or grow," Reebok said.

Phillips was founded in London in 1796 by Harry Phillips, formerly senior clerk to James Christie.

It is now headquartered in the trendy New York Meatpacking district and specialises in contemporary art, design, jewellery and photography.

Phillips's arch-rivals Christie's and Sotheby's , which opened a Moscow branch last year, estimate they will raise around $1 billion in sales in London and New York before the New Year, betting prices will be jacked up partly by wealthy Russians.

(Additional reporting Amie Ferris-Rotman in Moscow; Editing by Paul Bolding)

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