Russian luxury: How Milan pricing and Chinese shopping strategy are driving sales at TsUM

By

Daliya Galieva

Published
Nov 15, 2017

This year, TsUM's neo-Gothic building fêtes its 110th anniversary, a milestone marked with a plethora of collaborations and several events. TsUM has been run by Russian group Mercury since 2002 and, in fifteen years, the 70,000 m2 megastore has undergone a profound make-over, both from an aesthetic and a strategic point of view. Alla Verber, Vice-President of Mercury and Fashion Director at TsUM, has been the driving force behind this transformation. Talking to FashionNetwork, she retraced the evolution of Moscow's mythical department store.

FashionNetwork.com: Yours is an extraordinary journey. After spending many years in the West, you returned to the harsh reality of Russia in the 1990s, where you successfully opened several stores for luxury labels. How did it all begin?

Alla Verber: I was born in Leningrad, as St Petersburg was known in the Soviet era, a city which embedded in me a love for history, art and fashion. In 1976, when I was 18, I left my magnificent yet sombre home city and went to Rome, which shaped my outlook on how a woman should be. I then went to study in Montréal, then moved to New York but, even as a student, I always travelled the world. When I joined TsUM 15 years ago, I knew that this austere, monumental department store could be on par with the world's top department stores.

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FNW: Which labels and which kind of style do Russian women prefer?

AV: Nowadays, the world's most directional label is Balenciaga, and it's the case in Russia too. Other favourites are Yves Saint Laurent, Céline, Dolce & Gabbana, Alexander McQueen, Givenchy, Chloé and Stella McCartney. If we're talking a more classic style, then it's Valentino. We sell a lot of Loro Piana, because cashmere is very suitable to the climactic conditions in Russia. We're also seeing positive performances by Vetements, Calvin Klein and Balmain. As for style, Russian women want to be always beautiful. They may not wear 6-inch heels for breakfast, but they are well decked out from the morning.

FNW: How did you manage to establish your revolutionary policy of setting 'Milan prices', aligning TsUM prices with those found in European capitals?

AV: There came a time when a change was needed, because selling at much higher prices than the rest of Europe had become difficult. People had started to economize (editor's note: Russia was hit by a recession in 2014, due to the slump in oil prices and the sanctions imposed by the West following the political and military crisis in the Ukraine). We went and talked to each of our partners, explaining to them why, here in Moscow, it was not appropriate to sell the same products at a 30% mark-up. For the first season, we started with handbags. We made sure that all accessories were sold at the same prices found in Milan, Paris or London. Initially, margins were lower, but revenue leaped and, crucially, we were able to attract many new customers. Now, it is no longer advantageous [for Muscovites] to go shopping elsewhere in Europe, because here they find the same prices, range and service.  

FNW : Did you reduce the margin?

AV : Yes. The retail price is international, the same worldwide. But for us, since we have the taxes and additional charges, the delivery fees, the prices in Russia were higher. We persuaded our partners that there was no choice if they wanted to sell in Russia. That was mainly the case for our exclusive parnters. We were obliged to reduce the margin. The gains at the beginning decreased, but revenue climbed and most importantly, we were able to attract many new customers.

FNW: What did TsUM do to attract customers from China?

AV: We are part of the 'China Friendly' programme: we label our products in Chinese too, and our sales team speaks Chinese. We also accept the China Union Pay payment system, and we advertised heavily in the country. In the last few seasons, the Chinese clientèle grew by 10% at TsUM and by 20% at DLT in St Petersburg.  Above all, a tax-free shopping system will be introduced in Russia, and our stores are part of the pilot project.

FNW : What is the growth of the Chinese customer base?

AV : Over the last seasons, it's been 10% at TSuM and 20% at DLT in Saint Petersburg. It's our largest foreign consumer group - they are 8% of our customers worldwide.