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Russia: Consumers Clamor To Buy Luxury Goods

The newly opened Ralph Lauren store in Moscow (ITAR-TASS) MOSCOW, June 1, 2007 (RFE/RL) -- Halfway down the Rublyovo-Uspenskoye Shosse, where the high-rise housing blocks give way to wooden dachas and pine trees, a sign directs motorists to the village of Barvikha.

Five years ago, Barvikha was just another sprawling dacha settlement surrounded by forest beyond Moscow's city limits.

But today it is home to the Barvikha Luxury Village, where the biggest names in luxury, including Lamborghini, Ferrari, Tiffany, Prada, and Giorgio Armani, have set up shop.

Russia's luxury-goods industry is booming: Russian consumers are now the world's fourth-biggest spenders on high-end goods, behind the United States, Japan, and China. Though the minimum wage remains one of the lowest in the developed world, rich Russians are spending like never before.

New Russians

At the Barvikha village, a woman and her daughter with matching tans and handbags are wandering around the newly opened Ralph Lauren store.

The complex caters to residents of the surrounding countryside, which is home to politicians, including President Vladimir Putin, and members of Russia's business elite.

Alla Verber is the vice president of Mercury, the Russian company that runs the complex and has gone into partnership with many luxury brands now operating in Russia.

"There are a lot of people now, educated, that have management jobs, they have money, they have security, they know that they will always work and make this money and they like to have beautiful things and to buy them," Verber says. "Because their parents and grandparents, when they grew up, couldn't have this."

"In Russia, there was nothing for a long time, and then all of a sudden you get this money and you have to enjoy it."

The trend for luxury-buying in Russia highlights the widening gap between rich and poor. While luxury goods makers are clamoring to woo the sort of Russians who fly to London or New York for the weekend, wages for most Russians remain meager: the average salary stands at just $5,000 per year.

But for the few who can afford expensive cars and designer clothes, it seems the sky is the limit. Kim Iskyan, the co-head of research at URALSIB Capital investment company, says Russians that have money want to spend it.

"You can certainly make the argument that over the past 15 years, there have been however many currency crises -- and over the lifetimes of many millions of people there have been more. So things are good now, but who knows how long they'll be good. So there might be still a certain mentality of get while the getting's good, before everything goes down the drain again," Iskyan says.

Millionaire Fair

One of the biggest showcases for luxury goods is the Millionaire Fair, now in its third year in Moscow. Two years ago, the exhibition attracted 21,000 visitors and 120 exhibitors. Last year, 38,000 people went to look at helicopters, jewel-encrusted pencils and a dress made of dollar bills. The number of exhibitors last year grew by 50 percent.

The Millionaire Fair in Moscow (TASS)

Elena Kudozova, the managing director of the fair, says the goods being offered are more and more diverse.

"Last Millionaire Fair they presented baby bottles made out of gold. [laughs] This is outrageous -- well, for me, it's completely outrageous. But you know, they were quite in demand, although none of us could imagine this thing existing a couple of years ago," Kudozova says.

And the demand for luxury is continuing to grow. Analysts predict the Russian luxury market will grow by at least 15 percent over the next five years. Until now, the market has been confined to the Russian capital. But stores selling designer clothes and jewellery are now opening in other cities.

In Sochi, a resort town on the Black Sea, where Soviet apparatchiks once spent their summer holidays in Stalin-era sanatoria, a boutique selling clothes and accessories by Christian Dior and Dolce & Gabbana recently opened.

Elena Kudozova says that Russians just want the best. "Almost always the best stuff is the most expensive. In Russia, there was nothing for a long time, and then all of a sudden you get this money and you have to enjoy it. You know, everybody remembers still how it feels to be quite poor," Kudozova says.

And as long as high oil prices continue to fuel Russia's economic boom, the rich will get richer and their appetite for luxury will continue to grow.

RFE/RL Russia Report

RFE/RL Russia Report

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