C RISIS HITS R USSIAN F ASHION M ARKET HARD

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1 TEXTINATION NEWSLINE C RISIS HITS R USSIAN F ASHION M ARKET HARD SALES DECREASES / MIDDLE PRICE SEGMENTS AFFECTED MOST / ONLINE SALE OF CLOTHING GROWING Moscow (GTAI) - Sales of apparel and home furnishings will continue to decline in Lower real income leads to falling demand. Russian customers buy fewer clothes and are increasingly watching the price. Most sales shrink in the medium price segment. Fashion chains react on the declining market volume by closing stores and focus on profitable locations. In contrast, the online trade is growing In comparison to the year before Russia's clothing market shrank in 2015 year by 9% to a volume of Rubles 1.4 billion. Converted into USD the decline was even 43%. The discrepancy between the value in Rubles and in USD is due to the drastically fallen value of the Russian currency. For the textile and clothing industry, the Ruble devaluation means a fundamental change in the general framework: more expensive imports, lower personnel costs in Russia and rising export opportunities. Textination GmbH 1

2 Customers change from the middle to the lower price segment In addition, the real income of the Russian population declines and thus the purchasing power. Russian customers buy less clothing and watch more and more the price. Sales shrink at the most in the medium price segment. Many customers orientate themselves on low-price segments (mass market), which will increase in 2016 by 5 to10% to a share of 65 to 70%, the Fashion Consulting Group predicts. The proportion of the premium and luxury segment remains unchanged. An average Russian household has cut its spending on clothing and home textiles by 30 to 50%, experts estimate. Especially the suppliers of imported textiles and clothing got to feel this, their prices had to be increased most, what damaged the business of foreign brand suppliers. In 2015 the Russian imports of textiles and clothing fell by 25%. This tendency continues in Distribution networks in the stationary trade become thinned Because of the price pressure manufacturers and retailers in the fashion market shorten their staff, negotiate discounts for the shop rental, reduce the collections, simplify cuts and save on quality. While many Russian brands used to buy their materials in the EU and in Turkey, designers and producers now can only afford cheap synthetic fabrics from China. The advertising budgets were slashed in 2015 by 40 to 45%. Moreover clothing suppliers react by closing stores and concentrate on most profitable locations. Since 2014 more than eleven international brands have left the Russian market. These include Gerry Weber from the middle price segment, Laura Ashley, Chevignon and Seppälä; from the mass market segment Esprit, New Look, OVS, River Iceland and Wendys. Marks & Spencer closed 3% of its stores, Mango 7%, Gloria Jeans 12%. The largest drop in the number of stores are reported from the brands Vis-a-Vis (-65%), Motivi (-40%), Savage (- 29%) and Incity (-17%). Maratex closed its franchise stores for clothing brands like Esprit, New Look, OVS and River Iceland 2015 in Russia. The Finnish Stockmann sold its seven department stores in Russia for EUR 5 million to Reviva Holdings Ltd. (owner of the franchise store chain Debenhams) and gave up the business of its brands Lindex and Seppälä. Petra Bork / pixelio.de H.D. Volz / pixelio.de derprojektor pixelio.de Textination GmbH 2

3 Adidas has closed of its 1,100 shops in Russia, planned are 200. The German sportswear manufacturer acquired 2015 the central warehouse Chekhov-2 with an area of 120,000 square meters in the Moscow region. The purchase price is supposed at a total between USD 70 and 100 million. The Finnish Kesko informed in February 2016 that it wants to sell the Russian Intersport chain because of poor financial results. The retail chain Modny continent (brands: Incity, Deseo) reduced the number of its stores by 35. At the end of the first quarter of 2016 they still owned 301 stores. The Melon Fashion Group disposed in unprofitable stores, for this they opened 37 new ones. Melon owned December 31 st 604 stores throughout Russia (befree 234, Zarina 203, Love Republic 167), of which 134 are franchise stores (befree 56, Zarina 44, Love Republic 34). A new concept of the stores - larger retail space and more modern design should help against the crisis. The Spanish designer brand Desigual closed its Russian stores end of September 2015, but they remain on the market in multibrand stores. A similar course is followed by other brands. Tim Caspary/ pixelio.de Textination GmbH 3

4 Eleven fashion brands enter the Russian market in the first half year of A small gleam of hope: Eleven fashion brands announced to enter the Russian market in the first half year of This happened already at the end of 2015 with budget brands like Cortefiel, Superdry and Violetta by Mango. H & M, Monki, Uniqlo and Forever 21 want to continue to expand in Russia. Already in 2015 the number of H & M stores grew in Russia by 35% to 96 stores. On April 28 th 2016 the menswear house Henderson opened a new salon in the shopping center "Zelenopark" in Zelenograd near Moscow. With this Henderson (brands: Henderson, Hayas) is now represented in 164 major shopping centers in 56 Russian cities. Hugo Boss inaugurated on April 8 th 2016 a new shop in the Outlet Village Pulkovo. The vertically integrated chain Gloria Jeans has changed it s headquarter at the beginning of 2016 from Rostov-on-Don to Moscow and rented there 3,500 square meters in the Arma plant. Until the end of 2016 Gloria Jeans plans to extend on 5,000 square meters and further to 10,000 square meters until The capital should serve as a gateway to the world market: Gloria Jeans plans to open an office in Hong Kong The company has eight regional offices and two large logistics complexes in Novosibirsk and Novoshakhtinsk. International brands, planning to enter the Russian market in first half of 2016 No Brand Country Profile Shopping Center Proce segment Harry Hautumm / pixelio.de 1 Demurya France/Russia Clothing Smolenskij Passash 2 John Varvatos USA Clothing Crocus City Mall 3 IL Gufo Italy Clothing for children ZUM 4 Barbour United Kingdom Clothing GUM oberes 5 Armani Exchange Italy Clothing Mega, Aviapark 6 Veta Estonia Clothing Street retail, Kamenoostrowskij 7 Love Stories Netherlands Lingery Shopping Center "Modny Seson" 8 Victorias Secret Pink USA Lingery, Clothing Evropejskij Textination GmbH 4

5 9 Hunkemöller Germany Lingery Mega 10 Undiz France Lingery Mega unteres 11 Aigle France Clothing, shoes Street retail, Olimpijskij pr-t Source: Retail.ru Online sale with clothing is growing Chinese suppliers are expanding In contrast to the declining sales in the stationary apparel trade, the demand in outlets and on the Internet is rising. The number of visits and the average amount of receipts at the Fashion House Outlet Centre Moscow has risen by two times since July 2013, director Brendon O'Reily reports. The Fashion House Group offers online shopping since The association of Internet trading companies ( estimates that sales on the Internet in 2015 were Rubles 760 billion (+ 7%). The share of clothing and footwear was 35 %. Already in 2014 the online trade had grown by a third. Online stores are operated by KupiVIP, Lamoda and Finn Flare. Alone at KupiVIP the number of orders increased by 45% to a volume of Rubles 16.5 billion in Manufacturers and distributors therefor boost the online trade. The government wants to promote the export of Russian goods and is planning a large Internet trading platform. Models are Alibaba (China) and JD.com. However Russian customers are buying increasingly from Asian webshops. Only in 2014 the popularity of online orders in China increased threefold. Contact addresses: Fashion Consulting Group (Consulting, Marketing, PR) Moskau, Maly Gnezdnikowskij pereulok 4 Tel.: / , info@fashionconsulting.ru, Internet: Russian Buyers Union Moskau, ul. Prechistenka 40/2, Gebäude 3, Büro 110 Tel.: / info@buyersunion.ru, relations@buyersunion.ru Internet: do_2025_goda Source: Ullrich Umann und Edda Wolf, Germany Trade & Invest Translation: Textination-Team Textination GmbH 5