When Russia invaded Ukraine almost three years ago, sparking a storm of global outrage, most major foreign apparel brands withdrew from the Russian market.
That opened up a big opportunity for Russians like fashion designer Ksenia Knyazeva.
She had been toiling in the shadows of the big labels for a decade, and the West’s implementation of economic punishments upon Russia didn’t make things any easier. But Ms. Knyazeva, who designs her own line of women’s wear, has scrambled through the international maze created by sanctions in order to source materials; made deals with garment factories in Russia, China, and Turkey; and found innovative ways to promote her name to customers.
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Western sanctions were meant to crush Russia’s economy. But in at least some sectors, Russian entrepreneurs have been able to unleash new creativity and fill the gaps left behind by departing Western brands.
The past three years have seen unprecedented success for Ms. Knyazeva’s business, as Russian women turn to entrepreneurs like her to dress them in the style they’d become accustomed to. She’s opened up four retail outlets in that time and will soon be moving her company headquarters into an upscale Moscow office space.
It may seem counterintuitive. But the still-escalating blizzard of sanctions leveled against Russia in the wake of its invasion of Ukraine and the mostly effective responses of Russian policymakers and private entrepreneurs have not only failed to punish Russia but actually stimulated some sectors of its economy in ways that will probably endure long after the Ukraine war has ended.
The first thing Ms. Knyazeva tells a journalist visiting one of her Moscow shops is that she’s grateful to those Western companies, which moved into the Russian market in the 1990s, for bringing ideas and expertise that transformed the old Soviet culture of fashion indifference, inculcated modern business methods, set standards of quality, and educated Russian consumers.
“I didn’t wish for this situation, but I’m a Russian who feels patriotic,” she says. “When all those foreign firms departed, it opened up niches that previously seemed unreachable to us. Russian customers were looking for equivalent goods to the ones no longer available, and our task was to provide them.”
Western sanctions vs. Russian creativity
Ms. Knayzeva is a small player among the many Russian companies that rushed into the vacuum left behind by retailers like H&M, Adidas, and Chanel. But her success is emblematic of a wider process that, through shock and adaptation, transformed Russia’s already developed consumer economy from one dominated by international brands to a largely Russified one.
Wealthy Russians are still able to obtain high-fashion clothes, jewelry, and other luxury goods, albeit at much higher prices. But for customers on a budget, the disappearance of most Western brands they’d grown accustomed to seemed to threaten a return to the era of shortages and mediocre products that still lives in the memories of Russians over 40 years old. Russian government policies stabilized the economy, and entrepreneurs like Ms. Knyazeva stepped into the breach.
For most types of relatively low-tech consumer goods, Russian businesses have proved surprisingly adept at developing alternatives, rerouting their supply chains, and providing copycat products of similar quality, though often at higher prices. Over three years of war, that has occurred in most sectors, including cosmetics and toiletries, foodstuffs, furniture, home appliances, and software. Even Russian laptop computers have reportedly captured 4% of the market, though imports from China still dominate.
Other economic sectors are struggling to replace Western imports on forbidden lists. The Russian government promotes import substitution in a variety of ways, including by subsidizing innovation centers that focus on developing replacements for critical technologies and components. One study found that Russian industry has succeeded in meeting only a quarter of its needs in this way, leaving it reliant on expensive and circuitous methods of “parallel import” to obtain needed tools and parts.
But the architects of Western sanctions appear to have greatly underestimated the power and creativity of Russian market forces to withstand and even benefit from the sudden withdrawal of foreign corporations, says Oleg Buklemishev, an economist with Moscow State University.
Russia has long since thrown off the shackles of Soviet central planning, its consumer economy has been developing on market principles for decades, and the Kremlin has been working, with some success, to sanctions-proof the macroeconomy since 2014, when conflict with the West began to look irreversible.
It’s hard to guess how deeply sanctions have impacted Russia’s military industry, which is their main intended target. That’s mainly due to wartime secrecy and disinformation. But Mr. Buklemishev says war production lies outside any normal economic rules. “If they need something for the military, they will find a way to obtain or produce it,” he says. “Cost is no object.”
But in sophisticated civilian industries such as the energy sector, automobiles, and aircraft – where commercial viability is a must – substituting vital Western imports and expertise has proved slow, and bottlenecks have formed that may last for years. Russia’s domestic car industry has struggled to produce components such as airbags and power brakes, leaving it stuck serving the low end of the lucrative Russian auto market. Chinese companies have taken over assembly plants vacated by Western automakers, and those more upscale cars are increasingly visible on Russian roads.
In many cases, Russian businesses have been temporarily boosted by the opportunity to acquire the assets of departing Western firms at fire-sale prices. That windfall may have been worth as much as $40 billion, leading some commentators to liken it to the mass sell-off of former Soviet state assets following the collapse of the USSR that created a class of instant billionaires.
“Look at me”
But no such bonanza befell Ms. Knyazeva or most of the new Russian fashion entrepreneurs.
“I studied Western haute couture and dreamed of making clothing on that level, available to the average Russian woman at affordable prices,” she says. “That’s what I’m still working to do.”
Ms. Knyazeva says the departure of Western firms has been accompanied by mood change on the part of Russian consumers, who formerly preferred foreign products, which they assumed to be superior.
“I have a half-million followers on my YouTube channel, and I’ve received many comments from people who say they are offended that all those companies just left us. Even if they returned tomorrow, people might not want their products,” she says.
The attitude shift, at least in the realm of fashion, is potentially seismic, agrees Aliona Doletskaya, former editor of Vogue Russia and a major fashion influencer in the country.
“Look at me,” she says. “I love wearing and mixing Russian designers with overseas fashion, especially those who provide excellent quality and style.”
