BY OLIVIA SPAULDING

Diamonds are Democracies' Best Friend: Russia’s Elites Pay as Luxury Sanctions are Imposed

04.12.22

Diamonds are Democracies' Best Friend: Russia’s Elites Pay as Luxury Sanctions are Imposed

On February 24, the military invasion of Ukraine by Russia incited terror within the political world and uncertainty in economies worldwide. The full-scale attack has already taken its toll, leaving 1,232 civilians dead and 6.7 Ukrainians displaced. Spoken about as the greatest threat to security since World War II, Putin's invasion of Ukraine has shaken the world, leaving civilians, investors, and politicians alike in fear of what the future holds. The democratic world has rallied in strength for Ukraine, primarily in the form of unprecedented sanctions from the United States and the European Union.
Stating Putin’s actions are “a flagrant violation of international law,” President Biden imposed the first round of economic sanctions, targeting Russian elites and federally owned banks. These sanctions put a strain on Russia’s financial power, limit fossil fuel revenue, and restrict technological advancements. Many countries have followed suit, with the European Union increasing its existing sanctions and targeting 15 key Russian elites and 9 entities. Although the country has historically taken a neutral stance in global conflict, Switzerland has also adopted the European Union’s restrictions. These actions are working as anticipated, as members of Putin’s inner circle are beginning to break ranks and make public calls for an end to Putin's military invasion of Ukraine.
Most recently, the E.U. and U.S. have added luxury goods to the fourth round of sanctions against the Kremlin, aiming to continue a successful economic attack on Russia's aristocracy. When explaining the goal behind these economic sanctions, European Commission President Ursula Von der Leyen states: “those who sustain Putin’s war machine should no longer be able to enjoy their lavish lifestyle while bombs fall on innocent people in Ukraine.”
The ban on exports defines a luxury good as anything exceeding the cost of 300 euros, including handbags, leather and fur apparel, overcoats, suits, shoes, shirts, pearls, diamonds, gold, and other stones. This effectively prohibits Russia's most wealthy from maintaining their luxury lifestyles, effectively turning them against Putin. Prior to this historic move, the United States had only included North Korea in its prohibition of luxury trade. Following this regulation, designer products such as handbags and designer jewelry experienced a run, as Russian citizens braced for a decreased supply of tangible assets while banks and financial institutions around the country faced turmoil. Designer manufacturers and retailers have shut their doors and left an already unstable domestic fashion industry in shambles.

Moët Hennessy Louis Vuitton SE, commonly referred to as Louis Vuitton or LVMH, is a high-end conglomerate that owns 75 brands including Christian Dior, Fendi, Givenchy, and Marc Jacobs. This prominent group told Reuters that it will be temporarily closing all 124 of their stores in Russia. Prominent fashion house Chanel has vowed to do the same, followed by a LinkedIn statement from Hermès denouncing military action and suspending activity in Russia.
These sanctions aim to hit this market where it hurts, as Russia has long been dependent on foreign manufacturers for production. While many European countries garner strong textile production, Russia outsources fabric and materials from China and Italy. There is a lack of investment in raw materials and a lack of confidence from consumers, stemming from inflation. While many were hopeful when Russia’s luxury goods market exceeded pre-pandemic numbers at $6.77 billion, the market faces a grim future ahead, as a decrease of 2.7% in revenue was predicted prior to the current political crisis. It is unclear what impact the exit of foreign luxury will have on the Russian economy and the fashion industry as a whole, but the Russian elites and the world hold their breath as the influence of these sanctions progress.

STOCK UPDATES:


LVMH (OTCMKTS: LVMUY)
Share price: 136.35 USD
Market cap: 340.75B USD

Background: Moët Hennessy Louis Vuitton (LVMH), commonly referred to as Louis Vuitton, is a French corporation specializing in luxury goods and headquartered in Paris. The conglomerate covers over 6 luxury sectors and is home to 75 distinguished brands.

Current News: Given circumstances in Russia, LVMH has opted to temporarily close 120+ stores located in Russia. This French brand joins the joint mission of the other Western corporations pausing Russian expansion as conflict with Ukraine continues. However, the company intends to continue to pay its 3500+ employees within the country their respective salaries and benefits.