Ukraine Luxury Goods Market in Decline
- New Europe Investor
- November 25, 2014
With the economy in free fall and the hryvnia worth just over half of its value to the dollar compared to last year, devastation has hit the Ukraine luxury goods market.
The country saw a three phase boom in luxury goods market up until the crisis. First of all, the fall of communism saw the beginning of a Ukraine luxury goods market, however much of this made up of fake bags, watches and alcohol.
Then second phase is widely thought to have begun around 2003 when the economy started to mature from the chaos of early days of capitalism.
Luxury goods brands began to establish themselves and set up distribution networks in the country. Now the ultra wealthy of Ukraine did not have to leave to the country to shop for Gucci bags and Rolex watches.
There were four to five years of annual growth exceeding 60% in the sector until the economic crisis hit in 2008.
At this point the market stagnated but still maintained a healthy demand.
The current crisis the Ukraine puts the stagnation of the global economic crisis into perspective. Now, demand has fallen dramatically.
The Alcohol Effect
All of this can be perfectly observed in the $1.5 billion dollar Ukrainian alcohol market.
With almost all luxury brands required to be imported, prices have risen 50-80%, with some of the costs being absorbed by the manufacturer or distributor where possible.
As a result, alcohol imports have fallen 30% in the first 10 months of 2014 compared to the same point last year.
People have reacted by switching down brands. So either moving to less expensive imports, or from imported brands to locally produced brands.
This has led to a mini boom in many local brands with one vodka manufacturer making provisions to increase production by up to three times. Others are increasing their prices significantly to match the increase in demand.
The Ukrainian economy is expected to shrink by at least 8% in 2014.
This combined the its currency having the title as the global worst performer (Bloomberg), huge changes are already happening in the luxury market for imported cars, jewellry, clothing, bags and foreign holidays.
With the threat of all out war in the east of the country looming, there is little sign of any improvement.