In targeted Russian economy, businesses struggle to operate without Western products
RIGA, Latvia — It didn’t take long for Russian businessman Kirill Kukkoyev to feel held hostage to events unfolding in neighboring Ukraine. That moment came eight days after the Russian invasion when Swedish furniture giant Ikea announced it would cease business operations in Russia the next day.
Kukkoyev had built an entire high-end apartment renovation company in St. Petersburg with Ikea installations. He spent that last day sweating and trying to place all his orders, last pressing the checkout button at two minutes to midnight, he recalls.
Then he applied for registration of the Idea brand, copying the logo of the Ikea brand.
Kukkoyev’s struggles are one man’s woes in a sea of turmoil as Russia faces not only international sanctions, but also the impact of Western companies fleeing the country. Thousands of small and medium-sized businesses – including restaurants, bars, beauty salons, consulting firms, transport, logistics and other companies – face similar problems.
As real wages fall, consumption plummets, inflation escalates, and supply chain issues stifle the economy, the crisis is devastating private businesses.
“[My clients and I] are now like hostages of this situation. I believe Ikea treated people like cattle,” said Kukkoyev, owner of Luksort-Service. “I think it was very inhumane. Now so many people, thousands and thousands of people, are in a very difficult situation.”
Until last month, he was Ikea’s biggest fan. He said he admired the company’s business approach and liked its user-friendly manuals, which he relied heavily on.
“I’m not angry with the West. The only thing that made me really upset and angry was Ikea, because I really love this job,” he said.
Russians face a host of economic problems, from a shortage of paper – that’s what you bring to many clinics to print out diagnostic reports – to a lack of Western medicines, spare parts and microchips. computers.
Last week, commodity prices in Russia soared 14% in a single week, according to the Federal Statistical Service. Panic buying of sugar erupted as its price rose more than 37%, triggering an official anti-monopoly investigation.
An analysis by the Vneshekonom Bank Institute published on March 22 predicted that real wages would fall by 12% this year, unemployment would hit 6.2% and inflation would hit 19.3% by the end of the year.
Independent economist Vladislav Inozemtsev has warned that in a few months manufacturers will run out of affordable stocks of key components. “The most acute problem will be all western products and spare parts and everything Russia uses in the production chain, because some Russian products will disappear completely if they cannot find the necessary substitutes, for example computer chips” , said Inozemtsev, director. from the Center for Research on Post-Industrial Societies.
He said the quality of many products will decline even if their prices increase. “Everyone has heard of the paper problems, with a supply disruption for two or three weeks. Then it reappeared in stores, but the price was 212 times higher and it was not so white,” he said.
But Sergei Guriev, an economist at the Paris Institute of Political Studies, said that as long as Russia can keep selling all the oil it wants at over $100 a barrel, it can finance the things that matter. more for President Vladimir Putin: the war effort, the propaganda to support him, and the security services to suppress dissent.
“Putin doesn’t care about economic growth. He wants to survive,” Guriev said. Putin’s concern is mainly with the people around him, as some of them are unhappy to see their businesses hurt and the military campaign in trouble. “So it will not provide income to [the public] but instead he will deliver repression. In that sense, what matters to him is having enough oil money to pay the police, propagandists and soldiers, as well as his friends,” Guriev said.
For Kukkoyev, the problems were cascading like dominoes. His beloved Ikea panels and accessories were gone. He substituted Russian tiles for the Italian tiles prized by his wealthiest clients.
“Our clients had a certain image in mind of their apartment. Now the picture is different,” he said. In his 74 current projects, he said, customers will pay “three, four and even five times as much”, with substandard tiles, fixtures and panels.
Since the end of February, its richest customers have also disappeared. A wealthy client, who works in logistics, canceled a renovation project “because his business was collapsing,” Kukkoyev said. Another canceled because the sanctions had hurt his business. A third broke off contact because he could no longer afford expensive accommodations.
Kukkoyev turned around and sued Ikea, seeking damages of four quadrillion rubles – nearly $12 trillion – in addition to suing the Idea brand.
An Ikea spokeswoman named Maddie, who only provided her first name, said the company was considering taking action itself. She said Inter Ikea Systems BV, the owner of Ikea’s intellectual property rights, including trademarks, was aware of Kukkoyev’s trademark application and was reviewing the matter “to explore potential steps for action.”
While Putin’s government can dampen the discontent of its loyalists, for example by indexing pensions to inflation and supporting state-owned enterprises, it is people like Kukkoyev’s clients who will be most affected by the economic difficulties: “People from urban centers who have been accustomed to Western standards for all these years,” Inozemtsev said.
“It will hurt the upper middle class because these people consume most of these high-tech products that require high-tech components. Good computers will be in short supply, as well as mobile phones,” he said.
The sectors that appear to be hardest hit are advertising, travel, hospitality, fashion, luxury goods and services.
Restaurant owners cannot stock up on fish, vegetables, pasta, salads, sauces and other essentials, Sergei Mironov, deputy chairman of the Federation of Restaurant and Hotel Owners, told the pro-Kremlin newspaper Izvestia on Monday.
A Moscow cocktail bar owner, who spoke on condition of anonymity for fear of reprisals, said the business he started just over a year ago would likely only survive three six months after major alcohol importers stopped shipping goods to Russia.
Large non-state manufacturers, such as Russian automakers, which rely on imported high-tech electronics and chips, are also struggling.
Sofia, 43, owner of a beauty salon, was about to open a new one when war broke out. She abandoned her plan as her business faded and her income plummeted. Even his few remaining loyal customers are cutting costs.
“For example, they will just have a haircut, no coloring. Or a manicure without nail polish,” Sofia said. She spoke out on the condition that her last name not be published for fear of repercussions. from the Russian authorities.
“People are depressed. They are worried. Usually, clients come to my studio in a good mood, but it’s not like that anymore. People worry about prices. They try to save on everything because they don’t know what will happen in the future,” she said.
Her business was also hit by the government’s ban on Facebook and Instagram, which were the two main ways she promoted her business.
Sofia said her customers are used to using Western products because of their quality. Now she said, “I don’t know what I’m going to use.
With Putin not backing down from his confrontation with Ukraine, sanctions against Russia could remain in place for years, Guriev said. “It will be much richer than North Korea and Iran, but it will be economically isolated and it will not develop. Incomes will be significantly lower than last year’s levels, so it will be in a kind of poverty.
He predicted that the increasingly repressive government, coupled with economic misery, will make Russia an unpleasant place to stay. “A lot of educated young people will leave, just because there is no future,” he said. “There is no way to do business, no way to become a starter, no way to become a successful professional.”
Sofia said she hopes her beauty salon somehow survives.
“It’s as if we’ve gone back hundreds of years. We had plans. We tried to be creative to meet our customers’ demands, and now it’s all gone. I don’t see anything good in the near future,” she said.
Kukkoyev’s big idea, directly copied from Ikea, is to sell decent and affordable furniture, only made in Russia.
But if he takes off, he probably won’t fit the company he once loved. Furniture – like Russian paper – is likely to be expensive and of lower quality.
Mary Ilyushina of The Washington Post contributed to this report.
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