Moscow Money
Rich Russians are spending as if there's no tomorrow--which many say there won't be
MOSCOW--This may not seem like a place where upscale shops would hold popular end-of-season sales. The average income in the city--by far the highest in Russia--is about $400 a month. Still, Muscovites lined up to buy a $300 pair of shoes for $150.
In fact, though, Moscow shops are always crowded. More than a dozen shopping centers have opened this year--large and small, in the center of town and on the outskirts, expensive and even more expensive. Every new mall generates instant crowds and traffic jams that are themselves spectacular. Muscovites are buying ever more costly cars, with the very rich rushing to trade their Mercedes-Benzes and BMWs for truly prestigious cars. The day after the first Bentley dealership opened in February, all the new Continental GTs that were earmarked for Moscow had been spoken for--though the cars will not arrive for months. Prices start at 200,000 euros, or about $234,000.
The last time consumption was this conspicuous in Moscow was five years ago, just before the country's economy came crashing down, turning successful professionals into well-dressed paupers overnight. For all the obvious differences--Russia is living through an era of political and economic stability very different from the volatile mid- and late 1990s--the way some Russians are throwing their money around and, more important, the way they feel about it seem strikingly similar to 1998.
Storm clouds. The expectation of disaster is once again in the air. "I sense a terrible tension about to turn into thunder," says Yegor Lavrov, a 22-year-old millionaire entrepreneur. "I don't know exactly what's going to happen, but it's going to be bad." Lavrov, who made his fortune on Internet-related projects and political PR, is a virtual poster boy for the new generation of Russian money. He runs an online community called ru_luxury: Members try to outdo one another in finding particularly expensive and rare objects and posting photographs and descriptions of them.
Lavrov and his 21-year-old wife both write Web logs that focus primarily on their acquisitions, their lifestyle, and their disdain for the poverty in which most Russians live. Lavrov has a $2.5 million custom-designed house outside Moscow, believes that a car should cost no less than $150,000--though a watch can be a little less expensive--and claims that Moscow is the world capital for what he calls "luxury entertainment."
"We are way ahead of Paris, London, and New York in terms of elite nightclubs," says Lavrov. "New clubs are opening up in Moscow at the rate of two a month, and they are all filled with people who pull up to the door in their $500,000 Maybachs with a [private] police escort driving Porsche SUVs with flashing lights. There are restaurants of every cuisine, every sort of design, and every price range, and luxury shopping is just fantastic."
Vasily Pogromov, a spokesman for Mercury, a company that represents most of the world's luxury retailers in Moscow, says his firm's revenues totaled $150 million last year and are expected to double this year. The company recently opened an outdoor mall in Moscow, turning a street a block away from Red Square into a showcase for Brioni suits, Armani Casa furniture, Graff jewelry, Tod's shoes, and other top-price items.
Mercury has plans to build another, similar mall in a prestigious suburb. The demand is there: According to Pogromov, new collections from Chanel, Dolce & Gabbana, Patek Philippe, and Rolex are regularly bought up before the items arrive in Moscow. The company's warehouses virtually never see returns.
So who buys all this stuff? Pogromov says you don't have to be super-rich to live the life of a luxury consumer. "We have customers who make $2,000 to $3,000 a month," he says. "They start with inexpensive items--a piece of jewelry for $1,500, a watch for $2,000, but then they come back in a year or two to buy something for five, six, or 10 thousand."
This does not seem to be wishful marketing: All indications are that Russians indeed spend more than they can afford. For instance, Maxim Bunin, a 31-year-old tech administrator, takes home a bit over $1,400 a month, which works out to $350 for each member of his family; his wife has no income. Statistically, his family is at the lower edge of what Russian economists consider to be the middle class, but Bunin's lifestyle tells a different story. He takes a taxi to and from work every day, spending $5 each way, and goes out to a meal, he says, "whenever I walk past an eatery and happen to be hungry." That occurs about once a week and costs him from $10 to $17.
In other words, Bunin spends more than a quarter of his take-home pay on restaurants and taxis. The reason, in his case, is not an excess of money but a lack of faith. "I do not consider myself to be well off," says Bunin. "I do not own an apartment, and I see no chance ever of buying one: We will never be able to save enough for a down payment. Plus, I never feel sure that I will still have a job tomorrow, so I can't imagine taking out a mortgage or any sort of loan. There is no point in saving up for the big things, which means we don't have to scrimp on the little things, like taxis."
Profits of doom. Economists cite two major reasons for Russia's apparent consumer boom. The catch-up theory holds that after about three post-crash years of uncertainty, when people tried to save, they are making all the purchases they put off. The excess-cash theory holds that people essentially have nowhere else to put the money coming into the country through the sale of oil and other exports. But another reason for Russia's buying spree may just be that lack of faith and expectation of disaster voiced by Lavrov and Bunin.
Despite the vast difference in their incomes, Bunin and Lavrov manage their money in essentially similar ways. "I do not invest, though I realize that it's stupid because I'm losing money," says Lavrov. "All investment opportunities in this country seem suspect to me. I don't think anything good will ever happen here. The entire economy is based on pumping the land dry of its natural resources. Outside of Moscow, the entire country is as poor as central Africa."
Studies confirm that this pessimistic view is widely held. A recent one by the Public Opinion Foundation shows that nearly half of Russians are making no plans for the future, and the majority believe they will never be rich. "Sure, the number of people who can afford to make major purchases has grown," says Natalya Bondarenko, an economics researcher at another pollster, the independent All-Russian Center for Public Opinion Research. "But for most people, the major accomplishment is just that they are fed. A troubling fact is that an ever increasing number of people are saying they expect the economy to get worse."
In addition, the center's studies show that despite improvement in their own situation, those who have less are growing ever more resentful of those who have more. "I am sure something bad is coming," says an investment professional in Moscow. "Objectively speaking, the market should be much better than it is: The drop in oil prices everyone feared hasn't happened, the economy is stable--but instead of being great, things are just good." In the short run, that means that instead of buying shares, this businesswoman, like many other potential investors, opts for buying things.
This story appears in the October 13, 2003 print edition of U.S. News & World Report.