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., LUXOR management, "Business Ukraine": Status symbols and economic realities.

Alexander Chetchikov is founder of Ukraines annual Luxury Lifestyle Awards, which will be held this autumn in Kyiv. As the domestic luxury goods industry picks itself up following two tough years of economic inactivity, he offers an overview of one of the sectors which benefitted most from the post-Orange Revolution economic boom of 2004-2008 only to be among the hardest hit by the subsequent crash.

How has the luxury segment developed over the past 20 years since independence?

I can identify two main stages in the development of the Ukrainian luxury market. The first period lasted from 1990 till 2003. During this period the luxury market developed chaotically. Many of the worlds most prestigious international luxury brands were represented illegally with goods often counterfeit or sold unofficially. As a result many Ukrainian consumers bought luxury items abroad because they were simply not available on the domestic market. The second period lasted from 2004 till 2008. This boom period saw the Ukrainian luxury market at its most dynamic. Market growth was estimated at 60-70% in both physical and monetary terms annually. The highest peak in luxury consumption came in 2006 when the market accounted for approximately Euro 500 million. Demand exceeded supply throughout the luxury sector with newly flush Ukrainian consumers lining up to purchase luxury watches, cars and yachts. It was during these boom years that vast majority of todays boutiques and official distributors arrived on the Ukrainian market.

How has the Ukrainian luxury segment been affected by the recent global financial crisis?

The economic downturn has severely damaged the Ukrainian luxury industry as lots of the sectors most enthusiastic consumers have cut down on non-essentials as previously mega-rich families begin to exercise increasing economic caution. Across the luxury sector were seeing drops of around 30% to 40%, rising to up to 60% in some high price segments. The never-ending political instability within Ukraine also didnt help as it sapped consumer confidence at the top end of the market. AS a result in the past two years a number of market entries have been postponed while luxury brands already operating in Ukraine have put plans to expand into the regions on hold.

What is the current luxury goods market situation in Ukraine?

At present we can talk about a return to relative market stability — the consequences of the crisis have become clear and predictable and luxury goods consumers are beginning to get back into their ordinary buying habits. Across the sector luxury operators are near unanimous in their opinion that the market is reviving. In the first quarter of 2010 there was a significant rise in sales, but despite this optimistic appraisal I think that we wont reach the sales level of 2008 until 2012.

How has the Ukrainian publics attitude towards what constitutes luxury developed over the past 20 years?

Over the last two decades the notion of luxury has been transformed from being something regarded as unaffordable into something seen as attainable. Today it is no longer only Ukraines millionaires and billionaires who can afford to purchase luxury items. Most relatively affluent people (especially the vast majority of home owners who face no mortgage repayment commitments) can aspire to a luxurious car, timepiece or jewelry and go on vacations to a luxurious resort. Like Ukrainian society in general, the luxury sector has become more democratic.

Why are so many Ukrainians prepared to spend such a large portion of their incomes on expensive cars and other bling items?

The high demand for luxury brands in Ukraine is based as much on a desire for enhanced social status as it is on economic or quality considerations. Whereas the majority of European customers purchase expensive luxury items primarily for themselves, in Ukraine it is common for consumers to be motivated by a desire to engage in ostentatious public displays of materials wealth. As a general rule, Ukrainian consumers will immediately make a beeline for the most expensive and exclusive brands.

 

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