U.S. News & World Report
October 13, 2003
Moscow Money
Rich Russians are spending as if there's no
tomorrow--which many say there
won't be
By Masha Gessen
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.
