After almost a century under Communism, Russians took to private property quickly and with enthusiasm. The wealthiest gravitate to Moscow, which accounts for 85% of the luxury goods sales in the country – the city boasts the largest concentration of billionaires outside New York. These New Russians, as they’re known at home, have become the butt of many jokes because of the ostentation they have favoured since the fall of the Soviet Union in 1991. High-end Western luxury items have been, for them, the sign of the power and prestige they’ve accumulated along with their wealth; the Rolex and the Rolls Royce have been both uniform and symbol for a generation of businessmen that are going great guns and not afraid to show it.

But times are changing. Even before the recession, which has taken its toll on the Russian luxury goods market as it has on the rest of the world, the New Russians were beginning to modify their patterns of luxury consumption. Glitz and glamour are being put aside for more understated sophistication, and along with the change in tone has come a new interest in all things Russian. Russian art, for one thing, has captured the attention of the Russian rich – according to Sotheby’s figures, 32% by sales volume of the company’s Russian art is purchased by Russians, as compared to 18% bought by Americans, the next closest group of buyers by nationality.

Analyst Dr Vlad Sobell of the Daiwa Institute of Research, London, says that the New Russians “definitely have been moving away from the very crude ostentation that was prevalent in the earlier phase. From what I have seen personally, I have an impression that people (even the less rich) have become more sophisticated.”  He goes on: “there has been movement from Western symbols, which would be a natural progression.  This would come from increased confidence in Russian culture and heritage.”

For the generation that came of age as an ideology and a political system crashed down around them, the West was once the centre of fantasy and aspiration: Russian author Viktor Pelevin called the generation of young people who saw Communism collapse Russia’s ‘Pepsi Generation’. Raised in an era where choice in consumer goods was almost as limited as choice at the ballot box, the West’s iconic brands were a revelation to the young New Russians, and when their finances started to match their dreams, they bought with a passion. Capitalism, for them, meant conspicuous consumption – and the more conspicuous, the better. Showing off the latest and most expensive Western items signalled not just wealth but also status and success within the new dispensation, and for good measure, a firm rejection of the socialist standards of the old regime.     

But things have moved on since the 1990s. The first years of capitalism were chaotic; fortunes were made and lost, rules were few and upheaval was everywhere. A financial crisis set off by the crash of the Asian markets in 1998 brought the new Russian wealthy down to earth for a time, and a perception grew that certain people had capitalised on the fall of the Soviet Union to enrich themselves at the expense of the nation as a whole.

By the time Vladimir Putin was elected President in 2000, pro-Russian sentiment and a longing for stability was already growing. And in the years since, even as Putin worked to bring formerly nationalised resources like oil back under state control, events have made the new patriotism even stronger. Renewed antagonism with the old ‘main enemy’, the USA, under President George W. Bush, fuelled Russian pride and the sense that the once-great power was being underestimated by the rest of the world. More than half of today’s Russian youth look to the return of Russia as a great power as a concept capable of uniting the entire nation, according to Russian polling company VCIOM.

This reinvigorated sense of national identity has not done away with Russians’ desire for luxury items – socialist austerity is dead and gone, and few would like to see it back. But among the New Russians, flaunting Western labels is no longer in fashion.  Claire Shaw of the School of Slavonic and East European Studies at University College London says: “I don't think anyone would deny that the aesthetic of high-fashion in Russia has shifted over the last five years: whereas at the beginning of the decade, the ‘look’ embodied in-your-face glamour, ostentatious riches and dominant labels, the elites in Moscow now favour a more understated image. The clothes worn are still expensive, designer brands, but the provenance of the clothes is not advertised by the wearers in the same way (designer logos, slogans and the like). Attention has shifted to the quality of the clothes, the cut and the way in which outfits are put together.” Sophistication and discernment is becoming the order of the day. Elena Kudozova, Managing Director of the Millionaire Fair, Moscow’s annual showcase for the luxury goods industry, says “When we started, people were dreaming of buying Mercedes. Last year they were all queuing up for Bugattis.”

The current recession is hastening the shift towards understatement rather than flash. According to Bloomberg, the 25 richest Russians lost a combined US$230 billion in six months last year. The number of high net worth individuals in the country has dropped by 26.5%, and the economy as a whole is set to shrink 2.2% this year, following an average growth of 7% a year since 1999.

Globally, the luxury goods sector is expected to rebound by 2011, and one of the engines of that recovery will most likely be increased spending from Russians, but for now, the mood in Russia is turning against the showier spenders. In March, authorities allowed a protest to go ahead in Moscow against ostentatious spending – placards seen at the demonstration read ‘Glamour is a party during the plague’. Russian TV and talk radio are talking about an ‘anti-glamour revolution’, and President Dmitry Medvedev told Russian TV in March of this year: “People became very wealthy in a very short time. Now it’s time to repay debts, moral debts, because this crisis is a test of maturity.”

Philip Owen is Principal Consultant at Volga Trader, a market research and market entry support company based in the Volga region of Russia. He says: “Billionaires indulging in outrageous parties in Courchevel are no longer in vogue.  Prime Minster Putin has publicly criticised some extravagances recently.” Owen points out, “The criticism shows that the tendency to extravagance hasn't yet passed away.” The New Russians still have an appetite for luxury, but as elsewhere, the present hard times are encouraging a new decorum in showing it.

Synovate’s Moscow-based director of marketing communications Maria Vakatova, says the company’s research supports this emerging trend in luxury consumer behaviour: “Luxury buyers want to be perceived as good and green, they are beginning to feel embarrassed about being rich, since the gap between the rich and the rest of the world is growing wider. They want TV commercials to convey the message that hard work stands behind their wealth.”

So, for the Russian luxury consumer, understatement is now the imperative, and patriotism is the watchword ¬– but Western brands have not been supplanted by homegrown equivalents. Philip Owen says: “Russian brands of soap have greatly improved their packaging and function in the last 10 to 15 years but they are still on the bottom shelf at the supermarket. The same applies to luxury goods. Russian companies and brands are no longer rejected by everybody as totally inferior but the best foreign brands are still the brands of aspiration.”

Indeed, Synovate research shows that Russians continue to choose Western brands over local ones in clothes, cosmetics, household appliances and cars. 2008 data shows that Russians view France (16%) and Italy (25%) as the best clothing producers, and France (58%) as the best cosmetics market-of-origin. As for cars, Germany (42%) and Japan (35%) are leading the way.

In the world of high fashion, the same tension between Russia and the West carries on. Claire Shaw says: “Russian consumers are definitely not rejecting Western designers: the shopping district is still dominated by Western high fashion brands, and the fashion world still looks to London and Paris as the ‘home’ of high fashion. Russian homegrown fashion is definitely developing, and designers are using Russia's history as inspiration (for example, designers such as the Leningrad-based Alena Akhmadullina play with the symbols and shapes of Soviet uniform in their designs). The picture is complicated further, though, by the fact that many Western designers are explicitly referencing Russian fashion, such as in Karl Lagerfeld's Russian-themed Metiers d'Art collection last December.”

Shaw points to a coming point of convergence between Russia and the West, at least in the world of fashion: “I think that Russian designers are beginning to hold their own in a world that is dominated, historically and aesthetically, by the West. Yet in entering that world, they are accepting and working within its framework and aesthetic points of reference.”

Ironically, for Russia to redefine itself as a force to be reckoned with in a multi-polar world, it has to play by the world’s rules, in geopolitics as in fashion. The West is no longer the place where dreams are made – but even as the dream disappears, Russia’s rich are realigning themselves in terms of taste with their sophisticated counterparts among the world’s wealthy. The Russian luxury market will recover; although growth this year is set to hit just 2-3%, Bain Group predicts that spending on luxury goods in the BRIC countries will grow by between 20-35% over the next five years. And while Russian luxury brands are gaining new cachet, there is still a great deal of ground to cover before they catch-up to their Western counterparts.  In the mean time, the New Russians’ new chic will buoy up sales from Western luxury suppliers for years to come.

For more information about luxury or any kind of research in Russia, please contact Maria Vakatova.