Nike, Apple, H&M and Ikea are part of the wave of Western brands that have said they're suspending operations in Russia.
Andrey Rudakov/BloombergWant a new iPhone 11? A pair of Nike Air Max Dawns? An Ikea Kivik couch? For the 144 million people living in Russia, these are part of a growing list of imported goods that became unavailable practically overnight.
Many Western companies have moved quickly to sever ties with Russia, abandoning a country that has served as a nice source of growth for the last two decades but become riddled with operational and reputational hazards due to the war on Ukraine.
“You just do not want your brand associated with this image in any way,” said Adam Tooze, director of the European Institute at Columbia University. “You want the hell out of Dodge.”
The exodus is ushering in a period of increased isolation in Russia, which has enjoyed easy access to imported goods since the end of the Cold War, when multinational corporations entered the market eager to cater to a growing middle class. In 1990, McDonald’s was one of the first Western brands to set up shop in Russia, with hundreds waiting in line to try the American delicacies on opening day. It has since opened over 800 locations, including in the far-flung eastern part of the nation near Japan, and looks to Russia and Ukraine for 9% of its sales.
McDonald’s served more than 30,000 people when it opened its first location in Moscow.
Peter Turnley/Corbis/VCG via Getty ImagesDozens of other companies followed suit, and today, most global brands have some sort of presence there, from Starbucks to Marriott to Louis Vuitton.
However, the war has prompted a wave of brands to head for the exits. Nike put a notice on its website that it was suspending online sales in Russia because it could not “currently guarantee delivery of goods to customers.” Canada Goose blamed “the challenged operating environment and evolving sanctions against Russian interests” in its decision to pause business there. Ikea has also temporarily closed its 17 stores in Russia, citing “serious disruptions to supply chain and trading conditions.”
Asos said “against the backdrop of the continuing war, [it] has decided that it is neither practical nor right to continue to trade in Russia.” The fast-fashion retailer generated 4% of its sales in Russia and Ukraine last year.
TJX, the parent company of T.J. Maxx and Marshalls, said it will divest its stake in Familia, a retailer with 400 stores in Russia, and pull two executives from the board "in support of the people of Ukraine." TJX paid $225 million for the stake in 2019.
Apple CEO Tim Cook wrote in a letter to employees that “this moment calls for unity,” in explaining its decision to stop selling products in Russia. H&M, Dell, BMW and Ford have also paused operations.
“What we’re seeing is unprecedented,” said Stephanie Petrella, a senior analyst at Greenmantle, a macroeconomic and geopolitical advisory firm. “These brands are just abandoning Russia.”
Companies have to navigate a complex web of sanctions, including a significant expansion of the Foreign Direct Product Rule, meant to limit Russia’s access to products designed with U.S. software or technology. That could require American companies to seek a special license before exporting things like smartphones, computers and aircraft parts.
Given the complexity and evolving nature of the sanctions, experts say that companies may opt to overcomply in an effort to reduce risk. “Many times you see companies that technically might be allowed to operate say that it’s just too much of a legal headache and they’re going to pull out,” said Ben Coates, a history professor at Wake Forest University who has studied economic sanctions.
The logistical challenges are also daunting. For instance, there may be no way to physically get items to Russia. Maersk and other shipping giants are no longer visiting Russian ports. UPS and FedEx aren’t running packages to people’s doorsteps. Another roadblock: Accepting payments and remitting profits, given sanctions against Russian banks. Running afoul of sanctions, even accidentally, can result in hefty fines.
Reputational risk also hangs in the balance. “How can McDonald’s be serving Big Macs in Moscow when Ukrainians are being shelled by the Kremlin? It doesn’t look good,” said Gary Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics. McDonald’s didn’t respond to an inquiry about whether it would continue operating in Russia.
The public has been united in its support for Ukraine, and could mount pressure on companies to cut ties with Russia as a means of punishment. Ukraine’s government has called for companies like PlayStation and Xbox to pull out of the Russian market.
“People are grasping for things they can do to beat Russia over the head with a stick,” Hufbauer said.
At stake for companies is billions in lost sales. Yet, Russia may look less attractive as sanctions hit consumers’ wallets. Wealthy city dwellers may pull back their spending on luxury goods, while everyday Russians may look to cheaper local brands to stretch their paychecks.
A woman passes by an Apple store in Moscow.
AFP via Getty Images“It kind of doesn’t matter if you can buy an iPhone if you lose your job and are so poor you can’t afford an iPhone,” Petrella said. “If the population is gradually getting poorer, they can’t buy your product as much.”
Russia was already facing stagnating economic growth in recent years, hampered in part by sanctions for its annexation of Crimea in 2014. So the companies “are losing a medium-size, middle-income market, that’s what they’re forfeiting,” Tooze said. “It isn’t a market that’s driving their business globally. Unlike China or even a country like Vietnam, there isn’t this 10- or 20-year time horizon that we absolutely have to be here—it’s going to be gigantic. It’s not an irresistible proposition you can’t refuse.”
