IV. Communicative practice. Situations

1. You are a member of the State Duma. You are having a talk with your opponents. Discuss the reasons why the buying power of people is steadily decreasing. Suggest your way to improve the situation.

2. You are a businessman. Your firm is supposed to pay taxes. You’d rather not do it. A tax police officer is talking to you. He is trying to explain the government policy to you.

3. You are a very rich “new Russian”. You are making a speech at the presentation of your company. You want the audience to realize how much you do to make your country prosperous.

Russian Experience

1. Think and say:

a) Does your family have an annual income which allows you to enjoy various goods and services? How do you estimate it? Is it less or more than that of people around you?

b) What standard of living do you maintain?

c) What do you think of as necessities of life — food, shelter, health, education? What can you afford beyond?

d) Are there large differences in incomes between groups of population in Russia? What can these differences be attributed to?

e) What do you know about the New Russian Rich?

2. Read the text and be ready to give a portrait of a New Russian Rich.

3. Retell the text from the point of view of a New Russian Rich, his wife, a shop assistant at a boutique, a specialist in marketing.

Shop assistance We’ve all heard of the New Rich in Russia, but what do they spend their money on? John Helmer digs into the latest consumer research and comes up with some unexpected answers.

The svelte Russian matron was shaking her black patent leather Chanel hold-all, explaining why she had to have it. “I saw this in Switzerland”, she said to Olga, a saleswoman for Stephane Kelian, the latest high fashion boutique to open in Moscow. “It cost $1,500. Why buy there, when it might be cheaper elsewhere? Because we are rich, that’s all. If I see it and want it, why should I wait?”

Olga acknowledged that, with the simplest pair of women’s sandals starting at $269, Kelian prices may be higher in Moscow than in Paris, or elsewhere in Europe. “Russians buy here,” she believes, “because it’s necessary immediately. The customer has a new dress, and she needs shoes to go with it. She doesn’t have time to wait until she goes to Paris next.”

Tatiana, an actress, listens to the two women, but disagrees. She travels widely in Europe and Asia, and she likes to buy shoes. “I want to be fashionable, and I know that I can get something from Paris that no one here will have for another season. I prefer to wait. I also know that the best value for chic shoes is not in Paris, but in Athens.”

Why is this trio of smart, well-to-do Russian women talking about shoes? Because this particular luxury product is more popular than any other among Russia’s new rich. It’s also one of the few bits of conspicuous consumption they are willing to show off.

Show-consciousness was also one of the surprises that hit Stephen Cruty, a director of the Russian Market Research Company, when his firm recently did a survey of luxury shops in the two cities where most of Russia’s consumer spending power is based.

Just how much cash that power generates for the luxury boutiques was also clear. Twenty percent of the shops surveyed reported their sales were running over $10,000 each day; another 15 percent claimed to have turnover in the $7,500 to $10,000 range. In retail business as visible, competitive and tax-conscious as the luxury goods sector, these figures are probably an understatement.

When Cruty and his interviewers asked the shop owners to say what affluent customers like to buy most, 50 percent said footwear, 30 percent said clothing and 8 percent said accessories, like hand-bags. Bally was one of the first upmarket European shoemakers to realize the advantages of the Russian market. The Swiss-based designer and retailer of shoes opened its first shop in Moscow three years ago. A second shop later followed in St.Petersburg, and a third is planned.

Elvira Koroleva managers the Bally shop in Petrovsky Passage, a turn-of-the-century Moscow arcade that is smaller, more elegant, and pricier than the GUM arcade most western visitors to Moscow know. She says that there are, on average, 50 paying customers in the shop every day, two thirds of whom prefer to use cash. Bally's “cheapest” women sandals start at $120; fashion shoes run over $300; boots much higher. The Bally men’s range goes from $170 pair of slippers to $570 for shoes. Buyers in Bally’s Russian shops select styles from what’s available in Switzerland. “There is no special style for Russians,” Koroleva says.

Bally knows its Russian clientele well. The majority are between 30 and 40, according to Koroleva, “because the style is conservative and elegant — not modern enough for young people.” A book is kept of almost 450 regular Moscow clients, most of them women, who buy frequently, and whose tastes are on file.

Age makes a difference in the taste and style of the new Russian rich. There are many more under 25 year-olds with money to burn in Moscow than in St.Petersburg, the retailers believe, and more 26 to 35 year-old big spenders in the old Russian capital than in the new. But young or old, the affluent Russians are keenly tuned to foreign brand names. When purveyors to the rich were asked to say what influences their clients’ decisions to buy, brand awareness and brand quality were most often mentioned. Though the luxury shops offer discount cards to encourage purchasing, price and thrift aren’t big motivators.

If the new rich smoke, it’s Camel or Marlboro. If they drink, it’s Smirnoff vodka, Martini, or Napoleon cognac. For the sweet tooth, Fazer is preferred to Nestle or Cadbury. At the same time, there are still a great many things the most affluent consumers in Russia don’t possess. Slightly less than half of the highest income earners, for example, have no car. Only about 30 percent own a stereo or a food processor. Freezers, compact disc players, personal computers, dishwashers, and microwaves are even less commonplace.

Information like this has never been known about Russian consumers before. During the Communist period, what they owned, and even more, what they didn’t own, were state secrets you’d have to spy, and maybe die, for. In March of this year, the Russian Market Research Co. (RMRC) became the first western firm to produce a nationwide survey of householders, from which these details have been drawn. The survey suggested Russians are better off than they admit — and spend more, much more, money than their official income. This was also the first survey that attempted to assess the Russians who are rich, at least by local standards.

The evidence comes from what the survey panel of almost 4,000 people, from 2,000 households, admitted about their income and spending. Two groups of Russians were identified as wealthy. One, well educated, comprising middle aged professionals, amounted to four percent of the sample. In the population at large, they total about 5.8m. Almost all of them live in Moscow, St.Petersburg and a handful of other big cities. When asked what car they like to drive, they used to say Mercedes. Nowadays it’s BMW.

The second group of affluent Russians is much younger and more entrepreneurial. They comprised almost six percent in the survey, over 8.4 mln people. Together, these two groups make up the Russian rich. An undetermined number of these young rich are probably the children of the middle-aged rich.

What the market research shows is that both claim incomes of at least $400 a month in salary, not to mention business paid perks, like cars, dachas and foreign travel.

It’s no surprise to find that these are the Russians who report the most rapid improvement in their standard of living, who are the most optimistic for their future, and who think unemployment is, to use the interviewer’s phrase, “quite acceptable”.

But it’s a mistake to jump to the conclusion that this spending power reflects confidence on the part of Russia’s affluent class that they will continue to prosper. In fact, the behaviour of the rich suggests a deep down fear that if they don’t buy now, and spend quickly, the money may not be there to spend later on.

The upmarket retailers of Moscow and St.Petersburg suspect the same thing. Half of those recently questioned expect today’s sales to decline over the next year or two; twice as many believe the future is bleak for big spenders, as think it will be prosperous.

It’s not that the Russian rich are so new to luxury; they also have the energy to shop until they drop. With good reason, they believe the only way of protecting their wealth is to consume it — to turn it into goods and services that can’t be taxed, confiscated, or stolen as easily as cash.

Two thirds of the richest Russians surveyed across the country said they hold no insurance and are not planning to buy any. Almost 90 percent reveal they have no pension; 58 percent say they use no bank.

The affluent Russians were also blunt about tax. Most of the difference between what the government thinks they earn and their real household income is the amount of income tax Russians would have had to pay, if the taxman could catch them. This is also why spending is greater than admitted income.

The big spenders identified in the survey withhold between 25 percent and 35 percent of their income from tax. If they paid what they owe, their disposable income would drop to between $200 and $300 per month. If, in addition, they paid rates or taxes on the value of their real estate, on their business car, and on other business perks, just as these things are taxed in the West, most of the air would go out of the balloon in the Russian consumption that’s visible today.

When RMRC asked whether this tax-free cash is saved or spent, they discovered they spend everything they earn. They and the older members of the wealthy elite also spend as much as possible out of sight, and if possible, outside of Russia. Germany and Turkey are the two foreign destinations the Russian rich are most likely to have visited already. The United States, France, Italy and Australia are the places they say they wish they could visit next.

This is why Russian affluence is more visible abroad than at home. It’s not simply that Russians aren’t afraid of the taxman or thieves when they are travelling. It’s because they know that once they’ve spent the cash abroad, there is that much less at home that’s at risk.

In almost every Russian wardrobe there hangs a fur coat for winter. “Fur isn’t a luxury for us in Russia, it’s a necessity”, says Viktor Chipurnoy, head of Soyuzpushnina, Russia’s leading salesman of sable, mink and ermine.

It ought to be possible for the world’s luxury furriers to do a roaring trade. But affluent Russian consumers have peculiarities of taste that foreign marketers are only just beginning to understand.

Western fur traders and diamond merchants have to learn Russian idiosyncrasies of taste if they are going to succeed. Fur coats must be thick, and diamonds are rarely bought for girlfriends.

De Beers, whose campaigns for diamonds are textbook examples of luxury marketing around the world, has also learned about another unexpected pitfall in the Russian market — the Russian language. At a cost of several million dollars, De Beers discovered that slogans it made popular everywhere in the world can flop in Russia. “Diamonds are forever,” for example, was the centre of an upmarket De Beers media campaign in 1995. Translated into Russian, the words caused great confusion. “They mean absolutely nothing in Russian,” says a Moscow jeweler.

He also warns against trying “diamonds are a girl’s best friend”. That’s because most Russians don’t give diamonds to their girlfriends, their fiancees, or mistresses. “A Russian man might give a diamond to himself”, says the jeweler, “but he wouldn’t think of wasting it on a short term affair. Diamonds are more often given by mothers to their daughters, as a symbol of loyalty and eternity. Rich Russians in a hurry to spend money on jewels will buy diamonds, but perhaps not for the reasons De Beers thinks.” .

Key terms.

1. Income distribution

2 .Efficiency

3. Owner

4. Ownership

5. Assets (labour, machinery, land)

6. State-owned economy

7. Private ownership economy