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This content was produced in Russia where the law

restricts

coverage of Russian military operations in Ukraine

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Western brands face tougher competition in Russian markets

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Moscow legalised grey imports of Western merchandise

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Russian, Chinese brands have filled gaps left by Western

firms

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Some consumers say they want more choice

By Roman Churikov, Olga Popova and Yevgeniy Matveev

MOSCOW, Feb 26 (Reuters) - Washington's push to swiftly

end the conflict in Ukraine has sparked speculation that Western

brands may want to return to Russia, but from fashion to cars,

the markets they vacated now look more competitive than three

years ago.

As Ukraine marked the anniversary of Russian troops flooding

across its border, U.S. President Donald Trump suggested that

the conflict could end within weeks, though it is not yet clear

how.

Western sanctions that complicate cross-border payments and

trade flows would probably need softening for companies to

return in large numbers. Those that do take the plunge will find

markets now dominated by domestic - or in the case of cars,

Chinese - brands.

Henderson, a men's clothing chain that listed on

Moscow Exchange in late 2023, said the departure of foreign

retailers had given it a development boost, mainly by making

better locations within shopping centres available.

That has helped the company grow its sales three times

faster than the overall 8% annual growth of the menswear market,

even though Western brands are still available in some places.

"The market itself has not changed significantly, as the

majority of foreign brands (60-80% of global manufacturers,

according to our estimates) did not leave," Henderson's press

office said in response to Reuters questions.

"(They) just transformed sales channels, using the services

of local, multi-brand stores to sell products, or by changing

the signage on their stores and introducing new trademarks."

Consumer goods are not under sanctions, but as many

companies refused to do business with Russia, Moscow legalised

grey imports through third countries that allow retailers to

sell foreign goods without the trademark owner's permission.

BATTLING FOR SPACE

The difference is that shopping malls' prime locations, in

the past reserved for Western flagship stores, are now taken by

Russian rivals.

"The best spots, where Western brands used to be stationed,

are already filled," said Pavel Lyulin, vice president of the

Shopping Centres Association of Russia, Belarus and Kazakhstan.

"These are long-term contracts, so every such venue will be

battled for."

Moscow is unlikely to greet returning brands with open arms.

President Vladimir Putin on Friday said Russian manufacturers

must be treated preferentially if foreign firms return.

Kirill Dmitriev, Putin's special envoy on international

economic and investment cooperation, last week said he expected

a number of U.S. companies to return as early as the second

quarter of this year, without giving further details.

More than a thousand Western companies have exited Russia

since Moscow sent troops into Ukraine. Some left because of

costs and disruptions brought by sanctions and payment issues

while others, particularly retailers, in protest against

Russia's actions.

The retail sector has yet to fully recover, with shopping

centres still welcoming 20% fewer visitors than in 2019,

according to Lyulin.

But Russian shoppers have taken to local brands.

"In the very beginning, it was really hard because the

Russian retail market for clothing and footwear was

underdeveloped," Moscow resident Anna, 29, told Reuters on one

of the Russian capital's main shopping streets.

"But now, absolutely not. Our local brands produce things

that are absolutely no worse (than Western ones)."

Stockmann, a retailer which sells foreign and domestic

clothes and acquired Hugo Boss' Russian business last year, has

noted an increase in domestic brands' sales, Darya, a

salesperson in one of the company's Moscow stores, said.

MORE CHOICE

Moscow resident Anastasia Efremova told Reuters that Russian

brands had raised prices, but otherwise the impact had been

minimal.

"I am talking not only about clothing or cosmetics but also

about spare car parts, for instance," Efremova, 38, said. "There

were fears we would not be able to buy something for cars, but

everything is in stock."

Foreign carmakers helped grow Russia's car market when they

began building factories in Russia in the early 2000s.

The sudden departure of automakers like Renault,

Volkswagen and Nissan ( NSANF ) left a gap that was

filled primarily by Chinese competitors, which now account for

more than 50% of new car sales compared with less than 10%

before the start of the conflict.

Domestic carmakers account for about 30% of sales, up from

closer to 20% before February 2022.

For now, Western companies are ruling out imminent returns.

Executives from Arla Foods, maker of Lurpak Butter, and

InterContinental Hotels ( IHG ) last week said there were no

plans to re-enter the Russian market for now. France's Renault

said returning under the terms agreed when exiting in 2022 was

"very unlikely".

Russian brands will want to defend the market share they

gained and feel confident they are strong enough to compete

should international players come back, said Valeria, a

salesperson in a central Moscow fashion store.

Ultimately, consumers want to be free to decide for

themselves, said Moscow resident Laysen Faskhutdinova.

"I'd rather they return. Russians should have a choice."