What does Russia’s green light on parallel imports mean for brands?
Luxury goods are set to start returning to Russia despite attempts by most non-native brands to pull out of the market following Vladimir Putin’s deadly attacks on Ukraine. A 25-page list of exempt brands/products has been published by the Russian Ministry of Industry and Trade, allowing the parallel import of luxury cars from Bentley, Ferrari and Rolls-Royce, among others, large electronics public of Apple and Dyson, cosmetics and fashion and leather goods in the continuation of what the Russian authorities consider an attempt to “defend the interests of domestic consumers for the products of foreign companies which have left the Russian market under the regime of sanctions imposed by “unfriendly” countries”.
First published by the Ministry of Industry and Trade of the Russian Federation last month, the Ordinance on Parallel Imports or “Grey Market Goods” (i.e. branded goods genuine products obtained in one market which are then imported into another market and sold there without the consent of the trademark owner) provides that Article 1359 (Section 6) and Article 1487 of the Russian Civil Code “do not apply not” to the approved list of products, “provided that the specified products have been put into circulation outside Russia by the owners of the rights and with their consent.” In accordance with the principle of trademark exhaustion – or the doctrine of first sale, as it is called in the United States, “the products must be legally put into circulation [in] country of import,” the Commerce Department said.
The Russian ministry distinguished the new system from outright infringement (i.e., the unauthorized use of a trademark that is identical to or substantially indistinguishable from another’s registered trademark), saying in a statement to late last week that allowing “parallel imports does not mean allowing the import and circulation of counterfeit goods in Russia.
Fashion and other luxury brands could be particularly hard hit by the looming push to secure parallel imports into Russia. Although the official list of authorized products specifically lists brands of electronics and automobiles, among other categories of goods, that can be imported into Russia without the risk of trademark infringement ramifications, it does not list vendors. fashion/luxury items whose goods can be legally imported into Russia. “Clothing, footwear and leather goods are listed without any indication of a specific brand,” Maksym Popov, a partner at law firm Mentors in Ukraine, told TFL. This means that “everything within these categories of goods is subject to parallel imports”, which could serve to flood the market with a barrage of luxury goods in the not too distant future. (Not the only categories that lack brand specifications, the Ministry of Industry and Trade’s list also allows unimpeded import of spare parts for certain machines, for example.)
The situation is likely to be “complicated” for brands, Popov says, noting that brand owners “will not have the ability to control the import of goods into Russia through distributors,” as has been a problem for brands in other countries, including China, which regularly sees a large supply of gray market products transit through multi-brand stores in places like Italy and land on the mainland after transiting through agents in Hong Kong.
As an extreme example, he says, “we can even see Louis Vuitton and Chanel bags being sold in multi-brand boutiques.”
Given the meticulous scrutiny and purely direct-to-consumer distribution model exercised by Chanel, Louis Vuitton and other similarly situated luxury titans, it seems unlikely that these brands will be among the most affected by the new market system. gray set up. in Russia. (Chanel, after all, made headlines last month for implementing a process in its own stores outside of Russia “to ask customers whose primary residence we don’t know to confirm that the items we they buy won’t be used in Russia,” a move that has infuriated Russian buyers in markets including France, Italy, China and Dubai.) There’s a good chance brands that have a network of authorized third-party distributors will find that their products are more easily imported into the Russian market without their authorization.
The order which serves to relax the law on parallel imports comes after the country’s Ministry of Industry and Commerce was authorized to draw up a list of goods for which parallel imports would be allowed, which was published – and entered into force – April 19. list stemmed from a previous revelation by the ministry in March when its “Priority Action Plan to Ensure the Development of the Russian Economy Under the Conditions of External Sanctions Pressure” revealed that an influx of gray market goods would likely arise of the exodus of Western brands from the Russian market. In the priority action plan, which surfaced in early March, the ministry appeared to propose suspending liability for parties that engage in parallel imports for certain – but then undefined – “commodity groups”. , thus potentially opening the door to a greater share of parallel imports. -off-sector products to enter Russia, which maintains certain restrictions on the sale of gray market products.
As TFL first reported at the time, depending on the duration of the effects of targeted sanctions on Russia implemented by the United States, European Union and others, which ban the import of luxury goods in Russia (and this is likely not a temporary situation), Russia’s luxury goods ecosystem may begin to mirror that of other markets that are easily inundated with gray market goods. In the event that the companies’ independent stores do not return in a timely manner, some brands may choose to turn a blind eye, allowing multi-brand stores in other markets to order surplus goods and ship them to Moscow with the help of importers, and allowing brands to add these excess sales to their balance sheets.
Brands at the top of the luxury totem pole are not expected to engage in such gray market feeding activity; their recent earnings reports indicate that they are not suffering from a loss of sales in Russia, which is no more than 4% of their annual sales. However, that may not be the case for other brands that traditionally maintain larger footprints in Russia and their distributors, who have proven far less immune to withdrawal from the Russian market. (Reuters recently reported that in March, adidas, for example, “warned of an impact on sales from the closure in Russia, without giving an estimate. It operates 500 stores in the country, a quarter of its total.” Around the same time, toymaker Hasbro warned that its revenue could reach around $100 million this year due to its decision to halt sales in Russia.)
“Usually, official distributors are interested in combating illegally imported goods,” Popov explains. “But now that anyone can [indirectly] import goods into the country, will they want to fight it? »