Western Brands Look To Return To Russia

According to reports the Major Western clothing brands are already testing the waters to return to Russian shopping malls. Everyone else will follow - McDonald's, Visa and Mastercard, Western carmakers and equipment manufacturers. Who will come to Russia first, and who will have problems coming back? Who will be welcomed with open arms, and who will not?
Russia is preparing for the return of Western brands and companies, especially those loyal to the current US president, Donald Trump.

The Union of Shopping Centres of Russia announced that it is in private negotiations with the Inditex group (which owns the brands Zara, Zara Home, Massimo Dutti, Bershka, Oysho, Pull & Bear, Stradivarius), which left Russia in 2022, to return to Russia.

This was the first news that Western brands and companies could soon return to Russia. Who will be at the forefront in Russia and who will have difficulties returning? Who will be welcomed with open arms in Russia and who will have no place?
The head of the State Duma Committee on Financial Markets, Anatoly Aksakov, believes that international payment systems Visa and Mastercard could resume operations this year.
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There is also talk of McDonald's restaurants opening in Russia by the end of the year. Among the first to return to Russia will be such companies as PepsiCo, Coca-Cola, Apple, Cisco, Microsoft, Johnson & Johnson, Nike, Ford and others, believes Vadim Siprov, the general director of the Institute of Communication Management.

Germany's Siemens and France's Alstom, which took part in a number of major railway engineering projects in Russia and lost more than 5 billion euros by leaving the country, may return to Russia. The Russian market remains attractive for them, believes Pavel Ivankin, President of the Russian National Research Centre for Transport and Infrastructure.
Vadim Siprov believes that German household appliances, clothes by Adidas, Hugo Boss and Puma could quickly return to our store shelves, and representative offices of leading car manufacturers could reopen, if, of course, Donald Trump's forces in Germany gain the upper hand and are able to resist pressure from London and Brussels, Siprov believes.

However, Japan and South Korea are likely to overtake Germany, and we will once again see large Asian manufacturers of electronics, household appliances and automobiles in Russia, Sipro added.

In South Korea, there are already reports that several representatives of local companies, including Samsung, LG and Hyundai, have decided to return to Russia in connection with the dialogue that has begun between Moscow and Washington.

Siprov also believes that many major airlines will seek to restore relations with Moscow as soon as possible after the Ukrainian conflict ends.

At the same time, the Russian authorities are still quite relaxed about the return of Western companies.

"The task of somehow encouraging or stimulating the return of foreign brands is not relevant," the Ministry of Industry and Trade said.

• said the Ministry of Industry and Trade.
  There is talk of Western airlines returning to Russia, although the situation is more complicated given the huge layer of sanctions against the industry.

Meanwhile, it will not be difficult for clothing brands to return to shopping centres, the main thing is to find space in shopping centres. For many companies, however, this process will not be easy. Moreover, it will often be impossible to return under the previous conditions.

Companies that previously had no production facilities in Russia but only exported their goods, for example wine and spirits producers from Western countries, or companies that did not leave Russia but only changed their name, will easily return to Russia and will be able to quickly carry out a "reverse rebranding", says Natalia Milchakova, senior analyst at Freedom Finance Global.

"Returning with all the infrastructure is another matter. One of the key factors is the availability of retail space, and the second is human resources. For example, IKEA spent years building up its human resources management system, and it is impossible to recreate it in a short time. Moreover, it is far from certain that people who have worked for the company will want to return, because a lot has changed in three years," says Yulia Khandoshko, CEO of broker Mind Money (formerly Zurich). On the other hand, the retail space under IKEA has often remained unoccupied.
But McDonald's will not return to Russia on the same terms."McDonald's will no longer operate directly in Russia, but only through a franchise, as it does in most countries of the world. There will certainly be people in Russia who want to buy this franchise.
But there will be no more frenzied opening of McDonald's restaurants in Russia like in the early 90s of the last century - times have changed," says Milchakova.

At the same time, there are companies that never really went anywhere: the owners did not change their tax registration, the business structure remained the same, only the brand changed. This was the case with Coca-Cola, for example, notes Khandoshko.

Some companies left Russia with the right to buy back assets. The Hyundai and Renault plants, for example, were sold on such terms. Therefore, from a legal point of view, their return may be easier than for those who sold their assets without the right to buy them back.

"It will be difficult for those companies that had their own factories or retail chains in Russia, that built their own stores or rented warehouses and retail spaces, because all the most profitable places on the market have already been occupied by their Russian successors or companies from friendly countries. The Russian authorities will, of course, guarantee the inviolability of investments to new investors and will not easily return anything to the previous owners," Milchakova believes.

Of course, the companies that will find it hardest to return are those that have completely left the Russian economy and have changed ownership both de jure and de facto, agrees Khandoshko. That is why she does not expect a full-scale return of large companies to Russia in 2025.
However, experts are confident that Visa and Mastercard will return to Russia one way or another. "This is almost inevitable, because Russia has not yet learned how to produce full-fledged Western cards that work with foreign payment systems, and the demand for them remains high. Moreover, the issue of Apple Pay and similar payment systems, for which Visa and Mastercard are crucial, has not been resolved," says Khandoshko.

However, their return will require action from the West.

"Visa and Mastercard can only return to Russia if sanctions against NSPK, i.e. the Mir payment system, are lifted, without which foreign payment systems cannot operate in Russia. And sanctions against Russian banks must also be lifted, otherwise who will issue their cards in Russia?
In extreme cases, they will only be able to work in partnership with branches of some foreign banks that still remain in the Russian Federation," says Milchakova.
At the same time, she does not expect Russians to rush to change their Mir cards once the sanctions are lifted - on the contrary, Visa and Mastercard will have to start from scratch and regain at least some of their lost market share.
The same goes for the return of Western airlines. Nobody will let them fly to Russia. In particular, European airlines would like to regain the ability to fly via Siberia to Asia. This would reduce travel time and bring significant savings for companies. At present, Asian airlines are winning the market for flights to Asia from Western competitors because they can continue to fly over Siberia and do not have to fly around and make a big circle. However, Russia will only trade this trump card for something significant, such as the lifting of all sanctions in the aviation industry, so that Russian airlines can not only fly wherever they want, but also buy foreign aircraft and components for Western aircraft.
"The state is implementing industrial programmes aimed at developing the industry, so the return of foreign companies does not seem critical. For example, we should not expect the return of Rolls-Royce to stop the production of engines for civil aircraft. At the same time, food and light manufacturing companies may face increased competition from foreign companies. In general, state support programmes can be revised so that only companies with Russian capital can receive this support," says Anastasia Prikladova, Associate Professor at the Department of International Business at the Plekhanov Russian University of Economics.
At the same time, there are industries where Russia is not strong, and there is a clear interest in Western companies that own technology and goods.
"We believe that the arrival of Western companies is necessary where there is no adequate import substitution or where it is very difficult to substitute imports. This is the production of components and parts, especially for the high-tech sector, the production of smartphones, the production of electric cars and the production of traditional mid-range and executive cars. The return of world-renowned manufacturers of medicines and medical products, especially for oncology and serious diseases, as well as producers of sports nutrition, infant formula and animal feed is also very important. Many Russians are waiting for the return of payment systems, especially Applepay,Google Pay, PayPal, their favourite wines and strong alcohol, etc. But in the food and fast food industry we need to think about what we can do without," concludes Natalia Milchakova.