Russian copycats fill market gaps left by western brands

LONDON: When Swed House first launched in winter 2021, the “Scandinavian-style” homeware brand of Belarusian entrepreneur Murat Shagylydzhov was one of many local businesses operating in the shadow of furniture giant Ikea.

“Our initial idea was to open a small-scale store selling home decor items,” said Shagylydzhov. But when Vladimir Putin’s full-scale invasion of Ukraine last year prompted hundreds of international businesses to withdraw from the Russian market, he spied a once-in-a-lifetime business opportunity. “Our project expanded,” he said.

Two years down the line, Shagylydzhov’s shops are popping up across both Russia and Belarus, drawing queues of disenfranchised customers with the promise of products almost identical to those of its Swedish predecessor.

Swed House is one of a host of lookalike brands that have swooped in to seek to fill vacant niches left after the Ukraine war prompted hundreds of international businesses to withdraw from the Russian market.

US burger group McDonald’s gave way to successor Vkusno & tochka, while doughnut maker Krispy Kreme was replaced by the ersatz Krunchy Dream. The social media bio of coffee shop chain Stars Coffee, which supplanted Starbucks, aptly reads “the bucks have left, but the stars remained”.

While copycat brands are unlikely to nurture Russia’s economy back to health, they could ease pressure on the government by placating a population that has grown accustomed to a post-Soviet abundance of affordable consumer goods.

“There is not a single empty set of premises here,” said Shagylydzhov, calling from a busy shopping mall. “I am looking at Russian brands like Gloria Jeans, Zarina — these are companies that have made a huge leap in progress”, he added, referring to fashion retailers that have surged in popularity since Zara owner Inditex this year left the country and sold roughly half of its 500-plus stores to a group from the United Arab Emirates.

About 300 western companies have left Russia since the invasion began while roughly 1,600 brands continue to operate in the country, paying $3.5bn in tax on their profits in 2022, according to a study by B4Ukraine and the Kyiv School of Economics. The western consumer goods sector made revenues of more than $21bn in Russia last year, the report found.

In the space of a year, Swed House signed contracts with Ikea’s former production sites, swelling from being an online retailer into an operation employing 100 people and running 10 shops across Russia and Belarus, with plans to double its number of outlets next year. However, it remains a minnow compared with its Swedish predecessor, which employed 15,000 people and made $1.5bn in revenues during its last financial year in Russia.

“Given the market size, a business like Swed House will need years and years to substitute Ikea, which had all its operations in place, had the knowhow and the technology,” said Andrii Onopriienko, deputy development director at KSE. A newly opened Swed House store in Moscow © Vlad Karkov/SOPA Images/LightRocket via Getty Images

“What’s happening is a kind of nationalisation of the Russian economy,” said Alexandra Prokopenko, a non-resident fellow at the Carnegie Russia Eurasia Center. “The government thinks that enterprises should only be managed by people holding Russian passports.

“This isn’t the best practice, because the ownership of any given passport determines neither your skill, nor your attitudes towards a business, but that’s the reality today,” she added.

While smaller than that of Ikea, the Swed House catalogue echoes the feel of its western counterpart, featuring minimalist homeware pieces with Nordic-sounding names such as “Doftfarmaljus” and “Peppershanddukshallare” alongside what look like original Ikea products.

“Ikea didn’t invent the plate,” said Shagylydzhov. “If you go into a TV store you will see thousands of options that all look very similar — the only difference between them is the logo.”

Customs records show that Merdem, a company that owns the Swed House trademark, imported quilts and bedding via an entity in Kaliningrad that previously supplied Ikea with what appear to be identical products.

“Ikea has nothing to do with Swed House”, the Inter Ikea Group told the Financial Times. “What we can see is that they are trying to leap in and serve Ikea customers”.

Swed House has imported plastic products from a Hong Kong-based distributor and turned to Russian companies to fill other gaps — TDK, the Tatarstan Woodworking Company, produces many of its simple furniture designs.

This may be a welcome outlet for TDK, which customs records show has suffered a sharp drop in exports since the imposition last year of sanctions on Russian timber by the EU and on the company itself by the US.

Aside from the tailwinds that came with limited competition and sharp rent discounts, Shagylydzhov said he had received “immediate” support from local authorities. When the first Swed House store opened in St Petersburg, he said the city’s officials hosted a tea party for the entrepreneur, asking him to “keep them informed of any problems, so they could intervene”.

In ensuring easy access to familiar consumer goods, Russia’s copycat companies carry out a key function for the government, which has gone to great lengths to mask the domestic impact of its military offensive in Ukraine.

“By any means necessary, [the government] needs to create the impression that the ‘sanctions did not hit us’ and ‘we have our own wonderful industry’,” said Alexandra Arkhipova, a Russia-focused social anthropologist. “The goal is not so much to show that ‘our war is sacred’, but rather that ‘nothing bad is happening’.”

At the same time, the Kremlin has imposed a range of restrictions on foreign companies trying to sell their local subsidiaries, making it a requirement that all deals involving “unfriendly” countries — those that have imposed sanctions on Russia — obtain Moscow’s approval.

The process involves a “huge amount of documents”, said Dmitry Azarov, co-owner of the Russian division of British cosmetics company Lush. “When this law came into force, nobody knew what to do — we’ve tried submitting three applications, none of which even reached the government commission.”

While Lush Russia still exists as a legal entity, it suspended all supplies in 2022, leaving Azarov — who holds a 65 per cent stake in the subsidiary — with 48 shops that had nothing to sell.

Within five months of Lush shutting down, Azarov launched the similar-looking cosmetics chain Oomph, partly to keep shelves stocked at stores whose leases could not be broken.

“We struck deals with some lessors, and paid crazy fines to others,” he said. “Otherwise, we would have simply gone bankrupt, having to pay rent on top of penalties for not selling anything”.

The company, which like Lush sells cruelty-free and low-waste bath products, has seven shops and employs 100 of the 600 people that used to work for the British retailer in Russia.

“It’s incredibly difficult to fire this number of people — it’s hard to fire one person,” Azarov said. “We are aware that Dmitry has created his own brand and we wish him well,” Lush responded in emailed comments. Born in the Donbas region of eastern Ukraine, a site of Russia’s persistent military aggression since 2014, Azarov has spent more than two decades working across both countries. “Every businessman, by nature, wants to build,” he said. “When I see something being destroyed — something that people have put effort into — it’s a nightmare.”