US Fashion Brand ‘Guess’ Reacquires Russian Business: Analysis

The American fashion brand Guess has reacquired its stake from its Russian partner in an unusual deal for the Russian fashion market, according to Kommersant.

The clothing manufacturer and retailer reportedly bought back its 30% share from local partner Vyacheslav Shikulov for €8 million (US$8.5 million) and has consolidated 100% of its Russian business after the deal was approved by the US Treasury Department.

At the end of 2015, the parties had signed a ‘put option’ agreement which provided Shikulov with the right to sell his 30% stake in local business and obliged the American company to buy out his share by December 31, 2025. Shikulov exercised the option in November 2022, and Guess applied for permission to conduct a buyback to the Office of Foreign Assets Control of the US Department of the Treasury (OFAC).

The move by the US clothing giant is atypical for the current market environment as the vast majority of Western companies exiting Russia are seeking to sell their assets to local investors, industry experts pointed out. The deal could reflect the retailer’s concerns over continuing its Russian operations, they added.

In 2022, Guess’s revenue in Russia increased by 24% to 4 billion rubles (US$49.9 million), data showed. Several foreign brands and businesses have changed hands and left Russia over the 18 months following increasing pressure from their governments, with many incurring major losses on exiting the country. Russian consumers have also been dropping their previous affinity for Western brands, angry at what they see as consumer betrayal. Russia’s fashion consumer market was valued at about US$35 billion in 2019 with expected growth at about 3.5% .

In terms of losses, earlier this month (May 2023), Japanese casual wear retailer Uniqlo decided to sell most of its stores in Russia after suffering multimillion-dollar losses. Last year, Swedish clothing brand H&M lost some US$363 million, while Spanish clothing conglomerate Inditex – the owner of brands such as Zara, Bershka, and Massimo Dutti – faced about US$300 million in losses. French sporting goods retailer Decathlon lost around US$140 million, while luxury Italian retailer Moncler and French counterpart Hermes jointly lost around US$200 million.

But this doesn’t necessarily mean that these businesses have exited the Russian market or exited at all. In the case of Zara, Inditex sold 245 stores in Russia and have pulled out of the market, with the operations being purchased by the Dubai based clothing retail giant Daher Group. The Zara, Bershka and Massimo Dutti brands are being withheld from the Russian market, with the brands being replaced with new ones: Maag, Dub, Ecru and Vilet.

However, the design work and supply chains used to provide these new brands will still be the same: Inditex supply chains based in countries such as Bangladesh, India and elsewhere with European designers retained to provide style continuity.

It is unclear what is behind the Guess decision – possibly a resale of the business in a deal similar to that structured by Inditex. In which case we could expect to see a rebranding of the Guess name, an agreement not to use it in Russia, but with the Guess-invested supply chains continuing to supply the new venture. A political solution where companies are seen to have divested themselves from Russia but continue to retain the profitable supply chain elements is emerging.

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