Fragrance brands

The world’s biggest brands are preparing to do battle with the Kremlin

Comments from a few Russian officials indicated that smartphones and computers as well as auto parts could be among the first goods to be included.

Experts at consultancy EY, meanwhile, expect it to include everything from food and medicine to clothes, shoes and electrical appliances. They point out that the legalization of parallel imports does not mean that counterfeit goods can be sold in Russia, but genuine products.

The concern is that the stance the brands have taken against the Kremlin will become relatively meaningless if the Russians can get their hands on the goods regardless. It could also support new business ventures in the country.

Companies, manufacturers or distributors, set different prices for products in different markets. Parallel importers usually buy goods in one country at a price lower than the price at which they intend to sell them in another country.

Normally, before the ban was lifted, companies could demand compensation or request the seizure of goods. This option is no longer available.

Malloy says, “Scarcity, the intent of it all [sanctions and boycotts] is to deprive the market of products. But economically, if you starve the market, a thriving parallel market emerges.

“People will try to sell the product. Whether brand owners can stop it and enforce their rights is an open question.”

The cost and expense of taking legal action against a parallel importer could discourage even some of the deep-pocketed retailers, he adds.

An industry adviser takes a more cynical view and says some Western brands may quietly seek to take advantage of the new rules.

“Many of these brands that say they don’t want to sell in Russia are likely to cultivate parallel imports themselves indirectly to continue selling the products in that market,” they say.

Also unclear is whether the lifting of the ban will continue beyond 2022. For now, it looks like the Russian government can only enforce the rules this year, and the bill could still change.

Some argue that the downside for Moscow of its decision to allow parallel imports is the risk that Russia will be unknowingly flooded with counterfeit products.

This is not the first time that Russia has flirted with the idea of ​​parallel imports.

They were first banned in the early 2000s after the fall of the USSR as Russia courted big business and big brands. The move gave Western companies the confidence to build their own distribution networks and factories in the country and sell directly to Russians. It also spawned more car and electronics manufacturing centers.

In 2015, however, there were discussions about legalizing the import of car parts, medicines and perfumes without the permission of the brand owner, but no decision was made – until last month.

Russia’s Federal Anti-Monopoly Service said the measure “will develop competition between brands through an increase in the number of companies importing goods to Russia, which will lead to lower retail prices for such goods.”

When the war in Ukraine broke out, many brands rushed to leave Russia to avoid inadvertently supporting Putin’s regime in any way. An involuntary “return” to the country, through parallel imports, will be a daunting prospect.