In Russia’s economic crisis, small businesses bear much of the burden

Kukkoyev had built an entire business renovating high-end apartments in St. Petersburg with IKEA fixtures. He spent that last day sweating and trying to input all of his requests, pressing the payment button for the last time at two minutes to midnight, he reminded himself.

Then he applied for the registration of the IDEA brand, copying the Ikea brand logo.

Kukkoyev’s struggles are one man’s problems in a sea of ​​problems, as Russia faces not only international sanctions, but also the impact of Western companies bypassing the country. Thousands of small and medium-sized businesses, including restaurants, bars, beauty salons, consultancies, transportation and logistics companies, and others, face similar problems.

As real wages slump, consumption falls, inflation rises and supply chain problems choke the economy, the crisis is devastating private businesses.

“[My clients and I] now they are like hostages of this situation. I think IKEA treated people like cattle,” said Kukkoyev, owner of Luksort-Service. “I think it was very inhumane. Now so many people, thousands and thousands of people, are in a very difficult situation.”

Until last month, he had been Ikea’s biggest fan. He said that he had admired his entrepreneurial approach and loved his easy-to-use manuals, which he trusted very much.

“I am not upset with the West. The only thing that really bothered and upset me was IKEA, because I really like this business,” she said.

Russians face a host of economic problems, from paper shortages (bring your own to many clinics to print diagnostic reports) to Western medicines, spare parts and computer chips.

Last week, the price of basic products in Russia shot up 14 percent in a single week, according to the Federal State Statistics Service. Panic buying of sugar erupted when its price rose by more than 37 percent, prompting an official antitrust investigation.

An analysis by the Vneshekonom Bank Institute published on March 22 predicted that real wages would fall 12 percent this year, unemployment would reach 6.2 percent and inflation would reach 19.3 percent by the end of the year.

Independent economist Vladislav Inozemtsev warned that in a few months, manufacturers will run out of affordable stocks of key components. “The most serious problem will be with all Western products and spare parts and everything that Russia uses in the production chain because some Russian products will disappear completely if they cannot find the necessary substitutes, for example computer chips,” Inozemtsev said, director. of the Center for Research on Post-Industrial Societies.

He said that the quality of many products will decline even as their prices rise. “Everybody heard about the problems with the paper, with a supply interruption for two or three weeks. Then it reappeared in stores but the price was 2.5 times higher, and it wasn’t as white,” he said.

But Sergei Guriev, an economist at Sciences Po in Paris, said that as long as Russia can continue to sell all the oil it wants at more than $100 a barrel, it will be able to finance the things that matter most to President Vladimir Putin: the war effort. , propaganda to support it, and security services to suppress dissent.

“Putin doesn’t care about economic growth. He wants to survive,” Guriev said. Putin’s concern is mainly with the people around him, because some of them are unhappy because they see their businesses damaged and the military campaign struggling. “Then he will not provide income to [the public] but instead he will deliver the repression. In that sense, what matters to him is having enough oil money to pay policemen, propagandists and soldiers, and their friends,” Guriev said.

Disappearing Tiles and Disappearing Customers

For Kukkoyev, the problems cascaded like dominoes. His beloved IKEA panels and accessories were no more. He replaced the Russian tiles with the Italian tiles appreciated by his wealthiest clients.

“Our clients had a certain image in mind of their apartment. Now the landscape is different,” she said. In his 74 ongoing projects, he said, clients will pay “three, four, even five times more” with shingles, fixtures and sub-panels.

Since the end of February, his wealthiest clients have also been disappearing. One wealthy client, who works in logistics, canceled a renovation project “because his business was falling apart,” Kukkoyev said. Another canceled because the sanctions had affected his business. A third broke off contact with him because he could no longer afford expensive accessories.

Kukkoyev turned around and sued IKEA, seeking damages of four billion rubles, almost $12 billion, in addition to seeking the IDEA trademark.

An IKEA spokeswoman named Maddie, who provided only her first name, said the company was considering taking action on its own. She said Inter IKEA Systems BV, the owner of IKEA’s intellectual property rights, including trademarks, was aware of Kukkoyev’s trademark application and was looking into the matter “to explore possible steps for action.” .

While the Putin government can curb discontent among its loyalists, for example by indexing pensions to inflation and supporting state-owned companies, it is people like Kukkoyev’s clients who will be hit hardest by economic hardship: “ people in urban centers who have gotten used to the standards for all these years,” Inozemtsev said.

“It will hurt the upper middle class because these people consume most of these advanced products that need high-tech components. Good computers will be in short supply and mobile phones,” he said.

Settle for haircuts instead of dyes

The sectors that seem to be most affected are advertising, travel, hospitality, fashion, luxury goods and services.

Restaurateurs cannot obtain fish, vegetables, pasta, salads, sauces and other key items, Sergei Mironov, deputy chairman of the Federation of Restaurateurs and Hoteliers, told the pro-Kremlin Izvestia newspaper on Monday.

The owner of a Moscow cocktail bar, who spoke on condition of anonymity for fear of reprisals, said the business he started just over a year ago would likely survive for only three to six months, after major alcohol importers stop shipping products to Russia.

Large non-state manufacturers, such as Russian automakers, which rely on imported high-tech chips and electronics, are also struggling.

Sofia, 43, a beauty salon owner, was about to open a new one when the war started. She abandoned her plan when her business crashed and her income plummeted. Even the few remaining loyal customers are cutting costs.

“For example, they will only cut their hair, they will not dye it. Or a manicure without nail polish,” Sofia said. She spoke on the condition that her last name not be published for fear of repercussions from Russian authorities.

“People are depressed. They are worried. Clients usually come to my studio in a good mood, but now that’s not the case. People are worried about prices. They are trying to save on everything because they don’t know what will happen in the future,” she said.

His business has also been affected by the government ban on Facebook and Instagram, which were the two main ways he promoted his business.

Sofia said her customers had gotten used to her using Western products because of their quality. Now, she said, “I don’t know what I’ll wear.”

Richer than North Korea and Iran

Since Putin is unlikely to back down in his confrontation with Ukraine, sanctions on Russia could remain in place for years, Guriev said. “It will be much richer than North Korea and Iran, but it will be economically isolated and will not grow. Income will be substantially below last year’s levels, so you will be in a kind of poverty.”

He predicted that the increasingly repressive government, coupled with economic misery, will make Russia an unpleasant place to stay. “A lot of educated young people will leave, simply because there is no future,” she said. “There is no way to do business, there is no way to be a starter, there is no way to become a successful professional.”

Sophia said she hopes her beauty salon somehow survives.

“It feels like we’ve gone back hundreds of years. We had plans. We try to be creative to meet the demands of our customers and now it’s all gone. I don’t see anything good in the near future,” she said.

Kukkoyev’s big idea, copied directly from IKEA, is to sell decent and affordable furniture, simply made in Russia.

But if it does take off, it probably won’t match the company you once loved. Furniture, like Russian paper, will probably be expensive and inferior.

Mary Ilyushina contributed to this report.

Previous post Sensex Indices: Market Starts FY23 On A High! Sensex rises 708 points; Nifty ends above 17,650
Next post Burned out by tech stocks? Consider These 2 ETFs Instead | personal finance
%d bloggers like this: