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Burberry, Chanel, Louis Vuitton among luxury brands leaving Russia

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Yahoo Finance's Karina Mitchell explains why luxury brands are cutting ties with Russia despite being exempt from sanctions.

Video Transcript

BRIAN SOZZI: The list of businesses-- excuse me-- globally engaging in self-sanctioning against Russia continues to grow, but is the reason for doing so purely on moral grounds, or are there other factors driving the exodus? Here with more on that is Yahoo Finance's Karina Mitchell. Karina.

KARINA MITCHELL: OK, well, British luxury brand Burberry is the latest to join the exodus. It is shutting temporarily its three stores in Russia. It actually has three of them. One is a franchisee. One of them is a big store in Moscow in the famous Red Square. But it's all in the back of other brands that have turned their back on Russia in recent days. Those include the likes of Chanel, Hermes, Louis Vuitton, and Prada, as well as Kering, which is a French multinational specializing in luxury goods. It owns brands including Balenciaga, Gucci, Alexander McQueen, and Yves Saint Laurent.

All that despite luxury labels being exempted from EU sanctions, so meaning, at least for right now, countries like France and Italy can legally export goods to Russia. But Burberry's move actually comes after it already announced last week it had halted deliveries to those three stores. The reason it did so wasn't just purely altruistic. I need to point that out. It was dealing with what it called said, quote, "operational challenges."

And that decision to stop shipments to the country already effectively shut its online operations and yesterday. So as of yesterday, Burberry's Russian online site has been removed, though access is still available across other parts of Eastern Europe, including Estonia, Romania, Latvia, and Poland. Cementing their inability to operate in Russia was the fact that-- think about it-- Amex, Visa, Mastercard pulled out of the country, resulting in transactions being blocked. And SWIFT sanctions, flight bans, shipping sanctions from the likes of DHL and FedEx, literally, it makes it virtually impossible to get any of these goods into Russia, Brian.

JULIE HYMAN: I'm going to pick it up here, Karina, because I'm curious how valuable these Russian customers are when we're talking about all these luxury goods.

KARINA MITCHELL: Yeah, for sure. That's a great question because think about it, they are valuable. You know Russians are big spenders, whether they're in Russia or they're outside of Russia. So slapping the wealthy with these sort of sanctions and then also sort of stopping them from being able to transact with credit cards, it definitely weighs, right? So Jefferies says that Russians account for about $9 billion worth of luxury spending.

So to help put that into context, that's about 14% of what the US spends on luxury goods and about 6% of what the Chinese spend on luxury goods. So is it a colossal amount? No, but is it significant? For sure. And what's really interesting is what these wealthy Russians were doing before these stores closed down, which is basically they were flocking into these luxury brands and buying up everything they could.

Also, they could amass some sort of wealth as the currency there basically collapses. The ruble is worth something like less than 1% in dollar terms right now. So again, it's not chump change that Russians spend. And these brands are trying to be very, very careful in their messaging because in the long-term, they don't want to lose these Russian customers if they don't have to.

Chanel actually put out a statement, which hopefully we can pull it up right now. It says, in part, given our increasing concerns about the current situation, Chanel decided to temporarily pause its business in Russia. The safety of our employees is our priority. And we remain closely connected to our local teams, who we will continue to support.

LVMH also out with a similar message, saying, it will support its 3,500 employees that it currently has in Russia. It will continue to pay them and, in fact, has also made a sizable contribution, a donation to the International Red Cross to help Ukrainians there as well. So making sure to play both sides of the aisle very, very carefully.

But listen, luxury stocks have taken a big hit. Burberry shares down more than 20% just over the week. LVMH down by about 17%. Even Ralph Lauren, it says about a quarter of its sales are tied to Europe, also getting hammered. So it just goes to show you that every sector is impacted. Everyone just wants this to end.

BRIAN SOZZI: Indeed, they do, and indeed, this is not chump change. Yahoo Finance's Karina Mitchell, thanks so much.