Does Eastern Europe produce luxury brands?


Radu Rizea | October 05, 2009

Radu Rizea, senior editor of CPP-LUXURY.COM, a luxury news portal specialising in the CEE markets, ponders whether there is a future for indigenous luxury brands from Central and Eastern Europe.

Radu Rizea, senior editor of CPP-LUXURY.COM, a luxury news portal specialising in the CEE markets, ponders whether there is a future for indigenous luxury brands from Central and Eastern Europe.

Despite its position as opening for the global luxury surplus, the Central and Eastern Europe (CEE) is, in fact, quite poor when it comes to proprietary luxury brands. A company here and there, making a name around the globe in a few cases but that’s all. One could not find a dozen significant names on the luxury market, except maybe for some brands tightly connected to history and heritage, brands that not even the Communist regime dared to shut down. Herend porcelain and the Bohemian glass are the two names that come to mind approaching the issue.

A chronic lack of luxury

The absence of luxury in this area has its grounds. Beyond the historical lack of fortune that placed all CEE states in the way of migratory campaigns and wars of all sorts, the Eastern Europe found it difficult to assume a noble identity until the late 18th century. The only country where the influence of a certain nobility still stands is Hungary, once part of the Austrian – Hungarian empire.

In the late 19th century and the first decades of the 20th, a middle class is born. Youngsters return to their native lands after getting an education in Paris, Sorbonne, London or Berlin. The average level of education is at a peak. Meanwhile, on the market, tailors and their custom-made suits, jewelers and perfume makers become an elite among craftsmen. The aristocrats start longing for “Paris-like fashion”. Freeways built to serve for war purposes contribute to the exchange of knowledge, fashion and information. A few products generated in the East acquire international recognition.

The dawn of the Communist era, after the second world war and its subsequent crisis, brings along the persecution of noblemen and their families, the nationalization of all production facilities and, since luxury and the “proletarian dictatorship” can’t live together, the end of any production of premium or luxury items. Several countries in the CEE area struggle for independence from Moscow, only to bring famine and darkness over their people. The West is cautious in its relationship with Russia – satellite states. The road towards Socialism aims at full independence, from both the East and the West, targeting a fully functional autonomous society. Nothing is destined for consumption unless it is a national product.

The consumer’s point of view

In the ‘80’s, luxury meant for Romanians (and other Communist states) nothing but a plastic bag with a tobacco brand printed on it, a plastic bottle or a BIC lighter. A pack of cigarette (Kent or Rothmans) and a bottle of Johnnie Walker were the top achievable luxury. Their symbols remained in force quite a few years after 1989, the official date for the fall of the Communist regime.

After 1989, as any new market, the CEE state were flooded with cheap products, mainly from China, Turkey, Russia and Ukraine. From elementary households to t-shirts, dealers made a fortune on market lacking elementary financial regulations, such as excises, VAT or other taxes.

The middle class products (entry level / some quality) entered the market with cheers, horns and drums. Advertising budgets and the new “free” TV stations made average consumers that the Consumerist God has just rented a studio down the street and became one of theirs. A couple of products with warranties still valid, a few clerks under-55 and everything became heaven.

The first attempts to sell true luxury came around the dawn of the new millennium. CEE states had produced a handful of “new rich” – people in real estate, football, state employees in charge of privatizations and so on. They had already assumed the main Western luxury symbols – brands like Hermes, Vacheron Constantin, Rolex, Gucci, Vuitton, John Lobb, Hugo Boss, Armani, Versace and others. It was time for their executives and top management to afford such products. Instead of them going to Milan or Paris, watches, jewelry and some fashionable street wear brand arrived in Romania.

Some had a good start and begun selling significant amounts – be it via franchises, multibrand or monobrand stores. Others lost the consumers’ confidence by first importing the cheap, entry-level lines. A few lost control of the market, already flooded by fakes wearing their brand name. The most important brands, though, refused to make any important move in the area (with a few notable exceptions) and thus failed to gain recognition before the financial crisis. Those who approached the market before the crisis have a break now, finding opportunities to consolidate their position with little expense.

From a production point of view

Industrialization by force and urbanization by governmental decree (a huge migration from the rural to the urban areas, dictated by the Communist party) had long-term side effects. For the luxury industry, the most important fact is that craftsmanship in traditional production was lost. Bound in “production cooperatives”, all former enterprises lost their identity. Efficiency and politics denied the very existence of private initiative.

After 1989, the “cooperatives” lost their last seniors, long passed their retirement age. In Bucharest, even the ancient glass furnace downtown became a beer and sports pub. Textiles, shoes, embroideries – all was in the past now. Cheap products reigned in an underpaid society.

Political clients only aimed at taking over industrial and tourism assets. Luxury was only something to be bought from abroad and no Eastern millionaire ever even considered launching a local luxury brand, regardless the object. After 2000, when the first personal loans were approved by banks, a new paint on the wall, a microwave oven and a branded TV were the extreme affordable luxury (for an interest rate 4 times higher than anywhere in Europe).

Adopting any symbols, from luxury brands to Valentine’s Day, Halloween and Christmas turkeys, the CEE citizens realized that their traditions mattered only after their accession to the European Union. Still, only a couple of goods were brought back to life, ranging from plum jam to salami, with a few cosmetic products and… that’s about it.

The only brands to be resurrected were those that even the Communist regime failed to burry – such as the already mentioned Bohemian glass and Herend porcelain.

A few quality producers became suppliers for foreign brands. Eastern clothing, furniture and top-of-the-class fabrics were exported and then sold under the name of major brands. All luxury producers found fit to employ cheap Eastern labor force, without caring for the market itself – an attitude that led to a wave of fakes and stolen design products.

What can one call “CEE-made luxury”?

" target=“_blank” title=“http://www.herend.com__”>The Herend Porcelain
First sold in 1826, the Herend porcelain gain recognition in 1851, after the adoption of the Victoria pattern. After 180 years of history, the Hungarian state recognizes the importance of the Herend Museum. Today, it’s a must for royal courts and can be found in all executive suits in the Kempinski hotels.

Bohemian crystals
Produced since 1250, a century after the first documents about local “colored glass” production, the Bohemian glass had its first official museums in the 17th century. During the communist age, manufacturers are gathered into a state-owned enterprise. German craftsmen leave the Czech republic, seeking shelter in the Federal Republic of Germany. After 1989. Ornela Company Limited takes over the former state “cooperative”, „Jablonecké sklárny – Dolni“. In 2005, Ornela is shut, its remains being took over by Jablonex Group

" target=“_blank” title=“http://www.czechairlines.com__”>CSA – Czech Airlines
Best business class in Eastern Europe awards for this SkyTeam Alliance member. Despite the recent incentives and price cuts policies, it still maintains high standards in service.

" target=“_blank” title=“http://www.saint-crispins.com__”>St. Crispin’s
One of the very few luxury companies born after 1989. A Romania-based producer of ready-to-wear and bespoke shoes, currently operating in Japan, Germany and Switzerland. Its products are fair competition to John Lobb and well above the commercial lines produced by Ferragamo.

The production potential

Ever since the accession to the European Union, the CEE states were directed towards promoting local brands and products, from salami and sausages to wine and spirits. A couple of small quality producers approach the fine wines segment, but their attempts seem effortlessly doomed by decent prices for imported wines.

Traditional brands, mostly under private ownership, have few – if any – marketing and development resources. Several quality goods producers prefer to supply major brands with raw matters or finished products.

In Romania, one of the main marketing failures is the Gerovital line of cosmetics. After the ban of the Gerovital H3 formula in the US, the cosmetics are still sold, with some success, but its origins are not acknowledged. With Sophia Loren, Fidel Castro, Charles de Gaulle, Kirk Douglas, John F. Kennedy, Marlene Dietrich or Salvador Dali recommending it, Gerovital should have been a national treasure by now.

Romania’s national vehicle, Dacia (under Renault ownership) sees no future in launching any premium or luxury vehicles. Across the border, the Czech Skoda launched its “Superb” model, close to 40,000 Euros in its full-option version. 10,000 Euros short of the “luxury” class, but 10,000 Euros above the average executive car in CEE states.

Quality wine producers play an increasing role on the market, if not for their business figures, at least for forcing industrial producers to adopt higher quality standards. Wines ranging from 20 to 200 Euros per bottle are currently produced by Crama Oprisor, Cramele Rotenberg and DAVINO in Romania, several Tokaji producers, St. Andrea (Eger) and Gere Attilla (Villany) in Hungary, as well as Enira in Bulgaria.

Fashion is rather poorly represented abroad, with two Romanian designers: Doina Levintza (Paris and NY shows with some success and constant demands from the US, years after the shows were put up) and Iulia Dobrin, with her lingerie company, I.D. Sarrieri, rather a “quality”, not “luxury” brand.

As local potential, the huge production of goose liver and game in Hungary may soon become more than “export asset”, once some gourmet companies decide to produce their foie gras within the country.

The way things go in the CEE states, is seems that a consolidated luxury market, with all the major brands well represented, is required before any luxury brands arise. The potential is promising, but has no chance to turn into production earlier than ten years.