‘I’m almost ready to give up’

Russia’s retail boom has given way to a crisis in the fashion industry. We spoke to brand founders about how they’re staying afloat.

This spring, an increasing number of Russian apparel brands have found themselves in dire straits. Having seen rapid growth both before and during the war with Ukraine, these businesses now face increased tax burdens and declining demand. Coupled with long-standing structural issues, this is a recipe for a full-blown crisis in the fashion industry. While some are resorting to discounting, others are closing factories and retail spaces altogether. For Novaya Gazeta Europe, fashion journalist Katya Fedorova spoke with several Russian brand founders about the state of their companies, how they’re coping, and how their political views are shifting as a result. The names of all interviewees have been changed for security reasons.

Since mid-April, deep discounts, flash sales, and calls for support have become a noticeable microtrend among Russian fashion brands. Gate 31 — a major St. Petersburg label whose production facilities employ nearly 300 people — promised customers a “31% discount now and forever with the promo-code ‘Hope31’, if we survive”. The streetwear brand Bat Norton, which reported 200 million rubles (€2 million) in revenue back in 2024, also offered a permanent discount, stating that the “financial crisis” had pushed the company to the brink of collapse.

While these deals may look like a marketing ploy, they are virtually the only way for Russian apparel brands to bridge cash gaps and cover salaries quickly. Faced with a combination of unexpectedly low sales, new tax burdens that entered force this April, and ever-shifting state restrictions, the industry has found itself in a perfect storm. 

According to the fiscal data operator OFD Platform, Russian clothing and footwear retailers saw the number of purchases decrease by 11% in 2025 compared to the year before. Kontur.Fokus analysts report that 209,000 of Russia’s 6.9 million small- and medium-sized businesses closed in the first quarter of 2026 — a 9% increase compared to the same period last year. Industry forecasts are also grim: economist and Goldman Agency managing partner Olga Popkova warns that up to 40 percent of apparel stores in Russia could close by the year’s end.

‘We believed the higher-ups knew best’

To understand the current crisis, we need to go back four years and examine how the full-scale invasion of Ukraine and ensuing international sanctions completely reshaped Russia’s fashion market. 

According to Daria, the co-founder of a fashion business that’s over 15 years old, 2022 was “very scary.” But from a business perspective, things settled down fairly quickly, and their sales dropped by no more than 20%. “People adapted rather quickly — both to the situation and to each other, even if they found themselves in different ideological camps. We always maintained neutrality, trusted the government’s decisions, and believed that the higher-ups knew best,” her business partner Marina explains.

Indeed, after the initial shock of isolation and the departure of Western brands, Russian companies moved to fill the huge hole left in the market, buoyed by patriotic sentiment. This led to the growth of existing brands and a wave of new launches from major players and smaller entrepreneurs alike. 

Stella, who launched a youth knitwear line in 2022, soon found her brand trending. It was featured in the press and by influencers, showed at fashion week, and began growing rapidly — all without outside investment. 

Aglaya, whose brand is still entirely produced in Russia, says the war initially had little effect on her business. “There may have been a slight downturn, but it didn’t affect us critically at the time. We calmly navigated through it and started growing,” she recalls.

Lidiya, the co-founder of a handcrafted leather accessories brand, agrees: having weathered the initial restructuring of supply chains, her business began to grow and build a loyal customer base. 

However, the heyday of import substitution in fashion proved short-lived. As early as 2025, many brands began to sense a shift. “We experienced a sharp drop in demand starting around March last year,” Aglaya says. “Sales kept falling and falling. At first, it seemed temporary, but now we’re at a breaking point. All our working capital reserves are simply exhausted.” 

Other interviewees reported a similar trend. Financial reports for 2025 reveal that the entire industry is struggling except for a handful of mass-market giants, such as the fast-fashion line Limé and subsidiaries of the Melon Fashion Group, which had managed to snag prime retail spaces, quickly expand their product range, and become the most obvious replacements for popular, departed brands like Zara and H&M. Though they continued to grow last year, whether this will prove sustainable remains to be seen.

“It seems to me that initially, all market players, the government, and consumers underestimated the scale of the impact of the war and sanctions on the economy and on their businesses,” says Nikolai, a top manager with 20 years of experience in the retail industry and former head of a leading Russian department store. “But after a few years, and due to a combination of many factors, it finally caught up with everyone.” 

‘Discounts are the only thing that works these days’

Business owners unanimously point to a steep, widespread decline in purchasing power as the main reason for the slump in sales — a trend corroborated by the analytics service SberIndex. “People have obviously started to feel the squeeze on their budgets,” says Marina, summing up the feedback she receives from customers.

“It’s simply an economic downturn, a total decline in purchasing power,” Aglaya explains.

“Everything is getting more expensive — groceries, rent, the new taxes — but salaries aren’t changing.”

With people focused on survival, buying new clothes ceases to be a priority, and shopping becomes associated with guilt instead of satisfaction. This is also evidenced by the high number of returns from customers who feel they “can’t afford” their purchases. As interviewees told Novaya Gazeta Europe, even the most affluent shoppers have become frugal, with constant uncertainty prompting them to save money “just in case” According to Lidiya, wealthy customers are now returning to their own closets, wearing luxury apparel from past collections and having items repaired. 

While this seemingly suggests a more environmentally friendly model of consumption, that isn’t really the case. Many shoppers are switching to cheaper clothing of dubious quality and questionable environmental impact. Meanwhile, discounters are reaping the benefits, as both the volume and the mechanics of demand have changed. 

“Discounts are the only thing that works to increase customer interest these days,” confirms Marina.

“At our archive sale, the cheapest items, priced at 500 to 700 rubles (€6–€8), were snapped up instantly. People want to treat themselves to something, even if it’s something small,” Aglaya says. 

Lydiya also commented on this tendency. “The desire to buy a quick hit of dopamine in hard times hasn’t gone away; it’s only grown. Only now, people have cut back so much that they’d rather spend an impulsive 500 rubles on the latest trendy drink or pastry than save up for a new accessory.” 

Much like the cost of living, the cost of doing business is rising. Raw materials, logistics, and rent get more expensive every year, and the crisis in the fashion industry is forcing regional wholesale partners to shut down. This accumulation of challenges is leaving previously successful brands caught between a rock and a hard place, and their financial cushions are disappearing fast. 

‘There’s no longer a financial model that works’

What frustrates business owners most is Russia’s increasingly complex labyrinth of bans, registries, restrictions, and relentless government curveballs. “Every week, some new law comes into force that complicates our work. You don’t even have enough time to read and analyze them,” Aglaya complains. 

Recent taxation changes have hit medium-sized businesses the hardest. Starting in 2026, the standard value-added tax (VAT) in Russia increased from 20% to 22%. And because VAT is built directly into retail prices, brands must either absorb these extra costs at the expense of their already razor-thin margins, or raise prices for consumers who are already tightening their belts. 

The decision to lower the VAT revenue threshold has been particularly painful for the industry. In the past, small businesses didn’t have to worry about VAT unless their annual revenue exceeded 60 million rubles. Starting in 2026, this threshold dropped to 20 million and will continue to decrease by five million rubles every year until 2029. As a result, even small brands that clear just over 20 million annually are now forced to charge VAT, hire an accountant, and hand over a chunk of their working capital to the state. 

Several interviewees complained that their taxes have increased sixfold. “Over the past year, I’ve tried every possible financial model, and I can say: there’s simply no longer a working one in the current circumstances,” Marina maintains. 

Business owners are cutting costs in every way possible to survive: closing factories and brick-and-mortar locations, laying off staff, taking on more responsibilities, and sometimes going months without pay.

The “Honest Mark” system (Chestny Znak, in Russian) has also proven to be a major headache. A relatively new requirement, it allows for every unit of product to be tracked across the supply chain via a digital code. However, its implementation leaves a lot to be desired, forcing most business owners to outsource the labelling process. 

“In an ideal world, ‘Honest Mark’ should cost us next to nothing,” Marina explains. “But the system is so full of bugs that only someone who works with it constantly can navigate it. So, on top of the initial investment, we have to spend money on programmers, infrastructure maintenance, and jump through a huge number of unnecessary hoops internally.” 

Russia’s efforts to block social networks and ban Instagram advertising have also had a huge impact on many brands. “Social media and influencers have always been a key driver of growth and attracting new audiences, and now we’ve been deprived of that,” Aglaya sighs.

“When the social media restrictions started, I initially thought, ‘Oh well, we’ll make our own versions,’” Daria recalls. “But almost five years later, it’s clear that creating a high-quality, functioning alternative [to banned social media platforms] isn’t possible.”

“It’s so cringe when you’re an experienced person with a functioning business, but you constantly have to deal with pointless, external problems. One minute you’re figuring out whether a sign needs to be changed to Cyrillic, the next you go to the store and there’s no Internet, so the cash register isn’t working. Everything grinds to a halt,” Lidiya says. 

And all of this is on top of problems that have persisted since Soviet times: a lack of manufacturing facilities, shortages of affordable equipment, and virtually no real government support for light industry. 

“We’ve rebuilt [our business] so many times, but at this point, what’s there to rebuild?” Marina asks rhetorically. “It’s simply impossible.” 

‘I’m ready to hit the barricades’

Another long-term consequence of the crisis is that more and more entrepreneurs are moving production, and even entire businesses, out of Russia. 

Gloria Jeans, the country’s largest clothing manufacturer, has already closed or sold most of its local factories and transferred 80% of production to Bangladesh, Vietnam, and Uzbekistan. “We have a very diverse product line, and [Russian suppliers are] significantly inferior to alternative suppliers in terms of quality, fashion, and price. Simply put, it’s very unprofitable,” said founder and CEO Vladimir Melnikov when explaining the decision. 

Many founders of smaller companies are following suit. “We found an excellent factory in China and will be making shoes there at a lower price point. Yes, this somewhat blurs our original concept about sustainability and local handicraft, but right now the most important thing for me is to maintain production and continue releasing our classic, more expensive models,” Lidiya explains. 

Other interviewees also said they are considering re-registering their companies in China and other countries, where, in addition to high-tech manufacturing and readily available raw materials, business conditions are more favorable. Manufacturers based abroad also don’t have to comply with the “Honest Mark” system, and Russian marketplaces offer lower commission rates to sellers from countries like China than to domestic brands. As it turns out, four and a half years after Western brands exited the Russian market, import substitution is actually working — albeit in reverse. 

“Right now in Russia, we’ve simply been put in impossible circumstances. And honestly, I’m exhausted by it — especially since I know that I could live and do business much more peacefully in other countries,” Aglaya says. “I’m almost ready to give up. But I’m so sad for our employees, who will have to be laid off if we close.”

Top manager Nikolai believes that officials are undoubtedly aware of the crisis but prefer to turn a blind eye in the name of goals the Kremlin deems more important — that is, the war. Apparently, small businesses suffocating under a pile of new laws and restrictions are simply seen as collateral damage. 

Still, some brand owners try to remain optimistic. “I deliberately only discuss the situation with Gen-Z entrepreneurs. Many of them launched their businesses recently, during the current crisis, without calculating the risks — just on a wing and a prayer,” Stella says. “They just put their heads down and do what they can today, and I’m trying to learn from them.” 

That said, most of the business owners interviewed for this article had reached their limits, both financially and in terms of morale. “We’re ready for anything,” Marina says. “We’ll do what we can, and then we’ll see. Maybe we’ll pull through, maybe we won’t…it’s not like we have a choice.” 

Asked if her level of trust in the government has changed of late, Marina responds: “Are you kidding?” Then she explains, “If someone told me, ‘Marina, on this day we’re all taking to the streets to protest,’ I’d be the first to go, holding a pitchfork. And 99% of the people I talk to feel the same way. I used to laugh at [people like that] — I thought you couldn’t beat the system and that my voice didn’t matter. But now I’m ready to hit the barricades, because what they’re doing right now is simply destroying businesses.”