Party over for rich Russians as crisis evaporates billions

Bloomberg

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Champagne and caviar are out in Moscow, and vodka and pelmeni dumplings are back in. Rich Russians, stung by the end of the biggest economic boom in their history, are tempering the opulent lifestyles that made the city of 10 million the bling capital of Europe.

Demand for private jets and $500,000-a-week yachts has collapsed, while a survey by restaurant consulting group Restcon found revenue at high-end eateries has halved. Luxury-clothing boutiques selling brands such as Alexander McQueen and Stella McCartney are closing down.

"A new lifestyle mentality is taking shape," said Roman Trotsenko, 38, the millionaire founder of airport builder Novaport. "People aren’t really in the mood to party."

Moscow had 74 billionaires a year ago, more than any other city in the world. Now it has 27, according to Forbes magazine. The 25 richest Russians lost a combined $230 billion during six months last year as the value of their companies plunged along with commodity prices, according to Bloomberg calculations.

The government expects the economy to shrink 2.2 percent this year after expanding about 7 percent a year since 1999. Unemployment is at a four-year high of 8.5 percent. The proportion of people who consider themselves "poor" has doubled to 14 percent in the past year, according to the All-Russian Center for the Study of Public Opinion in Moscow.

"You just can’t party when others are starving," said Boris Teterev, president of Rolls-Royce Motor Cars Moscow, which opened in 2004.

Trotsenko said Russians are increasingly spending more time with their families, on trips to theaters and museums and "home parties" with vodka and pelmeni.

Conspicuous consumption was socially acceptable during the boom, when unemployment was falling and wages were rising, said Trotsenko, who is worth $70 million, according to Finans magazine, a Russian competitor of Forbes. Teterev, 55, who has a personal fortune of $200 million, according to Finans, envisages Rolls-Royce sales will fall by as much as a third this year. That’s about twice the rate of decline that Milan-based industry group Altagamma predicts for Russia’s $5.7 billion luxury market as a whole.

Change in spending behavior

"Spending just isn’t fashionable anymore," said Kirill Shishkov, co-owner at Teorema Holdings, which develops residential and commercial property in St. Petersburg.

Shishkov, 37, is among the 400 Russians who are worth at least 2 billion rubles ($60 million) each, according to Finans. While part of the change in spending behavior is due to shrinking fortunes, politics is playing a role, said Alexander Dobrovinsky, a corporate and divorce lawyer.

Many oligarchs are seeking state protection from Western creditors and don’t want to irritate the Kremlin with outlandish behavior at a time when the government has declared social spending its top priority, Dobrovinsky said.

"The private jets are still there, but the names of the owners have been scratched off," said Dobrovinsky.

President Dmitry Medvedev spelled it out last month, saying the wealthiest Russians need to focus more on their businesses and less on personal spending to help the country weather the worst economic crisis in a decade.

"People became very wealthy in a very short time," Medvedev, 43, said in a March 15 interview. "Now it’s time to repay debts, moral debts, because this crisis is a test of maturity."

Medvedev was voicing support for what state television and talk radio call the "anti-glamour revolution."

A lot of the decline in spending is simply down to image, said Teterev at Rolls Royce. "People who lost their money pretend it’s trendy, but if you have resources, you will never get rid of your driver or your cleaning staff."

There’s also evidence the Russian party is just moving elsewhere, away from the Kremlin’s gaze.

"We’re sold out this season," said Alexi Usati, owner of Retrohunt, a Namibian company that offers Russian clients "hunting and safari adventures" for $150,000 each. There’s no sign of crisis, either, at Most, a French restaurant a block from Red Square that recently charged a couple $16,000 for dinner. "Our guests are used to this lifestyle," General Manager Mikhail Dolgi said.

Moscow authorities last month allowed dozens of people to demonstrate downtown against ostentatious spending, with placards saying, "Glamour is a party during the plague."

"The glamour lifestyle is promoted by those who agree with the pro-American lifestyle and want to destabilize our society during these difficult times," said Alexander Bovdunov, a spokesman for Eurasia Youth Union, which organized the event.

Mikhail Prokhorov, then CEO of Norilsk Nickel, embarrassed the Kremlin two years ago by flying in a planeload of women for a private party and getting arrested on suspicion of pimping. He was cleared of any wrongdoing.

Prokhorov, 43, now Russia’s richest man, appears to have gotten the message. Snob, his lifestyle magazine, last month declared the new motto for Moscow: "Fast, Slick and Cheap."

Snob told its readers that "saving money is the trendiest thing to do."