Russian clothing brands on the verge of collapse: Up to 40% of stores risk closure

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

While these deals may seem like a marketing ploy, they are practically the only way for Russian clothing brands to bridge financial gaps and cover salaries quickly. Faced with a combination of unexpectedly low sales, a new tax burden that came into effect this April, and ever-changing 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 an 11% decline in the number of purchases in 2025 compared to a year earlier. Kontur.Fokus analysts they 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. The industry's forecasts are also bleak: Goldman Agency economist and managing partner Olga Popkova, cautions that up to 40 percent of clothing stores in Russia could close by the end of the year.

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

Other interviewees reported a similar trend. Financial reports for 2025 show that the entire industry is struggling, except for a handful of mass-market giants, such as fast-fashion line Limé and branches of Melon Fashion Group, which had managed to grab prime retail space, rapidly expand their product ranges and become the most visible replacements for well-known but defunct brands such as Zara and H&M. Although they continued to grow last year, it remains to be seen whether this will be sustainable.

“It seems to me that initially, all market players, the government and consumers underestimated the extent of the impact of the war and sanctions on the economy and their businesses,” says Nikolai, a senior manager with 20 years of experience in the retail industry and former director of a major 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 significant and widespread decline in purchasing power as the main reason for the decline in sales – a trend confirmed by the analytical service SberIndex. “People are definitely starting to feel the squeeze on their budgets,” says Marina, summarizing 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 – food, rent, new taxes – but wages are not changing."

With people focused on survival, buying new clothes ceases to be a priority, and shopping is associated with a sense of guilt rather than pleasure. This is also evidenced by the high number of returns from customers who feel they “cannot afford” their purchases. As interviewees told Novaya Gazeta Europe, even the wealthiest shoppers have become frugal, with constant uncertainty pushing them to save money “just in case.” According to Lidiya, wealthy customers are now going back into their closets, wearing luxury clothes from past collections and repairing items. 

While this may seem to suggest a more environmentally friendly consumption pattern, it is not. Many shoppers are switching to cheaper clothing of questionable quality and environmental impact. Meanwhile, low-price retailers are reaping the benefits, as both volume and demand mechanisms 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 from 500 to 700 rubles (6–8 euros), were bought up immediately. People want to treat themselves to something, even if it's something small," says Aglaya. 

Lydiya also commented on this trend. “The desire to buy a quick dose of dopamine in difficult times has not disappeared; it has only increased. Only now, people have reduced their spending so much that they would rather impulsively spend 500 rubles on the latest trendy drinks or sweets than save up for a new accessory.” 

Like the cost of living, the cost of doing business is rising. Raw materials, logistics and rent are becoming more expensive every year, and the crisis in the fashion industry is forcing regional wholesale partners to close businesses. This accumulation of challenges is leaving previously successful brands stranded in a difficult place, and their financial resources are rapidly disappearing. 

'There is no longer a financial model that works'

What frustrates business owners the most is Russia's increasingly complex maze of bans, registers, restrictions and relentless government curfews. "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 tax changes have hit medium-sized businesses 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 additional costs at the expense of their already slim 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 if their annual revenue didn’t exceed 60 million rubles. Starting in 2026, this threshold dropped to 20 million and will continue to drop by five million rubles each year until 2029. As a result, even small brands that make just over 20 million a year are now forced to charge VAT, hire an accountant, and hand over a portion of their working capital to the state. 

Some interviewees complained that their taxes have increased sixfold. “Over the past year, I have tried every possible financial model and I can say: there is simply no model that works in the current circumstances,” Marina claims. 

Business owners are cutting costs in every way possible to survive: closing factories and physical stores, laying off staff, taking on more responsibility, and sometimes going without pay for months.

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

“In an ideal world, ‘Honest Mark’ should cost us almost nothing,” explains Marina. “But the system is so full of bugs that only someone who works with it constantly can manage it. So, in addition to the initial investment, we have to spend money on programmers, infrastructure maintenance, and overcome a large number of unnecessary obstacles within the company.” 

Russia's efforts to block social networks and ban ads on Instagram have also had a major 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," sighs Aglaya.

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

"It's very embarrassing when you're an experienced person with a functioning business, but you constantly have to deal with external, meaningless problems. One moment you're thinking about deciding whether a sign should be changed to Cyrillic, the next you're going to the store and there is no internet ", so the cash register doesn't work. Everything stops," says Lidiya. 

And all this is on top of problems that have persisted since Soviet times: a lack of manufacturing facilities, a lack 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 just 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, outside of Russia. 

Gloria Jeans, the country’s largest clothing manufacturer, has already closed or sold most of its local factories and has outsourced 80% of its 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,” founder and CEO Vladimir Melnikov said when explained the decision. 

Many founders of smaller companies are following suit. “We found a great factory in China and we’re going to make shoes there at a lower price. Yes, it kind of blurs our original concept of sustainability and local craftsmanship, but for now the most important thing for me is to maintain production and continue to launch 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 production and readily available raw materials, business conditions are more favorable. Manufacturers based abroad are also not required to implement the “Honest Mark” system, and Russian markets 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 are simply put in impossible circumstances. And honestly, I am exhausted by this – especially since I know that I could live and do business much more peacefully in other countries,” says Aglaya. “I am almost ready to give up. But I am very sad for our employees, who will have to be laid off if we close.”

Senior manager Nikolai believes that officials are undoubtedly aware of the crisis, but prefer to turn a blind eye in the name of goals that the Kremlin considers more important – namely the war. Apparently, small businesses that are being suffocated under a mass of new laws and restrictions are seen as mere collateral damage. 

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

However, most of the business owners interviewed for this article had reached their limits, both financially and morally. “We are ready for anything,” says Marina. “We will do our best and then we will see. Maybe we will succeed, maybe not… it’s not like we have any other choice.” 

Asked if her level of trust in the government has changed recently, Marina replies: “Are you kidding?” Then she explains: “If someone said to me, ‘Marina, on this day we are all going out into the streets to protest,’ I would be the first one out, 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 are doing now is just destroying businesses.”

The GeoPost