Big Brands Face ‘Now What?’ Moment on Whether They Cover or Eat Cost of Russian Departures

The list of multinational brands announcing their departure from Russia literally grows by the hour, with the cumulative corporate cost of “doing the right thing” rising alongside of it.

For McDonald’s, the number is $50 million a month.

Adidas set the preliminary cost of leaving Russia at the equivalent of $275 million.

On Thursday (March 10), Shell pegged its departure-related write downs at $400 million.

And on and on it goes.

While the suspension of Russian revenue is typically a low-single-digit top line hit for most multinationals, those costs pale in comparison to two other factors threatening businesses right now” a broader global economic slowdown, and in very limited cases, the infinite cost of public condemnation for companies that have decided to stay put — at least for the time being.

One big name holdout on that front, Uniqlo — the Tokyo-based apparel brand of Fast Retailing — announced an about-face Thursday morning after a week of criticism and the cold, hard truth that keeping the lights on at 50 stores in Russia was not worth the hit it was taking at 1,100 stores worldwide.

“While continuing our UNIQLO business in Russia, it has become clear to us that we can no longer proceed due to a number of difficulties,” a company statement read without putting a dollar value on its decision. “Therefore, we have decided today to temporarily suspend our operations.”

So Now What?

To be sure, the flow of business news related to Russia has been brisk the past two weeks, as individual consumers and company executives have been keen to learn the latest about who is doing what.

To keep track of that flow, the Yale University School of Management is keeping a running tally of company decisions which it reportedly updates hourly. Its latest release, dated March 10, pegged the number at over 300 companies pulling out of Russia, a number it said has gone from a few dozen to a few hundred in just eight days.

At the same time, the list of businesses that remain in Russia — or have yet to make a statement on the issue — is shrinking, but still includes major U.S. players in food, pharma, advertising, hospitality, energy and commodity-related companies.

For those that are officially out, the primary focus will now be on managing the over 90% of their business that remains while contending with another macroeconomic headwind in the form of rapidly rising inflation, particularly at the gas pump.

As it is, the latest government inflation data for February, which doesn’t even include the war-led spike in energy prices seen over the past two weeks, hit a fresh multigenerational high Thursday of 7.9%.

The most common solution most businesses take will be price increases. While some will attempt to mask higher selling prices in the form of smaller portions or packages — a process often referred to as “Shrinkflation” — other retail brands are simply hiking prices when and how they see fit.

“One of the big benefits of operating a large D2C business is the flexibility when it comes to pricing,” Adidas CFO Harm Ohlmeyer told investors Wednesday on the company’s earnings call. “We can adjust prices quickly on a weekly basis and we have already made use of this flexibility and increased our prices by more than 20% over the past two weeks to at least partly compensate for the strong devaluation of the Ruble,” he added.

That said, prior periods of high inflation and reduced consumer buying power have also historically been opportunities for retailers and brands to gain market share and attract customers by not raising prices or offering other promos to customers who are expected to be bargain hunting like never before.