Fur Coats Lose to Food as Ruble Drop Hits Finnish Town

Updated on

Nestled in the southeast corner of Finland is a pristine region dotted with lakes and pines that’s the euro area’s first point of call for many Russian shoppers.

It’s here in the town of Lappeenranta, just 200 kilometers (130 miles) away from St. Petersburg, where the weaker ruble and a sanctions dispute between the European Union and Russia is taking an especially big bite out of the economy.

The town of 70,000, which boomed with tourists from the east in the two decades since the Iron Curtain was pulled down, is now struggling with a different reality. Purveyors of luxury goods, such as handbags and designer shoes, are closing their doors, and business is down even for fish handlers and stores selling inexpensive fashion.

“People used to come from Russia to buy fur coats, now they buy food,” said Ville Maunula, who runs Safar Oy, a company specialized in processing tax-free refunds and foreign exchange for tourists. He’s cut the hours for some of his staff because of a revenue drop that’s “clearly connected to the collapse of the ruble.”

The average Russian tourist now spends about 150 euros ($190) when visiting the area --- down about 40 percent from the peak of the economic boom, said Mika Peltonen, head of the local chamber of commerce.

Fewer Tourists

Almost a half of the tourists arriving in the Nordic country come from its eastern neighbor, more than three times as many as from Sweden and Germany combined. Overnight stays by Russians are down 11 percent through July, according to Statistics Finland, and 8.4 percent fewer people crossed the demarcation between the countries through September, Border Guard data shows.

That drop is especially acute for Lappeenranta. One in every three euros spent by Russians in the country goes to shop and hotel owners in the area, which enjoyed Finland’s fastest retail-sales growth per capita in the decade through 2010. That coincided with a boom in the oil-producer’s economy, which grew on average 4.9 percent a year.

Nowadays, Russian travelers often cut their journey short, with 72 percent of tourists limiting their trip to a single day, compared with 58 percent a year ago, the Finnish Commerce Federation said today.

A slowdown in Russia, with the ruble down 16 percent this year, is hurting purchasing power for the middle class and hampering tourism. The economic impact has worsened since the March annexation of Crimea, the crisis in eastern Ukraine and trade sanctions. No euro nation is more reliant on trade with Russia than Finland, which has the longest border with the eastern-European country of the 27 EU members.

‘Pain Threshold’

“One of the things that companies in this area follow daily is the ruble rate,” said Peltonen. The current 52 rubles per euro is past what Peltonen calls the 50-ruble “pain threshold for Russians.”

At the Galleria shopping center in the heart of the city, a resounding male voice on the loudspeakers touts winter fashions in Russian as few shoppers roam the aisles. Two clothing stores are closing this year, said Sari Mustapaeae, who runs the center. That’s a first for the seven-year-old mall, where customer numbers are down about 10 percent.

“Russians buy less,” she said. And when they do, “they consider purchases more carefully.”

The borderlands between the two nations have a trade history going back hundreds of years, with such products as animal pelts, textiles, wood products and butter being swapped.

Fewer Goods

St. Petersburg residents started flocking west in the 1990s, passing 1 million annually in 2000. Lappeenranta decided then to make a conscious effort to lure the 5 million inhabitants of Russia’s second-biggest city.

“The visitors spend about the same amount of rubles as before, it just buys fewer goods,” Kimmo Jarva, the town’s mayor, said in an interview.

Russian tourist spending on shopping, food and hotel nights in the region will drop about 10 percent this year to 320 million euros, Jarva said. The selection of merchandise has also changed.

Most cars parked outside Disas Fish near the border have Russian plates. Alex Zezulin, 27, said he drives across the border about twice a month to buy fish, taking as much as 3 kilos (7 lbs) home to St. Petersburg from each trip.

“It’s enough for a few weeks, I’m not talking about huge containers,” he said, while perusing displays of smoked salmon, halibut, roe and caviar at the longest seafood counter in Finland. “The prices for fish are good.”

It’s consumers like Zezulin the town is banking on to get through the downturn, with the hope that the hordes of big spenders start coming back at some point.

“The potential purchasing power in Russia is vast,” Jarva said. “Growth is inevitable for us. There’s always a recovery.”