Glitzy, plush stores lure fat cats, while government ponders more luxury taxes

  • 2011-08-24
  • By Linas Jegelevicius

GOING THE RIGHT WAY: President of Lithuania’s Hotel and Restaurant Association Evalda Siskauskiene says that Vilnius’ tourism sector is fast on the path to recovery, promising more ‘fat cat’ clients.

KLAIPEDA - It is probably blasphemous to speak about luxury when over 600,000 people in the country live under the poverty line, getting by on less than 720 litas (206 euros) a month. This is in addition to the 12 percent current unemployment level.
On the brighter side of the matter (should I say sneakier side?), the statistics often are a bit too shady as, in fact, many statistically impoverished compatriots turn out, in fact, to be the richest in the Lithuanian shadow economy, augmenting their wallet size from smuggling, or working off the books. This accounts for a staggering one-quarter of all work-age Lithuanians.
With the “official” number of new fat-cat millionaires jumping by 272 last year, reaching several thousand money-bags in total, the prospects of the luxury goods market in the country may seem to be promising. However, the majority of really rich Lithuanians, who could spend 50,000 litas for a Rolex watch at a sigh, tend to be very secretive about their wealth, playing down their luxurious purchases, meekly calling them lifestyle “necessities” rather than the signs of luxury. This approach is due to the uncertainty about the pending adverse tax policies towards well-to-do citizens and the luxury market.

Some wealthy people seem to deliberately assume a composed mentality in order not to raise envy from their neighbors, co-workers, constituents and others. Vaidas Simaitis, owner of the prestigious residential and commercial real estate sprawl in Sventoji, a resort-type settlement 12 kilometers north of Palanga, drives a prestigious Mercedes-Benz CL65 AMG, wears a diamond-studded watch and has recently vacationed with his family in the Dominican Republic, a holiday which, for many Lithuanians, may seem to squander a life-time’s fortune.

If, upon meeting, you may expect a millionaire-like attitude, you will be pleasantly surprised to find him to be a next-door-type-of-guy. “To be honest, I do not care about luxury and what you call luxurious purchases,” he repeated, while I felt his slight unease while speaking about the topic.

“Many people wrongly presume that I sleep on bags of money. It is not true, as all my money has been invested in real estate. Also, I admit I am heavily indebted to banks, with loans which help run the business,” he admitted to The Baltic Times.
He shakes off the image of a man indulging in the pleasantries of luxury, calling it “improper and over-exaggerated.”
“The only thing that I care about is the quality of goods and services. It does not necessarily come with a high price. I drive the Mercedes not because of the brand, but because it satisfies my requirements for a car,” Simaitis maintained. “When it comes to clothes, I never check the brand of the jacket first - whether it carries a Versace label or not. It is not important to me,” the known Palanga businessman maintained.

He says that the luxury market in the country “has been just shaping up.”
“I reckon that the luxury image is important only to the most exposed TV stars, which care for image, as it helps them boost their earnings. When it comes to business, I believe most of Lithuanian businessmen avoid displaying their wealth, keeping reserved composures, particularly in the province. In that sense, Lithuanians are quite different from well-to-do Western business people, where the luxury image is painstakingly nurtured, heeding the labels and the brands,” the Palanga businessman emphasized.

He revealed he tends to do shopping in Western countries. “I tend to avoid buying many personal goods, especially clothes, in Lithuanian malls. I have noticed that their supposed sales are often phony, simply fraudulent, offering prices way higher than those at Western Europe’s sales. Therefore, I would rather buy a jacket in Paris or Milan, where sales are indeed sales,” Simaitis confessed.

When speaking of the luxury market, Vilnius, the capital, undoubtedly is number one for looking for prestigious goods of famous and exclusive brands. “As far as the hotel and restaurant luxury market is concerned, Vilnius, without a doubt, holds the strongest positions,” says Evalda Siskauskiene, president of Lithuania’s Hotel and Restaurant Association. With a 40 percent slump in hotel and restaurant turnover through the crisis, she suggested, exclusive boutique hotels and restaurants have been least ill-affected by the crisis.

“The well-off people may have given up some other luxury services, but most of them have not changed their luxury lifestyle, as they keep staying in luxurious hotels or dining in chic restaurants,” Siskauskiene asserted to The Baltic Times.
According to her, the prospects of the luxury hotel and restaurant segment in Vilnius are high due to the fast recovery in the tourism sector. “I am speaking not about those who come to Lithuania by Ryanair, but those who are capable of more comfy traveling to our country. Had we more prestigious Western airline flights to Vilnius, we would certainly see even bigger numbers of customers in all our restaurants and hotels, including those in the luxury segment,” the association president said.
Among the bright signs in the luxury niche, Siskauskiene points to the opening of a lush restaurant at the Ramada Hotel and Sonnets Restaurant in Shakespeare Hotel in Vilnius. “I hope the niche market will soon see new openings, marking a faster recovery,” she added.

With Vilnius the hub of luxury goods brands, even prosperous dwellers of Kaunas, the second largest Lithuanian city that prides itself in being the interim Lithuanian capital for some time in the pre-war years, with its distinct luxury traditions, have no other choice but to go to Vilnius for an exclusive dinner or a prestigious purchase.
Vytautas Paulauskas, former member of Kaunas’ Trade, Industry and Crafts Chamber, is convinced that the luxury goods supply in Kaunas is “insufficient.”

“With plenty of nice and expensive stores in Kaunas, rich local people, however, tend to go for major shopping to Vilnius because the capital provides a larger supply of the goods,” Paulauskas noted to The Baltic Times.
Kaunas developers had long envisioned that, in the longer run, luxurious clothes and accessories stores would concentrate in Laisves aleja (Alley of Freedom). However, it did not happen, as the alley, invigorated in the last years, rather sees more taverns and pubs screaming about large discounts than plush restaurants and glitzy stores. “Obviously, a-la-carte service, white-gloved waiters, live music, the best wines and an impeccable rich interior cost a lot. Even those who can afford it tend not to splurge, which is more usual in Vilnius, with restaurants that are frequented by ministry and state institution workers, diplomats, foreign delegation members. It is a part of the traditions which are shaping Vilnius and which are sporadic and lacking zest in Kaunas,” Paulauskas pointed out.

Almontas Meskauskas, head of Geneva Watch Store in Kaunas, concurs on that point, noting that “Vilnius offers not only a larger luxury goods supply, but also bigger purchasing power and more rich clients.”
“I often see clients who, instead of buying a watch in our store, mumble about a larger supply in Vilnius and hurry to leave,” Meskauskas said to The Baltic Times. “I wish there were more luxury-oriented customers in Kaunas,” he added. He maintains, however, that the downturn has little affected his clientele, which he describes as “the upper class.”
“With all those murky predictions that prestigious watch salons will be wiped from the city, it just has not been destined to happen. Moreover, our watch sales have been comparably little affected by the economic slump,” the Geneva store head related.

He says that watch prices in the salon “range from several thousand, to the possibly one million litas Ulysse Nardin watch.”
“Sure, we do not stock one million litas watches in our store, but if someone wishes to have a diamond-studded Ulysse Nardin watch at a cost of one million-or-more litas, we are ready to fulfill the order,” says Meskauskas matter-of-factly.
Besides the most expensive brand, the store sells Geneva, Rado, Raymond Weil, Omega and Zenit watches. Price of most watches hovers at around 10,000 litas. “Certainly, we do not have as many sales as other stores around the corner. However, watch sales, even in the range of six digits, are not an extreme rarity,” the store head notes.
The seller describes his average clientele as “men being of 40-year-old, plus-or-minus-a-few-years, who tend to care about their image and conceive the value of the brand.”

The economic recovery promises good news not only to exclusive watch brands, but also to other luxury goods segments. Vaidas Jankauskas, owner of Du Broliai (Two Brothers), the exclusive brand clothing store chain, with one store in the Palanga resort and five others in Vilnius, says that over 20 years, since the stores were opened, the business has been “stable and slowly, but assuredly curving up.”

“Even the crisis, as adverse as it was, has not impacted Du Broliai stores extremely severely. Sure, there has been a certain decrease in sales, but it has not been as bad as some had predicted,” Jankauskas said to The Baltic Times.
His stores’ clientele consists of both Lithuanians and foreign shoppers, about half for each. “With 24 billion litas of Lithuanians’ savings in bank deposits and probably a significant part of cash being held somewhere else, I see good potential for prestigious goods. I have to admit, however, that due to the whining about hardships, most people probably will not dare to spend money for prestigious items any time soon. However, those who opt for quality and class keep coming to our stores no matter what,” the Du Broliai owners suggested.

He notes that lately many people tend to buy one good quality purchase instead of three of poor quality. The stores sell clothes and accessories of many brands, including Gianfranco Ferre, Prada, Escada, Giorgio Armani, Gucci, Dolce&Gabbana, Tod’s, Valentino, Ralph Lauren and some others, but, the businessman says, Gucci, Prada and Dolce&Gabbana goods are the most sought-after. “It is because of the current fashion trends and the brands’ popularity,” Jankauskas explains.
He runs his business empire along with his brother, thereupon, the name of the store chain.

Asked about the average buyer, the man says he cannot generalize. “Those who come into the stores seek quality, fashion and exceptionality. The clients are not necessarily the ones who can splurge on every occasion. Some customers may save money for some time for the desired piece of clothing,” Jankauskas noted.
He disagrees with those who claim that the luxury goods market simply does not exist in Lithuania, or is very scattered. “Yes, the market has settled. Sure, it is not that distinctive as the mainstream market; however, it is here with its demand, supply and clients. With the recovery gaining speed, increasing exports and growing domestic consumption, it will strengthen,” the businessman said.

He admitted that he ponders about his business expansion, “Maybe not in Lithuania, but in Scandinavia, where the luxury fashion goods market has not been very strong.”
However, some market analysts blame the government for trying to impose unbearable taxes for luxury goods in Lithuania. The adverse policies, they maintain, ill-affect the luxury segment, sending well-to-do clientele shopping abroad. “When I hear some advisor at the President’s Palace spouting that the government needs more tax instruments to govern the economy, and the suggestion of imposing larger taxes for luxury items is proposed as an option, I keep wondering whether Lithuania has turned away from Soviet ideology,” Vygantas Minkevicius, a businessman in Vilnius, says, exasperated.
Jekaterina Rojaka, financial analyst at DnB Nord Bank in Vilnius, rejects the presidential advisor’s suggestion: “It is unclear what could be considered luxury in Lithuania.”

“The more a man earns, the more he spends and the more taxes he should be paying. Alas, the golden rule of economics is not always valid in Lithuania. There are plenty of known ways of tax evasion, leaving the question: how effectively is the luxury tax being collected. If it is being collected proportionally, let it live. However, if it burdens only the middle class and those with less income, then it is applied not socially, but very inappropriately,” she notes.

Robertas Dargis, president of Lithuania’s Real Estate Expansion Association, also lambasts the government’s plans to fill up state coffers by additionally taxing prosperous citizens. He points out that, in smaller towns, the number of people relying on social payouts hovers at nearly 70 percent. Besides, due to the massive emigration, nearly 50,000 people left the country in 2010 alone. “The taxpayer numbers are constantly decreasing. It is very alarming. Instead of deliberating how to tax luxury, the government should involve more people into the taxpayer list,” Dargis stresses.

Kaetana Leontjeva, expert at the Lithuanian Free Market Institute, warns that Lithuania has already tried in vain to impose excise taxes for luxury goods in the past. “The tax administration cost appeared to have been larger than the actual economic benefit,” she pointed out.