Leroy Merlin is finally leaving russia. Why did it happen only now and what made the chain give up
And whether this experience can be applied to other businesses that persist in working with the aggressor
Leroy Merlin, one of the largest DIY retailers in the world, announced its withdrawal from the russian market precisely 13 months after russia's full-scale invasion of Ukraine. "This process is the result of work initiated several months ago in compliance with international regulations. It follows the suspension of all new investments by ADEO in russia from the beginning of the conflict and the gradual independence of the local operations," the ADEO group said in its statement.
The withdrawal is formalised through the transfer of the company's assets to local management, which will allow it to be carried out more quickly than if the company were sold. The American giant McDonald's used the same scheme to leave the russian market, transferring its 760 restaurants to a local operator, who began to develop the Vkusno i Tochka chain.
In the case of Leroy Merlin, the symbolism of this step cannot be overstated, even if the "transfer of management" is a sham, and control is retained through a dozen additional agreements.
The Mullier family, the owners of the chain, has strong nerves and is not burdened with external obligations, and therefore was resistant to informal influence. The company does not operate in the US market, so it is not afraid of losing it due to sanctions, and its shares are not listed on the stock exchange. Having withstood a wave of global criticism for a year, the chain one day reversed its position. Mind investigated what happened and whether the same "squeeze-out" strategy can be applied to other multinational businesses that remain in the rf.
What formally happened? On 24 March, the international corporation ADEO announced that it would transfer control of the Leroy Merlin construction hypermarket chain in the rf to russian managers. Presumably, the board of directors will become the governing body.
"After more than 18 years of operations in russia, the transfer of control of Leroy Merlin to local management should preserve the jobs of 45,000 employees and ensure that the company's operations continue to serve the interests of residents," ADEO said in a statement.
It is not about selling. The stores will continue to operate as usual. Given the experience of other Western brands, their name may be changed.
How big is Leroy Merlin's russian business? Enormous. The company operates more than 110 stores in 65 cities across russia and is one of the country's 10 largest retailers. It employs 45,000 people.
russian Leroy Merlin stores used to generate 18% to 20% of the company's total turnover. It is the brand's second largest market after France.
Read also: Purse or life: Many global companies still operate in russia. How do their Ukrainian subsidiaries feel, and who will react faster to the pressure?
Is the decision to withdraw from russia so unexpected? Yes, but there were certain prerequisites that allow us to conclude that a transformation was in the offing.
On 5 February 2023, Leroy Merlin closed its bonus programme, which used to allow customers to get cashback on purchases.
The chain's earliest russian store in moscow was closed.
The new store in Oryol, built from scratch and fully ready for launch, was never launched.
On the other hand, it was only in November 2022 that Leroy Merlin opened a distribution and logistics centre near St. Petersburg.
What was the main reason for Leroy Merlin's exit from russia? There was a combination of factors that grew in influence throughout the year:
Image losses in the European Union, which were successfully exploited by their competitors;
- Difficulties in operations as the EU closed cargo transportation with russia, which meant that foreign brands lost the opportunity to reach Leroy's shelves or their logistics became significantly more expensive;
- Restrictions on currency transactions imposed by the russian federation and the EU's ban on russian banks made financial transactions costly and complicated;
- Consumer impoverishment, the general unpredictability of the situation in russia and, as a result, a drop in demand for repair products. Meanwhile, prices for building materials and sanitary ware increased by 20-30% over the year;
- Growing tension, which makes even activities that are not formally subject to sanctions in russia risky and makes it logical to exit the market "proactively". If the sanctions pressure on russia were to be expanded, which is almost inevitable, the company would be forced to sell its assets at a measly price or even agree to have them nationalised.
Conspiracy theories. Leroy Merlin's withdrawal was announced in the midst of a political crisis in France over the government's decision to raise the retirement age from 62 to 64. The protests reached record levels and were accompanied by mass arrests of protesters. The big news from a top French business could have partially shifted media activity to another aspect.
There is also a theory that the chain's move was prompted by an unambiguous threat from the russian authorities in response to France's decision to supply Ukraine with heavy weapons – wheeled tanks. Thus, a prompt "exit from the market" on its own terms is clearly more beneficial for the company than a forced winding down of operations.
Why is Leroy Merlin's withdrawal from russia important from a political standpoint? Because until recently, the narrative "If a business did not not leave russia in 2022, it will never do so" was strong. The case of Leroy's refutes this thesis, and since the company has long been a carrier of the opposite idea, that "business comes second," it is even more so.
In March 2022, when Western companies began to leave the russian market en masse, ADEO, on the contrary, confirmed its intention to continue working and began looking for new suppliers to replace the imports that had stopped coming in. The company responded to critics by saying that leaving the russian market would be interpreted as "a deliberate bankruptcy that would pave the way for nationalisation."
It is also symbolic that French business was the largest foreign employer in russia before the escalation, providing about 160,000 jobs. By 24 February 2022, there were more than 500 French companies operating in russia.
Read also: Financiers of war: The taxes paid by Auchan, Leroy Merlin and Metro to the russia's budget can finance 4-5 massive shellings of Ukraine. Why have global retailers still not left russia?
Is it possible to extrapolate the experience of pressure on other companies that remain in russia? It is unlikely, as specific industry factors played a role in this case, which may not be applicable to players from other sectors.
In other words, different businesses should be subject to pressure measures that are relevant to their business profile. For example, last week it became known that the European Central Bank is putting pressure on the Austrian Raiffeisen Bank to leave the russian market. The Austrian group has to present a phased exit plan and officially register this intention.
Nevertheless, the general patterns of such effective pressure can still be identified.
First. It is important to understand that large multinational companies are sluggish structures that are responsible for thousands of employees and are accountable to shareholders. That is why they cannot stop operations "to a day". McDonald's is an exception to this rule: it is an American company that acts as a marker of the US position.
Second. In the case of ultra-large businesses, dialogue with them should be conducted at the appropriate level. Therefore, such pressure is the work of foreign ministries and heads of state. For example, Volodymyr Zelensky voiced the relevant claims against French giants Renault, Auchan and Leroy Merlin in his speech to the French parliament.
Third. Pressure works if it is properly directed. In other words, attacks by outraged Ukrainian consumers calling for a boycott of a local division of a company that has no influence on the decision of the management structure to work in russia and is in no way connected with the russian division is pointless and harmful to the national economy. While the rallies held in front of Leroy Merlin stores in France did not escape the notice of their owners.
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