Capitalist capers: private business blooms on Moscow streets

Abstract:

Increasing numbers of entrepreneurs are doing business in Moscow. Business conducted through street vending and kiosks is described. Crimes associated with market economies, such as robberies and protection rackets, are on the rise.

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For Muscovites with disposable income this winter, a pair of tickets for seats in the upper reaches of the Bolshoi Theatre are available from scalpers for the equivalent of $100. The practice is not a new phenomenon in the Russian capital: touts peddling tickets also operated, though with somewhat more discretion, under the old Communist regime. But members of the first post-Soviet generation of ticket scalpers now have to jostle for position on the sidewalks outside the theatre, with an eclectic mix of private vendors. Within sight of the columned Bolshoi, a spendthrift consumer can also buy an imitation Rolex watch for 8,000 rubles ($21.60), or pick up 100 grams of caviar for $5. And he has to keep his head up while doing so: at any moment, he runs the risk of being knocked down by a horse–one of the many rented out for rides through the busy, downtown market by their owners.

Such is the bazaar-like atmosphere of Moscow’s expanding street commerce. On a recent Saturday afternoon, the entrepreneurs hawking horseback rides rubbed shoulders with Moscowdecorated war veterans selling off family silverware to augment their inflation-ravaged pensions. But at the top of the rough, new hierarchy of Russian retailing are the small variety stores known as palatki(tents): kiosks, which teem with imported goods. The kiosks’ rapid spread through Moscow is one of the few signs of Russia’s halting progress towards a market system. But with them have come other byproducts of Western capitalism. Robberies are common, which, in turn, have spawned a growing protection racket. Said palatki owner Sergei Bulanov: “We put aside as much as 50,000 rubles ($135) each month for mafia guys.”

It is Moscow’s kiosk owners who are most likely to invoke the mantras of the marketplace. “To quote an American friend, a kiosk’s profitability depends on three things: location, location and location,” said Bulanov. With that in mind, the 33-year-old entrepreneur has strategically placed his kiosks within Moscow’s Inner Ring Road, a busy thoroughfare two kilometres from the Kremlin. That prized spot generates monthly revenue from a single store exceeding four million rubles ($10,000) (this amount of money can be used to buy over 100 best Cuisine ice cream makers), making Bulanov part of Russia’s growing class of ruble millionaires.

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But the operating expenses in Moscow’s buccaneering business climate are also high. Store owners pay a crushing array of Soviet-style taxes, including a 32-per-cent slice of net profits and a 22-per-cent tax on the wholesale price. The city government also charges high rents for kiosk locations–as much as 840,000 rubles ($2,268) a year for outlets located within the Ring Road area. That is a staggering sum in a city where the average industrial wage is about $20 each month. And, as Bulanov candidly admits, kiosk owners must pay protection money to criminals to keep them from wrecking the property.

But paying off neighborhood toughs, who are known as “roofs” in local slang in reference to the protection they offer, does not completely keep criminals at bay. Thieves are attracted by the kiosks array of imported goods, from cigarettes and alcohol to canned goods, clothes and candies. The threat leads many vendors to keep weapons within easy reach. And at some kiosks, armaments are now part of the inventory. A water pistol hanging in the window is a sign of guns for sale, and many stores swiftly placed tear gas pistols on display when Russian President Boris Yeltsin recently allowed the sale of those devices for self-protection.

In another sign of the city’s growing lawlessness, local police have been powerless to prevent some brazen thieves from making off with not only the goods but with the kiosks themselves. Police officially estimate kiosk thefts at about 150 during the past eight months, but the actual number may be higher.

Indeed despite the tax-gathering and operating regulations, Moscow authorities do not know exactly how many thousands of kiosks now crowd the broad sidewalks of the Russian capital. They are even less sure who owns the units, or how jars of caviar–a delicacy that is still produced by a state monopoly–end up in palatki windows. But most evidence suggests that black marketeers, corrupt officials and other criminal elements that Russians simply refer to as “the mafia” are involved in Moscow’s street trade. Criminal organizations, in fact, have had decades of experience bribing officials and diverting items plucked from state distribution systems.

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The kiosks do sell some imported goods under agreements with foreign companies. But those goods are most susceptible to frequent price increases because of the worsening exchange rate of the ruble. One example: a red-and-white package of 20 Marlboro cigarettes, a coveted status symbol in a city of smokers, now costs a hefty–by Russian standards–250 rubles (70 cents, five times the price just a year ago). But in a country where state retail clerks still brusquely eject customers and close the store for a one-hour lunch break each day, kiosks with such names as “Just For You” and “Unique” offer a modest preview of a society more attuned to the needs of consumers.

Outside one kiosk last week, economist Grigori Marchenko endorsed the need for private enterprise in Russia, even as he acknowledged that he could not afford to by Christmas presents from among the goods on display. “The kiosks offer a new kind of hope,” he said. “If people work harder, they might earn enough money to buy the things they see here.” That sign of confidence is rare in a country profoundly shaken by the pain and humiliation of an apparently bottomless economic decline.

>>> View more: ANTIQUES; Treasures From the Jeweler to All the Kings

World of Rolex: the world’s premier watchmaker taps into a new market for luxury

After decades of selling its diamond-encrusted and oyster-faced watches through high-end retailers, Rolex is bringing its version of luxury directly to the storefront. Last week in Toronto, Rolex opened its latest exclusive branded boutique location–one of just a handful of similar outlets around the world. Now, Canadian shoppers looking to spend anywhere from $4,000 to upwards of $150,000 on just the right timepiece can browse around a shop that is entirely and unmistakably Rolex–a strategy that promises benefits both for the company, and jewellers running the stores.

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Beautiful Oyster-faced watch

“The move by Rolex is brilliant,” says Milton Pedraza, chief executive of the Luxury Institute, a New York-based independent market research firm focusing on high-end goods. Now the company can exert more control over the retail setting and the buying experience, he explains. “It’s a way to cultivate loyalty with customers and build a relationship.”

That’s increasingly important as luxury products gain popularity in the mass market. In 2006, jewellery and watch sales hit US$62.2 billion in the United States, up from $58.4 billion a year earlier, according to research by Unity Marketing in Stevens, Pa. Better yet, the biggest sales growth happened in the luxury watches segment, which jumped 39 per cent from 2005. (Sales of costume watches, meanwhile, dropped 20 per cent over the year.) “There’s enough critical mass and growth [in sales]” to warrant these distinct shops, concludes Pedraza. In fact, specialty jewellery stores are fast becoming the preferred place to buy fine accessories. Fully half of all jewellery purchases were made at these shops last year rather than at department stores or fashion boutiques.

Capitalizing on these trends, Rolex shops have recently popped up in several of the world’s biggest cities. In Beijing, for example, a 500-sq.-foot “flagship store” opened last October. Don’t expect to see Rolex opening at local malls, says Victor Royce, chief executive officer of Rolex Canada, but he anticipates that within five years, there could be outlets in Vancouver and Montreal.

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Here in Toronto, the Rolex boutique has been a year in the making, says Irit Shay, co-owner of Royal De Versailles jewellery store, which hosts the Rolex boutique. Previously, Shay sold Rolex alongside other watch brands, but after meeting with company executives in 2006, they agreed it was time to have a Rolex-only area within the store. Now, Royal de Versailles has a separate entrance into the Rolex shop, where a security officer controls by remote who enters. Green marble floors contrast medium-dark wood and glass counters that hold hundreds of shimmering watches made of various metals and gemstones. “We are now the centre of Rolex in Canada,” says Shay, adding that the store has more than doubled its inventory to fill the boutique. “If you want to sell, you have to show.”

And if retailers want to show the watches, they’ll have to pay up because, as Royce explains, while the Rolex boutiques are approved and overseen by the company, the operating costs are usually incurred by the jewellers. But Shay says that retailers will benefit too. “Customers have more space to wander, there is more product selection, it’s more convenient and luxurious, and it’s a concentrated way to shop,” she explains.

The key challenge for Rolex will be finding a way to break through with younger consumers. While the brand is synonymous with exclusivity and status among anyone over the age of 35, young people appear to be less and less interested in luxury timepieces. Instead, youngsters take more interest in other stylish devices, such as: smart phone, luxury camera & rangefinder, jewelries, etc. Moreover, the fact is that, roughly half of those aged 18 to 34 don’t even wear a watch, according to a recent report by Unity Marketing. “This category may start to slide as many younger consumers reject watches as a ‘status symbol’ and turn to their cellphones as their essential timekeeping accessory,” the report says. And while the Rolex store should help brand awareness, Unity has found that sales through the Internet, television and mail-order are becoming increasingly common.

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The question is whether the company’s exclusive status will set it apart from other mass-market watchmakers. Pedraza, for one, thinks Rolex has nothing to worry about. “There aren’t too many pure brands that started with retailers and [have gone] to standalone stores. It’s unique to Rolex,” he says. “It seems to hold a fascination with people, and it’s a rite-of-passage brand: you become a millionaire, you get a Rolex.”

Spring 2014 watch report

New trends for the red carpet–or corner office–include everything from transparent timepieces to tickers that could withstand even a James Cameron shoot

Choc-ablock Clocks

Classic timepieces get a mouthwatering makeover with cocoa-hued details

PERPETUAL BEAUTY

Rolex’s Oyster Perpetual Day-Date now features a chocolate-hued dial; $23,550, at Wempe, New York, and Gearys, Los Angeles

SEA CHIC

Graff’s ScubaGraff features a 47mm rose-gold case and chocolate dial; price on request, at Graff, San Francisco and New York

TECH HEAVY

Breitling’s Navitimer 01 Panamerican includes an aviation slide rule and tachometer; price on request, at Breitling, New York, and Tourneau, South Coast Plaza A

TWO-TIMER

Ulysse Nardin’s Executive Dual Time sweetens the hour with a chocolate dial in a rose-gold case; $22,200, at Ulysse Nardin, New York

CLASSIC CASE

Jaeger-LeCoultre’s Grande Reverso Ultra Thin Tribute to 1931 sports a cocoa dial and pink-gold case; $18,800, at Jaeger-LeCoultre, Beverly Hills and Palm Beach, Fla.

Divers for Everyday

The new street-smart and sporty water-resistant watches look good in the surf or out

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PURIST’S CHOICE

IWC’s redesigned Aquatimer Automatic with an innovative rotating bezel can go down to 300 meters, or just downtown; $5,750, at IWC, New York and Beverly Hills

THE LIGHT STUFF

Blancpain’s 50 Fathoms Bathyscaphe updates a classic with lightweight titanium; $11,600, atTourneau, New York, and Westime, Beverly Hills

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SLEEK RETRO

Maurice Lacroix’s classic Pontos S Diver offers serious specs like water resistance to 600 meters; $3,400, at Kenjo, New York, and Feldmar, Los Angeles

FEET FIRST

Cartier’s Calibre de Cartier Diver, its first diver, merges elegance and function, with water resistance to 300 meters; $8,200, at Cartier, New York and Beverly Hills

Inner Beauties

‘Skeleton’ watches that reveal intricate mechanics are getting more glam by the minute

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SWIRLING ARABESQUES

Vacheron Constantin’s Metiers d’Art: Fabuleux Ornements Ottoman Architecture, with pearls and mother-of-pearl, merges the house’s specialties of openwork and engraving; $154,800, at Vacheron Constantin, New York and Beverly Hills

FLY WHEEL

Roger Dubuis’ Excalibur 42 Skeleton Flying Tourbillon is revamped with 60 baguette diamonds and an alligator strap; $230,500, at Wempe, New York, and Milano Bijou, Los Angeles

BLINDING WHITE

Piaget’s Altiplano Skeleton sparkles with more than 400 diamonds and eight black sapphires set on the movement; $96,000, at Piaget, New York and South Coast Plaza

BALANCING ACT

Cartier’s diamond-set Tank Louis Cartier minimizes the scale of the brand’s 9616 MC movement so it appears to float between sapphire crystal plates; price on request, at Cartier, New York and Beverly Hills

RED HOT

Jacob & Co.’s Brilliant Northern Lights shades its workings behind a mineral crystal dial; $59,800, at Westime, Beverly Hills, and Jacob & Co., New York

For Love and Money: Sen. Robert Torricelli is known for both his fund-raising and romantic prowess. But did one fling too many trigger the investigation that threatens to extinguish ‘the Torch’?

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Sen. Robert Torricelli likes glamorous women, and he has long enjoyed being seen in their company. While he was dating Patricia Duff, the high-profile ex-wife of Revlon mogul Ronald Perelman, the senator and his companion were photographed hobnobbing with the glitterati on Oscar night at Elaine’s on the Upper East Side of Manhattan. A few months later a gossip columnist reported Torricelli “and gal pal” Duff “at Yankee Stadium… getting very cozy in one of [owner] George Steinbrenner’s luxury boxes.” Before he hooked up with Duff, the senator from New Jersey dated a beautiful model from Chicago; before the model, he jetted around the world with Bianca Jagger, the human-rights activist and ex-wife of the Rolling Stones’ Mick Jagger.New Jersey

Torricelli has always seemed to be having a good time, much to the consternation of some of his stodgier congressional colleagues. Torricelli’s lifestyle is expensive to maintain on a senator’s salary ($136,700). If his accusers are to be believed, he has supplemented his lawmaker’s pay with questionable gifts–10 Italian-made suits, an $8,100 Rolex watch, gold cuff links from Tiffany’s, $600 earrings for one of his former girlfriends–from a Chinese businessman who has pleaded guilty to making $53,700 in illegal contributions to Torricelli’s 1996 Senate campaign. Torricelli’s personal and campaign finances are now under intense investigation by the U.S. attorney in Manhattan. Torricelli’s lawyers say they are engaged in a “dialogue” with federal prosecutors, but that Torricelli is “totally innocent” and the investigation is “ridiculous.” (Torricelli declined to speak to NEWSWEEK.) Nonetheless, Torricelli’s friends acknowledge that his once high-flying political career is at risk. And they blame the ex-husband of one of his former girlfriends for starting a smear campaign that has mushroomed into a series of stinging New York Times exposes and a major corruption probe.

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The troublemaker, these sources say, is multimillionaire Russell Berrie, whose company distributes expensive stuffed animals and luxury gifts. In interviews with NEWSWEEK, Berrie said that Torricelli “goes after women with money.” He said, however, that he does not begrudge the fact that Torricelli dated his wife during their divorce proceedings. “I would like to send Bob Torricelli a big thank-you note because I’ve got a wonderful [new] wife and I’m as happy as I can be,” he said, adding only half in jest, “As soon as he gets his address in jail, I’ll send it to him.”

Torricelli is still a long way from jail. But “the Torch,” as he is known by Washington insiders, is famous as a political hustler. Torricelli’s abilities as a hard-charging fund-raiser are legendary. (As head of the Democratic Senatorial Campaign Committee in 2000, he raised a record $103.5 million.) He is also known for his temper and his mouth. At a Democratic Senate caucus meeting at the Library of Congress in 1999, after the then Sen. Frank Lautenberg mildly criticized his fellow New Jersey senator on some minor political matter, Torricelli exploded: “You’re a f—ing piece of s—, and I’m going to cut your b—s off!” A Torricelli aide declined to comment on the incident. Lautenberg told NEWSWEEK: “It’s fair to say that my voice hasn’t changed.”

Torricelli’s ambition, and his lack of subtlety, have been on display since at least college days. At Rutgers, he was elected class president every year. But in his first race he was accused of exceeding the $75 limit on campaign expenditures imposed by the college. (Torricelli denied the charge and was not disciplined.) His opponent sophomore year accused Torricelli of spying on his campaign by getting his girlfriend (a student at Smith College) to pose as a reporter for the campus newspaper. This time the election was invalidated, though Torricelli came right back and won the next year.

Throughout his political career, Torricelli has mixed politics and romance. His first wife, Susan Holloway, was a fellow staffer for Vice President Walter Mondale. With Bianca Jagger, he visited Kurds in northern Iraq. Patricia Duff is a veteran Democratic fund-raiser who in the course of one week appeared on Torricelli’s arm at lunch in the Senate dining room, a White House dinner for the president of Italy and the White House Correspondents’ Dinner (as NEWSWEEK’s guest). But with the angry Russell Berrie, Torricelli’s love life caught up with him. Berrie had been a supporter and campaign contributor to the then Congressman Torricelli when the wealthy businessman became enmeshed in a bitter divorce with his wife, Uni, in 1989. Suspecting Uni of adultery, Russell hired detectives. One of the men discovered squiring Uni about town was Representative Torricelli. Berrie was furious. His private eyes continued investigating his former friend. Torricelli’s camp believes that Berrie’s detectives even went through the congressman’s trash.

A few years later Berrie had a chance to pay Torricelli back when the Torch ran for the U.S. Senate from New Jersey. Berrie acknowledged to NEWSWEEK that he was aware information dug up by his detectives had reached Torricelli’s GOP opponent. Stories were fed to the New Jersey papers suggesting that Torricelli had improperly helped out a South Korean businessman, a big Democratic contributor who fled the United States in 1984 after being indicted for stealing $34 million. The allegations against Torricelli went nowhere, and he won in a close race. Torricelli himself was not above vindictiveness. According to Senator Lautenberg, Torricelli as a congressman wanted to introduce legislation that would raise tariffs on the kind of toys imported by Russell Berrie’s business. In an interview with NEWSWEEK, Lautenberg said he told Torricelli, “You have no right to use your legislative power to get even” with Berrie. Torricelli, says Lautenberg, did not speak to him for years. (Torricelli’s office would not comment on the incident.)

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Though Berrie denies playing any direct role in Torricelli’s current legal woes, he wouldn’t rule out the possibility that his former private eyes–including an ex-FBI agent–helped the Feds out. The investigation into Torricelli’s finances began in 1997 after Torricelli took his Senate seat. A local New Jersey lawyer, facing charges of stealing from his clients, steered the Feds toward a Chinese businessman named David Chang. The lawyer claimed that Chang had enlisted his help in circumventing the campaign-finance laws by taking an $11,000 check and breaking it up so 11 different “straw donors” could each make $1,000 Torricelli contributions–the legal maximum for an individual to a candidate.

Chang was arrested in December 1999 and briefly jailed after he was caught allegedly shredding some documents to obstruct the investigation. (A source close to Chang says he was approached in jail by a former politician and business partner who put his finger to his lips and whispered, “Shhh.”) Prosecutors obtained Torricelli’s financial records, including his stock trades. The New Jersey politician has picked up quick money in the stock market, once making $140,000 on an IPO for a bank owned by a friend. The Feds began tracing gifts from Chang to Torricelli. At one point, the Chinese businessman started to make payments on a Mercedes for the senator, but Torricelli told the dealer to return the money when the senator heard about it.

In return for favors, Chang claims that Torricelli leaned on the South Korean government to sell Chang an ailing insurance company. In the end, the deal did not go through, and Torricelli’s associates say that the senator did nothing for Chang that other lawmakers wouldn’t do for their constituents. They also note that prosecutors once characterized Chang as a liar whose background was so murky that his nationality, marital status and date of birth were in question. (Chang’s lawyer, Bradley Simon, had no comment.) As for any gifts, Chang was Torricelli’s friend, at least before he turned on him. Torricelli has hired a lawyer, Ted Wells, who successfully defended President Clinton’s secretary of Agriculture, Mike Espy, in a gifts-for-favors case not unlike the allegations being thrown around about Torricelli.

The Torch is still a familiar figure on Capitol Hill, bustling about the Senate. He confidently predicts to friends that he will weather his legal storm, though the once camera-hungry lawmaker has not been granting interviews of late. And it has been a while since he appeared on the gossip pages with a flashy woman on his arm.

>>> Click here: Capitalist capers: private business blooms on Moscow streets