Wretched Excess

Many speak the truth when they say that they despise riches, but they mean the riches possessed by others.
~Charles Caleb Colton

Over the past 2 days, I attended a conference on IPO’s and listing on Russian and London exchanges. I learned a lot about international capital markets, the need for capital in Russia, what international investors are looking for, and other crucial elements for the development of a shareholder society in this rapidly growing economy. But a conversation at a cocktail party on the last day shed some light on an area that routinely blows my mind.

Victor is a Russian who lived for nearly a dozen years in the US. He now heads the communications and finance operations of the largest chain of mobile phone stores in the country. We talked at length about the amount of disposable income in Moscow.

I cited an article that I had read in the international press that examined the global market for ultra-luxury cars. Bentley, Rolls Royce, and Mercedes (Maybach) are creating a buzz with their waiting lists for quarter to half-million dollar cars. But the truth is a little different in a global perspective. The fact is that all those companies are allocating deliveries to Russia because they can get as much as a 50% premium on list price here. So, other consumers wait while wealthy Russians make cash payments for far more than the manufacturers ever could have hoped for.

Victor told me about the Vertu phones that his company retails (www.vertu.com). These are the global standard in luxury communications – a cell phone made entirely out of precious materials like platinum, titanium, gold, etc. The price points are between $5,000 and $50,000 per unit. The technology is somewhat advanced – the phones are programmable to any standard and are backwards compatible with any changes in network – but in essence a Vertu phone is really just a regular phone in nice clothes.

I see this kind of wealth on the streets everyday. But when asked to guess how many they sell in a month, I came up very short. According to Victor, they sell about 200 units a month in Moscow alone. And the split is 80% toward the highest end models. That is, they sell 160 units at $50,000 each every 30 days.

That’s a pretty mind boggling number, but it gets even better. They offered a “Russian Version” of the phone that has a keyboard with Cyrillic text for a premium price of $70,000 per phone. No other differences, mind you, simply a change in the keypad. The entire issue sold out before they had even announced its release.

So when you pull up to the pump in your gas-guzzling SUV, give a little thought to the emergence of capitalist society in Russia as you watch the numbers quickly scroll by. If he only had your number, an obscenely wealthy Russian would use his Vertu to call and say “Thank You”.