Operating behind enemy lines: How fashion powerhouse LPP S.A. masked a fake Russia ‘sell-off’ using front entities and encrypted barcodes, 15 March 2024

• ...Until Russia invaded Ukraine in February 2022, Russia was LPP’s biggest international market, generating ~19.2% of revenue from 553 stores. LPP had major expansion plans for Russia according to company disclosures and a former executive who told us: “[LPP] had plans to open hundreds of more stores [in Russia] … that was the biggest market that we wanted to grow”.
• Russia’s invasion of Ukraine in February 2022 triggered a mass exodus of foreign companies from Russia. This resulted in a 46.6% drop in LPP’s share price as investors feared the loss of key growth prospects.
• Trade relations with Russia pose a serious risk for Polish companies like LPP due to both sanction and reputational risks—97% of Polish citizens have an unfavourable view of Russia post-invasion, according to a survey conducted by the Pew Research Center in spring 2022...
• On April 28th, 2022, LPP announced plans to distance itself from Russia by divesting its Russia division. A deal progressed rapidly: Weeks later, on May 19th, 2022, it announced it had concluded negotiations with an unnamed buyer, finalizing a sale on June 30th, 2022.
• Despite saying it lost ~20% of revenues from divesting its Russian operations, LPPs total revenue still remarkably grew 13% overall in FY 2022/23. Reported revenue across markets excluding Russia was up 40.5% year-on-year...
• We believe LPP was able to post these remarkable results because its divestment of its Russia business has been a complete sham.
• LPP says it sold its Russian assets (called “Re Trading”) to a vague “Chinese consortium” in a ~$382 million deal. We found that the buyer was a Dubai-based shell called “Far East Services” with no disclosure of its owners or directors.
• Far East Services was incorporated just one day before LPP announced it had reached an agreement to sell its Russian subsidiary. It has no externally verifiable presence, track record in the fashion industry, or apparent associations with China...
• We dispatched secret shoppers to “Far East Services” flagship stores in Moscow and St. Petersburg in December 2023. Almost all garments we photographed were identical designs and colors to fall/winter collections in LPP´s online catalogues in Poland, indicating that LPP’s products are still somehow making their way into Russia at least 18 months after the claimed divestiture.
• Further, Russian in-house product codes were an exact match for the product codes in LPP´s Polish catalogue...
• Barcodes found on Russian merchandise at first seemed mostly out-of-date, issued to random Chinese companies, or counterfeited to mask the products’ true origin.
• However, LPP presentations shown to us detail how LPP planned to modify barcodes to covertly track Russia merchandise via its own IT systems– concealing its continued control of the inventory...
• LPP also appears to be using Kazakhstan as a backdoor to help supply Russia stores. Import-export records show that LPP shipped ~$755 million of merchandise to its Kazakh subsidiary in 2023, despite Kazakhstan only accounting for 1% of LPP’s brick-and-mortar stores...