"The Unveiled Illusion: How LPP SA's Alleged Market Exit from Russia Unfolded"

In a significant development that has stirred the fashion retail industry, Polish fashion giants CROPP, Sinsay, and Reserved, all under the ownership of LPP SA, have been accused of a feigned exit from the Russian market. This revelation comes courtesy of the American investment company Hindenburg Research LLC, which claims to have discovered that the Polish fashion retailer LPP SA did not, in fact, withdraw from the Russian market as previously announced. This news has had a dramatic impact on the stock market, with LPP SA's shares plummeting by 35% on the Warsaw Stock Exchange following the release of Hindenburg Research's report on March 15.

Hindenburg Research's investigation suggests that the sale of the company's Russian assets in 2022 was essentially a facade. A source close to the investigation was quoted saying, "He [the founder of LPP, Marek Piechocki] wasn't concerned about the war between Russia and Ukraine. It was just temporary," indicating a possible indifference towards the geopolitical conflict affecting the region.

The surprisingly robust financial performance of LPP in recent years may now have an explanation. The report alleges, "We suspect that LPP camouflaged a fictitious departure with accounting tricks. Over two-thirds of the revenue growth in 2022-2023, specifically $732 million or 20% of total revenue, was attributed to the brand 'Other.' In the previous three years, this category never exceeded 2%."

In March 2022, LPP SA declared that it was closing all of its stores in Russia and subsequently announced a sale of its Russian business, which included 553 stores, on May 23, 2022. Remarkably, it took only 25 days between deciding to sell and finalizing the contract.

LPP claimed to have sold its Russian assets, operating under the name Re Trading, to a "Chinese consortium" for $382 million. However, Hindenburg Research discovered that the actual buyer was a Dubai-based company named Far East Services, which does not disclose its owners or directors. Interestingly, Far East Services was registered just one day before LPP announced the agreement to sell its Russian subsidiary. The report highlights, "The company lacks an external audit, a track record in the fashion industry, or obvious associations with China."

Before the full-scale Russian invasion of Ukraine, LPP's sales in the Russian market were second only to those in Poland. There had been previous suspicions about a connection between the asset buyer and LPP, but Hindenburg Research is the first to detail how the Russian business remained under the control of the parent structure, misleading both shareholders and creditors.

In December 2023, Hindenburg even sent secret shoppers to FES stores in Moscow and Saint Petersburg, where they found clothing identical to the new Polish collections, suggesting continued importation into Russia "more than 18 months after the 'market exit.'"

If the operation of the Polish company in the Russian market is proven, it could mean a breach of credit and financial agreements with Poland's largest bank, PKO BP Bank, which is primarily owned by the Polish state. The bank's policy does not finance organizations operating in Russia and expects its clients to disclose any trading relationships with Russia. Hindenburg has warned that it has shorted LPP's stocks.

LPP Group has responded to the report, calling it part of an organized disinformation attack, "prepared over five months and aimed at lowering LPP Group's stock price." This development, published on Monday, March 18, 2024, at 10:20, highlights the complex interplay of business operations, geopolitical tensions, and financial strategies, casting a shadow over one of Central and Eastern Europe's largest fashion companies, with an annual turnover of $8.4 billion. The unfolding story of LPP SA's alleged deceptive exit from Russia serves as a cautionary tale of the intricacies and potential repercussions within the global business landscape.