Russian sanctions harm small Italian fashion manufacturers

MILAN – Fine Italian knitwear packed in boxes for traders in Moscow, St. Petersburg and Kursk is stacked in a warehouse in Lombardy and is waiting to be shipped. Although they are not subject to sanctions for punishing Russia for invading Ukraine, it is likely that the garments will be delivered soon.

Missing payments from Russian retailers who ordered clothing are piling up due to banking sector restrictions, putting pressure on small fashion manufacturers like D. Exterior, a top-knitwear company with 50 workers in the northern city of Brescia.

“This is very painful. I have goods worth 2 million euros in the warehouse, and if they can’t pay for it, I will kneel down, “said D. Exterior owner Nadia Zanola, surveying the warehouse for the brand she founded in 1997 from knitwear. created by her parents in 1952.

Italy is the world’s largest producer of luxury goods in the world, accounting for 40% of high-end clothing, footwear and accessories. While Russia generates only about 3% of 97 billion euros of Italian luxury ($ 101 billion) in annual revenue, it is a significant part of the business for some of the 80,000 small and medium-sized companies that form the backbone of Italian fashion, according to industry officials.

“We are talking about eliminating 80% to 100% of the revenue for these companies,” said Fabio Pietrella, president of the Confartigianato Federation of Fashion Craftsmen.

The footwear-producing districts in the Marche and Veneto regions, as well as the knitwear manufacturers in Umbria and Emilia-Romagna, relied in particular on Russia.

“These are the districts that connect the supply chain, and if it is interrupted, not only is the company closing down damaged, but also the whole system that is helping this country become an economic power,” Pietrella said.

The Italian fashion world is best known for luxury houses such as Gucci, Versace and Armani, which are presenting their menswear collections in Milan this week. And some of the biggest names are on a list of big companies operating in Russia since the start of the war in Ukraine compiled by Yale University professor Jeffrey Sonnenberg.

“There are companies that continued to sell Nazi Germany after the outbreak of World War II – we do not celebrate them because of that,” said Sonenberg, describing as “greedy” any company that continues to operate in Russia today.

He also underlined that fashion companies have no grounds to send humanitarian calls to circumvent sanctions, voluntary or otherwise, as was the case with agricultural companies and pharmaceutical companies.

Among those who received a bad rating from Sonnenberg was Italian Benetton, who condemned the war in a statement but said he would continue his commercial activities in Russia, including long-standing commercial and logistics partnerships and a network of shops supported by 600 families.

The French conglomerate LVMH, meanwhile, has temporarily closed 124 stores in Russia, while continuing to pay its 3,500 employees in Russia. The Spanish group Inditex, which owns the Zara fast fashion chain, has also temporarily closed 502 stores in Russia, as well as its online sales, accounting for 8.5% of the group’s pre-tax revenue.

Pietrella fears that there is a kind of phobia of Russia that demonizes business owners to try to maintain ties with a longer-term vision.

He described as a “witch hunt” the criticism of about 40 shoe manufacturers from the Marche region on the Italian Adriatic coast for traveling to Russia for a fair during the war.

European Union sanctions against Russia have been tightened since the invasion of Ukraine, setting a wholesale maximum of 300 euros for each delivered goods, withdrawing super-luxury items from circulation, but still targeting the upper middle class or wealthy Russians.

“Without a doubt, we as a fashion federation have expressed our extreme concern about the aggression in Ukraine,” Pietrella said. “From an ethical point of view, that is out of the question. But we have to think about our companies. Ethics is one thing. The market is different. The workers in the company are paid by the market, not ethics. ”

He said the 300-euro sales cap is a gambit of European politicians who, on paper, allow trade with Russia despite accompanying bureaucratic and financial hurdles, while protecting governments from having to provide bailouts for the industry. He also dismissed as too easy government proposals to find alternative markets for Russia.

“If there was another market, we would already be there,” Pietrella said.

At D. Exterior, exposure to Russia has grown steadily over the years and now accounts for 35% to 40% of revenue, which reached 22 million euros before the pandemic, a flow that is also under new pressure from higher energy and raw material costs.

The company has already delivered its summer collection and received orders for the winter when Russia invaded on February 24. Until March, Russian merchants had problems with payment.

Not only is Zanola stuck with some 4,000 spring and summer garments for which there is little hope of delivering them to Russian customers, but she said the contract required her to continue producing winter orders, risking 100,000 euros in labor and material costs if it will not be possible to deliver them.

Over the years, its Russian clients have proven to be ideal customers, Zanola said. Not only do they pay on time, but they are grateful for making D. Exterior knitwear creations.

After so much hard work on building her Russian customer base, she hates giving it up and doesn’t see a quick long-term replacement.

“If Russia was Putin, I would not go there. “But since Russia is not just Putin, he hopes that the poor Russians will succeed in rising,” she said.


AP reporter Ciaran Giles made a report from Madrid.

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