Russian sanctions hurting small Italian fashion producers

The fine Italian knitwear is stacked in a Lombardy warehouse, awaiting dispatch. The garments will not ship soon, even though they are not subject to sanctions for Russia’s invasion of Ukraine.

Due to restrictions in the banking sector, the number of missed payments from Russian retailers who ordered the garments is increasing. This puts pressure on small fashion producers like D. Exterior (a high-end knitwear firm with 50 employees in Brescia).

“This is very difficult. I have 2 million euros of merchandise in the warehouse. If they can’t pay for it, I’ll be on my knees.” saidD. Nadia Zanola is the exterior owner. She inspects the warehouse where she founded the brand from the knitwear company that her parents created in 1952.

It is the largest global producer of luxury goods, producing 40% of high-end apparel and footwear, as well as accessories. According to industry officials, Russia only generates about 3% of the annual revenue of Italian luxury goods, which amounts to 97 billion euros (US$101 trillion). However, it is a significant business opportunity for some of the 80,000 small- and medium-sized companies that make up the backbone Italian fashion.

“We are talking to eliminate 80 percent to 100 percent of these companies’ revenues,” saidFabio Pietrella is president of Confartigianato fashion craftman federation.

Russia is a key supplier to the Marche and Veneto region’s footwear production, and the Emilia-Romagna knitwear manufacturers have become particularly dependent on Russia.

Pietrella explains, “These districts connect the supply chain and if it is disrupted, not only the company that closes down, but also the entire system that contributes to making this country an economic powerhouse.” said.

Gucci, Versace, Armani and Versace are the most well-known luxury houses in Italy. They will be launching their menswear collections this week in Milan. Jeffrey Sonnenberg, a Yale University professor, compiled a list of major Russian companies that have done business in Russia since the beginning of the war in Ukraine.

Sonnenberg: “There are companies who kept selling to Nazi Germany even after the outbreak of World War II – we don’t celebrate that.” saidAny enterprise that continues to do business with Russia today will be considered “greedy”.

He also stressed that fashion companies do not have the right to appeal to the humanitarian community to bypass sanctions, whether voluntary or not, as was the case with pharmaceutical companies and agricultural firms.

Italy’s Benetton was one of the recipients of a failing grade from Sonnenberg. The company, which in a statement condemned war but supported it, was also among those who were given a failing grade by Sonnenberg saidIt would continue its commercial activities, including long-standing logistic and commercial partnerships and a network that supports 600 families.

French conglomerate LVMH has closed 124 Russian stores while continuing to pay its 3,500 employees. Inditex, a Spanish conglomerate that owns Zara, a fast-fashion chain, temporarily closed 502 stores in Russia. It also stopped its online sales. This account for 8.5% of the group’s pre-tax earnings.

Pietrella is concerned about Russia-phobia, which is demonizing business owners who try to maintain ties with a long-term view.

He called it a “witch hunting” criticism of some 40 Italian shoe producers who traveled to Russia for a trade show during World War II.

The European Union increased sanctions against Russia after the Ukraine invasion. It set a 300-euro maximum wholesale for each item shipped. This takes super-luxury products out of circulation, but still targets the wealthy or upper-middle class Russians.

Pietrella stated, “Without any doubt, we as fashion federation have expressed out extreme concern over the aggression against Ukraine.” said. “It is not up for discussion ethically. But we must think of our businesses. Ethics are one thing. The market is something else. Workers in a company get paid by the market and not by ethics.

He saidThe 300-euro limit for sales was a gambit European politicians used to allow trade with Russia, despite the associated bureaucratic and financial obstacles. However, it also shielded governments from having the industry need to be rescued by bailout funds. He dismissed as too easy government suggestions to find other markets than Russia.

Pietrella: “If there were a market, we would already be there.” said.

D. Exterior’s exposure to Russia has increased over the years to 35% to 40% of the revenue that reached 22 million euros prior to the pandemic. This stream is also under increasing pressure from rising energy costs.

The company was already shipping its summer collection and accepting winter orders when Russia invaded. Russian retailers were having difficulty making payments by March.

Zanola is stuck with over 4,000 summer and spring garments, so she has no hope of shipping to Russian customers. saidShe was contractually required by law to keep producing winter orders. This means she is at risk of losing 100,000 euros in labour and material costs if they aren’t shipped.

Zanola’s Russian clients have been her ideal customers over the years. said. They are not only punctual, but also appreciate the craftsmanship in D. Exterior’s knitwear creations.

After so many years of hard work building up her Russian customer base she is reluctant to let it go and doesn’t see a long-term replacement.

“If Russia were Putin I wouldn’t go there. “But Russia isn’t just Putin, one hopes the poor Russians can raise themselves up,” she said. said.

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Ciaran Giles, AP reporter, contributed from Madrid.

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