Russian sanctions hurt small Italian fashion producers

Beautiful Italian knitwear packed in boxes destined for retailers in Moscow, St. Petersburg and Kursk are stacked in a warehouse in Lombardy awaiting shipment. Although not subject to sanctions to punish Russia for invading Ukraine, the clothes are not expected to ship anytime soon.

Missing payments from Russian retailers who ordered the clothes are piling up due to banking restrictions, putting pressure on small fashion producers like D. Exterior, a high-end knitwear company with 50 employees in the city north of Brescia.

Nadia Zanola, president of Cose di Maglia and owner of the D.Exterior brand, browses shelves of clothes in a warehouse of unsold clothes, in Brescia, Italy, June 14, 2022.

“It’s very painful. I have 2 million euros worth of goods in the warehouse, and if they can’t pay, I’ll be on my knees,” said D. Exterior owner Nadia Zanola, inspecting the warehouse of the brand she founded. in 1997 from the knitting business created by his parents in 1952.

Italy is the world’s largest producer of luxury goods, making 40% of high-end clothing, footwear and accessories. While Russia generates roughly 3% of Italian luxury’s 97 billion euro ($101 billion) annual revenue, it’s a significant chunk of business for some of the 80,000 small and medium-sized businesses which form the backbone of Italian fashion, according to industry officials. .

“We are talking about cutting 80% to 100% of the income from these companies,” said Fabio Pietrella, president of the fashion artisans’ federation Confartigianato.

Shoe-producing districts in the Marches and Veneto regions, and knitwear manufacturers in Umbria and Emilia-Romagna became particularly dependent on Russia.

“These are districts that connect the supply chain, and if it’s interrupted, not only is the business that closes harmed, but a whole system that helps make this country an economic powerhouse,” Pietrella said.

Workers iron clothes at the Cose di Maglia factory where the D.Exterior brand is produced, in Brescia, Italy, June 14, 2022.

Workers iron clothes at the Cose di Maglia factory where the D.Exterior brand is produced, in Brescia, Italy, June 14, 2022.

The Italian fashion world is best known for luxury houses like Gucci, Versace and Armani, which unveil their menswear collections in Milan this week. And some of the biggest names feature on a list compiled by Yale University professor Jeffrey Sonnenberg of major companies doing business in Russia since the war in Ukraine began.

“There are companies that continued to sell to Nazi Germany after the outbreak of World War II – we don’t celebrate them for that,” Sonnenberg said, calling any company that continues to do so “greedy”. business in Russia today.

He also pointed out that fashion companies do not have the grounds to issue humanitarian appeals to circumvent sanctions, voluntary or otherwise, as has been the case with agricultural companies and pharmaceutical companies.

Among those receiving a failing grade from Sonnenberg is Italy’s Benetton, who in a statement condemned the war but said he would continue business activities in Russia, including long-standing business and logistics partnerships and a network of stores supporting 600 families.

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

Pietrella worries that a kind of Russophobia is setting in and demonizing business owners for trying to maintain ties with a longer-term view.

He branded criticism of some 40 shoemakers from the Marche region on Italy’s Adriatic coast a “witch hunt” for traveling to Russia for a trade fair during the war.

Cose di Maglia factory storekeeper Malik reviews boxes of unsold D.Exterior garments destined for stores in Moscow, in Brescia, Italy, June 14, 2022.

Cose di Maglia factory storekeeper Malik reviews boxes of unsold D.Exterior garments destined for stores in Moscow, in Brescia, Italy, June 14, 2022.

European Union sanctions against Russia tightened after Ukraine invasion, setting a wholesale maximum of 300 euros for each item shipped, removing luxury items from circulation but still targeting the upper middle class or rich Russians.

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

He said the 300 euro limit on sales was a ploy by European politicians that on paper allows trade with Russia despite the bureaucratic and financial hurdles that come with it, while protecting governments from having to provide rescue funds to the industry. He also called the government’s suggestions for finding alternative markets to Russia too easy.

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

At D. Exterior, exposure to Russia has gradually increased over the years to now represent 35-40% of turnover which reached 22 million euros before the pandemic, a flow which is also coming under new pressure in due to rising energy and raw material costs.

The company was already delivering its summer collection and taking orders for winter when Russia invaded on February 24. In March, Russian retailers were struggling to make payments.

A worker checks the quality of textiles from the D. Exterior production at the Cose di Maglia factory, in Brescia, Italy, June 14, 2022.

A worker checks the quality of textiles from the D. Exterior production at the Cose di Maglia factory, in Brescia, Italy, June 14, 2022.

Not only is Zanola stuck with some 4,000 spring and summer garments that she has little hope of shipping to Russian customers, she said she is contractually bound to continue producing winter orders. , risking $100,000 in labor and material costs if these could not be shipped. .

Over the years, his Russian customers have proven to be ideal customers, Zanola said. Not only do they pay on time, but they appreciate the work of D. Exterior’s knit designs.

After working so hard to grow her Russian clientele, she hates giving it up and doesn’t see a quick long-term replacement.

“If Russia was Putin, I wouldn’t go there. But since Russia is not just Putin, hopefully poor Russians will manage to pick themselves up,” she said.

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