Russian sanctions hit small Italian fashion manufacturers

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Nadia Zanola, President of the Cose di Maglia factory and owner of the D.Exterior brand, demonstrates the quality of a dress, on Tuesday June 14, 2022, in Brescia, Italy. Small Italian fashion producers are still allowed to export to Russia sanctions as long as the wholesale price is below 300 euros. But they have a hard time getting paid due to restrictions in the financial sector. (AP Photo/Luca Bruno)

AP

Fine Italian knitwear packed in boxes addressed to retailers in Moscow, St Petersburg and Kursk are piled up in a warehouse in Lombardy awaiting shipment. Although the garments are not subject to sanctions punishing Russia for invading Ukraine, the garments are unlikely to be shipped any time soon.

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

“It’s very painful. I have 2 million euros worth of goods in stock and if they can’t pay for it I’ll be on my knees,” said Nadia Zanola, owner of D. Exterior, surveying the warehouse for the brand she launched in 1997 Knitwear company founded out in 1952 by her parents.

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

“We’re talking about cutting 80% to 100% of the revenue from these companies,” said Fabio Pietrella, president of the fashion artisan association Confartigianato.

Districts producing shoes in the Marche and Veneto regions and knitwear manufacturers in Umbria and Emilia-Romagna have become particularly dependent on Russia.

“These are districts that connect the supply chain, and when it’s broken, it’s not just harming the company that’s closing, but an entire system that’s helping make this country an economic powerhouse,” Pietrella said.

The Italian fashion world is best known for luxury houses such as Gucci, Versace and Armani, who unveiled their men’s collections in Milan this week. And some of the biggest names appear on a list compiled by Yale University professor Jeffrey Sonnenberg of major companies doing business in Russia since the beginning of the war in Ukraine.

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

He also stressed that fashion companies have no reason to make humanitarian appeals to circumvent sanctions, voluntary or otherwise, as has been the case with agribusinesses and pharmaceutical companies.

Among those receiving an unsatisfactory mark from Sonnenberg is Italian company Benetton, which issued a statement condemning the war but said it would continue commercial activities in Russia, including long-standing commercial and logistical partnerships and a network of stores, who feed 600 families.

French conglomerate LVMH, meanwhile, has temporarily closed 124 stores in Russia but is continuing to pay its 3,500 employees in Russia. Spanish group Inditex, which owns 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 fears a kind of Russia phobia is spreading, demonizing business owners for trying to maintain ties with a longer-term vision.

He described the criticism of around 40 shoe manufacturers from the Marche region on Italy’s Adriatic coast as a “witch hunt” because they had traveled to a trade fair in Russia during the war.

European Union sanctions against Russia were tightened after the invasion of Ukraine, imposing a wholesale limit of 300 euros on each item shipped, phasing out super-luxury items but still targeting upper-middle class or wealthy Russians.

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

He said the €300 sales limit is a move 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 bail out the industry. He also dismissed government proposals to find alternative markets to Russia as overly frivolous.

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

At D. Exterior, exposure to Russia gradually grew over the years and now accounts for 35% to 40% of sales, which reached €22 million before the pandemic, a stream that is also under renewed pressure from higher energy and raw material costs .

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

Not only is Zanola stuck with about 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 the winter orders and risking €100,000 in labor and material costs , if these can not be sent .

Over the years, their Russian customers have proven to be ideal customers, Zanola said. Not only do you pay on time, you also appreciate the workmanship of D. Exterior knitwear.

After working so hard to build up her Russian client base, she is reluctant to give them up and doesn’t see a quick long-term replacement.

“If Russia were Putin, I wouldn’t go there. But since Russia is not only Putin, one hopes that poor Russians will manage to pick themselves up,” she said.

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AP reporter Ciaran Giles contributed from Madrid.

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