Russian sanctions targeting small Italian fashion manufacturers

Nadia Zanola, president of the Cose di Maglia factory and owner of the D.Exterior brand, shows the quality of a dress in Brescia, Italy, Tuesday 14 June 2022. Small Italian fashion manufacturers can still export to Russia, despite sanctions, as long as the wholesale price is less than 300 euros.  But they struggle to get paid, due to restrictions linked to the financial sector.  (Photo AP / Luca Bruno)

Nadia Zanola, president of the Cose di Maglia factory and owner of the D.Exterior brand, shows the quality of a dress in Brescia, Italy, Tuesday 14 June 2022. Small Italian fashion manufacturers can still export to Russia, despite sanctions, as long as the wholesale price is less than 300 euros. But they struggle to get paid, due to restrictions linked to the financial sector. (Photo AP / Luca Bruno)

AP

Fine Italian knitwear packaged in boxes destined for retailers in Moscow, St. Petersburg and Kursk, stacked in a Lombard warehouse awaiting shipment. While they are not subject to sanctions to punish Russia for invading Ukraine, the garments are not likely to be shipped anytime soon.

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

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

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

“We are talking about eliminating from 80% to 100% of the revenues for these companies, ” said Fabio Pietrella, president of the federation of fashion craftsmen of Confartigianato.

The footwear districts of the Marche and Veneto and the knitwear factories of Umbria and Emilia-Romagna have become particularly dependent on Russia.

“They are districts that connect the supply chain, and if it is interrupted, not only the company that closes is damaged, but an entire system that contributes to making this country an economic power,” said Pietrella.

The world of Italian fashion is best known for luxury houses such as Gucci, Versace and Armani, which this week unveil their menswear collections in Milan. And some of the biggest names appear on a list compiled by Yale University professor Jeffrey Sonnenfeld of major companies operating in Russia since the start 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,” Sonnenfeld said, labeling any business that continues to do business in Russia today as “greedy.”

He also stressed that fashion companies do not have the reasons to make humanitarian appeals to circumvent sanctions, voluntary and otherwise, as has been the case for agricultural and pharmaceutical companies.

Among those who received a negative vote from Sonnenfeld is Italy’s Benetton, who in a statement condemned the war but said it will continue its commercial activities in Russia, including long-standing business and logistics partnerships and a network of stores that supports 600 families.

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, owner of the fast fashion chain Zara, has also temporarily closed 502 stores in Russia and its online sales, equal to 8.5% of the group’s pre-tax profit.

Pietrella fears that a sort of phobia for Russia is taking hold that demonizes entrepreneurs to try to maintain ties with a long-term vision.

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

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

“Without a doubt, we as the fashion federation have expressed our extreme concern over the aggression in Ukraine,” said Pietrella. “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 another. The workers of a company are paid by the market, not by ethics “.

He said the € 300 sales cap was a gamble by European politicians who on paper allows trade with Russia despite the accompanying bureaucratic and financial obstacles, while also protecting governments from having to provide bailout funds to industry. He also dismissed the government’s suggestions for finding alternative markets to Russia as overly easy.

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

At D. Exterior, exposure to Russia has grown gradually over the years to now represent 35% to 40% of the revenues that reached € 22 million before the pandemic, a flow that is also subject to new pressure from higher energy and raw material costs.

The company was already delivering its summer collection and taking orders for the winter when Russia invaded on February 24. In March, Russian retailers were having trouble making payments.

Not only is Zanola stuck with around 4,000 spring and summer items that it has little hope of shipping to Russian customers, but it has said it is contractually obligated to continue producing winter orders, risking 100,000 euros in labor and material costs if these are not able to ship.

Over the years, his Russian clients have proven to be ideal clients, Zanola said. Not only do they pay on time, but they appreciate the workmanship in D. Exterior’s knitwear creations.

After working so hard to build his Russian customer base, he is reluctant to give up and doesn’t see a quick replacement in the long term.

“If Russia were Putin, I wouldn’t go there. But since Russia is not just Putin, it is hoped that the poor Russians will be able to get back up, ” she said.

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AP journalist Ciaran Giles contributed from Madrid.

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This story was first published on June 16, 2022. It was updated on June 17, 2022 to correct a Yale professor’s name. It’s Jeffrey Sonnenfeld, not Jeffrey Sonnenberg.