Russian sanctions hurting small Italian fashion producers

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, June 14, 2022. Small Italian fashion producers are still allowed to export to Russia, despite sanctions, as long as the wholesale price is below 300 euros.  But they struggle to get paid, due to restrictions in the financial sector.  (AP Photo/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, June 14, 2022. Small Italian fashion producers are still allowed to export to Russia, despite sanctions, as long as the wholesale price is below 300 euros. But they struggle to get paid, due to restrictions in the financial sector. (AP Photo/Luca Bruno)

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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.

“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 brand’s warehouse that she founded in 1997 from the knitwear business her parents started 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 eliminating 80% to 100% of the income of these companies,” said Fabio Pietrella, president of the federation of fashion artisans 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 hurt, but a whole system that helps make this country an economic powerhouse,” Pietrella said.

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 Sonnenfeld 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,” Sonnenfeld 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 Sonnenfeld is Italy’s Benetton, which in a statement condemned the war but said it would continue its 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 has branded criticism from 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.

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 is beyond discussion. But we have to think about our businesses. Ethics is one thing. The market is another. A company’s workers 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.

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 obligated 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 the poor Russians will be able to pick themselves up,” she said.

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AP reporter 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 the name of a Yale professor. It’s Jeffrey Sonnenfeld, not Jeffrey Sonnenberg.

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