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Ukraine conflict hits fashion sector

The conflict between Russia and Ukraine is hurting fashion businesses, with the region’s instability creating major currency fluctuations and blockages on trade.

Russia has in the past few years become a target for fashion firms looking to expand internationally, with Karen Millen, Zara and Debenhams all opening stores in the country, but there are fears the escalating crisis could hurt businesses.

Andy Tompsett, head of UK at young fashion brand Merc, which trades in Russia via local partners and a Russian-language website, said since the crisis stock had been seized as it entered the country.

“Russia offers massive potential but if you can’t get your product in or there’s a possibility it’s going to be impounded, people won’t want the effort of it all,” he said, adding that the seizures had put question marks around the idea of trading in Russia.

Sportswear brand Adidas has warned that a weakening Russian ruble could pose a risk to profits. Chief executive Herbert Hainer lowered group profit forecasts to between €830m (£692m) and €930m (£776m), lower than the €1bn (£884m) estimated by analysts, as a result of the Ukrainian crisis.

Hainer warned that the Russian and Ukrainian dispute could also make consumers in the region nervous. “We are watching the situation very closely, as you can imagine, and are in constant contact with our management team there,” he said

One brand, for which Russia is the most important export market, also expressed fears to Drapers. Its managing director said: “We are strongly focused and concerned about the weakening Russian currency – already our partners and customers have had to increase retail prices as rents are invoiced in either euros or US dollars.”

Magdalena Kondej, global head of apparel and footwear research at analyst Euromonitor International, said the situation could deter people from investing in the country.

“Retailers will be wary and many will take a wait-and-see approach,” she said, noting that there was little flexibility for retailers to increase prices in the country.

According to Euromonitor, the clothing and footwear industry’s growth has become heavily dependent on the Bric (Brazil, Russia, India and China) countries, which could pose problems in future.

Kondej said: “This carries risk because of the vulnerability of the economy in Brazil and Russia and the slowing economic growth in China.

“While the emerging markets are throwing invaluable lifelines to the apparel industry at a time of sluggish Western demand, diluting dependency on that growth will be a challenge.”

Bric countries generated more than a quarter of the world’s clothing and footwear sales in 2013 and are expected to account for more than 64% of projected global sales over the next five years.

In February Drapers reported that retailers shipping to Russia could face major obstacles due to stringent
customs regulations that have led to a number of courier firms suspending deliveries to customers.

Readers' comments (1)

  • Andy Tompsett at Merc is right to draw attention to the seizure of stock. But with relations with Russia only likely to worsen in the coming weeks following today’s referendum in Crimea, brands need to be looking at the terms on which they supply to customers in Russia as well as their distributorship and franchise agreements. When the opportunity presents itself, contract frustration may well be claimed by customers.

    Stephen Sidkin
    Fashion Law Group
    Fox Williams LLP

    Unsuitable or offensive? Report this comment

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