For decades, Ukraine has been highly regarded for its apparel and accessory manufacturing and particularly for its skilled sewists. While political instability has hampered progress, textile exports reached a record-high $50 billion in 2020. Unfortunately, the recent Russian invasion is threatening the industry once again. While Russia and Ukraine are not large production hubs for United States-based apparel and accessory companies, the conflict is still having an impact.
“Ukraine, despite not being a major supplier to the U.S. market, it is important to some U.S. companies,” said Julia Huges, president, United States Fashion Industry Association (USFIA). “During 2021, the U.S. imported more than [$20 million USD] apparel from Ukraine.”
Given how interconnected the world has become, Russia’s invasion of Ukraine is also causing ripples outside of Eastern Europe, with brands and consumers alike facing economic uncertainty and rising prices.
Ukrainian Apparel Manufacturing
When it was a member of the Soviet Union, Ukraine served as the USSR’s hub for garment and textile manufacturing. Due to its highly skilled workforce, modern factories and low order quantities, the country has gained prominence in Eastern Europe. Adidas, Zara, New Look and Marks & Spence are among several well-known brands that had moved to Ukraine in recent years. Ukraine is also home to world famous fashion designers, including Julie Paskal and Ruslan Baginskiy.
Manufacturers in Ukraine can produce high-quality garments for much less than many European countries. In 2017, Ukraine signed a free trade agreement with the European Union, making it easier to export to E.U. countries. According to a World Bank report, clothing and textile exports from Ukraine to the E.U. totaled approximately $823 million in 2018.
Eastern Europe has also benefited from the supply chain issues created by the COVID-19 pandemic. As shipping from Asia became more challenging and costly, E.U. brands turned to more local alternatives. Located between Western Europe and Asia, Ukraine’s location is particularly attractive.
Impact of Russian Invasion
The Russian invasion of Ukraine represents a devastating setback for Ukraine apparel and accessory manufacturers. Many export routes are blocked or are getting costlier. The state of local factories in cities like Kiev is uncertain in the wake of Russian bombing. The crisis is resulting in cancelled orders, with Italian lingerie label Cosabella announcing that it has paused its production orders in Ukraine.
Some have predicted that Ukraine could follow in the footsteps of Myanmar, which was experiencing rapid manufacturing growth until its government collapsed in February of 2021. While the country’s garment manufacturing had grown from $1 billion in 2011 to $6 billion, a military coup halted progress. Companies like H&M and Primark moved their production out of Myanmar, and many factories ultimately closed.
Unlike the situation in Myanmar, the impact of the Russian invasion is being felt far outside of Russia and Ukraine. For fashion brands in the United States and throughout the world, economic sanctions, supply chain disruptions and rising energy costs are among the many issues resulting in uncertainty. Many brands are also pulling out of Russia as a means to show their support for Ukraine and/ or voice their opposition to the invasion. Under Armour announced that it has halted all shipments to Russia.
“We are proud to stand with Ukraine against Russia’s attack on its democracy and will do what we can as a global company where standing for equality matters,” Under Armour said in a statement.
TJX Companies announced that it is divesting ownership in Familia, a Russian-based, off-price apparel and home decor retailer, “in support of the people of Ukraine.”
H&M Group has temporarily paused all sales in Russia and shuttered its Ukraine stores. Luxury retailers like Hermès, Chanel and Cartier owner Richemont have also followed suit.
“Given our increasing concerns about the current situation, the growing uncertainty and the complexity to operate, Chanel decided to temporarily pause its business in Russia,” the company announced.
How Brands Can Manage Uncertainty
From COVID-19 to the Russian invasion of Ukraine, world events continue to highlight the importance of diversification. From suppliers to manufacturers to retail locations, spreading your operations across more than one region is essential given the current geopolitical landscape. Agility is also important when seeking to manage risk. Being able to shift primary production from Asia to Europe was imperative to managing the supply chain crisis caused by COVID-19. Now, companies with manufacturing in Eastern Europe must have the flexibility to divert their production to facilities outside the region.
For fashion companies that have not been impacted by the Russian-Ukraine conflict, there are still important lessons to be learned. How would your operations be impacted by a crisis in Asia, Eastern Europe or the Americas? Do you have a plan in place to quickly pivot to another region?
While protracted military conflict is hopefully a rare occurrence, operations can also be impacted by natural disasters, economic instability, power disruptions and, of course, pandemics. Whatever the source of the disruption, businesses that have continuity plans in place are best equipped to recover quickly and protect their brands.
Howard D. Bader serves as general counsel for clients in a wide range of industries on an international scale. With over three decades’ worth of legal experience, he has represented clients in numerous legal matters, including commercial litigation, intellectual property, bankruptcy and creditor’s rights and mergers and acquisitions, as well as numerous corporate transactions and business law matters.
Howard D. Bader
hbader@sh-law.com
(212) 784-6926
www.sh-law.com
