With mass brands ranging from Ikea and Marks & Spencer to Mango and H&M pausing operations in Russia, everyday consumers, and not just the ultra-rich, could be the hardest hit by Western sanctions.
It’s the people on the street, who may well be anti-Vladimir Putin, and anti-war, who are suffering with hyper-inflation, little access to credit — and job losses from retail and factory closures.
One result is that a whole crypto economy is emerging, with suppliers and consumers looking for ways around sanctions. Could this be the Russian black market all over again?
Russia’s attack on Ukraine escalated during Milan Fashion Week, but the nation’s retailers had already put in around 70 percent of their orders before that, buying pre-collections. Sell-out, however, is at risk if the war continues into the fall 2022 season, and “Russian retailers could change the sizes of their orders and direct the goods to countries such as China, fueling the gray market,” said a source, who requested anonymity.
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Luxury consultant Armando Mammina of Milan-based marketing and communication agency Retablo, said that “no company can afford to lose orders placed in Russia after two years of COVID-19.”
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He said Russians who are cut out of the SWIFT payment system are “trying to pay in cryptocurrencies, Bitcoins or Ethereum, with prices significantly fluctuating over the past few days.”
As of Wednesday, the value of Bitcoin had climbed 20 percent to more than $43,000. Mammina also believes companies are “doing business through the metaverse, moving from that into reality.”
He believes speculative trading has recently helped to make “enormous profits. Big investors in cryptocurrencies are called whales, and around 1,000 whales own about 40 percent of cryptocurrencies.” He said that, among these whales, there are many Russian oligarchs and Chinese billionaires.
Mammina added that “the governments have no control over the cryptocurrencies and their movements, the economy is basically decentralized, totally autonomous from the country’s politics.”
He contended several fashion houses accept payments in cryptocurrencies, especially those that are already on gaming platforms, for example. “It’s a matter of business survival,” he said.
This rush to cryptocurrencies, which are based on blockchain technology and secured by cryptography, prompted Mykhailo Fedorov, vice prime minister of Ukraine and minister of digital transformation, to launch an appeal on Twitter on Feb. 27.
“I’m asking all major crypto exchanges to block addresses of Russian users. It’s crucial to freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users,” he tweeted. Through Twitter, Fedorov has also been asking Silicon Valley to take action to shut down Russian propaganda and disconnect Russia from the rest of the world.
“If possible, I would rather avoid being paid in cryptocurrencies,” admitted Toni Scervino, chief executive officer of the Ermanno Scervino brand, which has a strong business in Russia through its partner Bosco di Ciliegi. He said he did not know if buyers from Russia would be traveling to Italy to put in their post-fall-show orders.
“There is obviously a lot of uncertainty.”
For the time being, he confirmed that all payments are blocked. While hoping for a fast end to the war, he said Italy’s fashion industry will be surely impacted, as Russians “are especially attracted to Made in Italy products. And we are not only talking about Russians locally, but those around the world.”
An executive at an outerwear company in Milan that has a strong business in Russia and Ukraine also said all payments have been blocked, but that “nobody has proposed using cryptocurrencies.”
She noted that “they are frowned upon by some banks that still do not accept them, viewing them as shady, if not downright belonging to the criminal world.”
The executive said that 30 percent of her brand’s pre-collection has been paid for by Russian retailers and that she had not received any cancellations so far.
Luxury growth will most certainly suffer due to the conflict. In a report published on Friday, Jefferies said that overall growth in the sector will be dented by a downturn in Russian consumption, and that new customers and “marginal buyers” in Europe could decide to postpone their spend on luxury due to higher-than-expected inflationary costs.
Before the war, Jefferies had been targeting growth of 14 percent in the luxury sector overall, and believes that in a worse-case scenario (with no spend in Russia, and declines in Europe due to inflation and negative consumer sentiment) that figure could drop to 10 percent, “which is significant. Any further escalation and possible impact on intra-Europe travel would be a further cause for concern,” the bank said.
The possibility of a slowdown in growth in luxury goods became even more of a reality on Friday when Hermès revealed plans to close its three stores in Russia due to the conflict. It was followed by LVMH Moët Hennessy Louis Vuitton, which said it was “temporarily” shuttering its stores in Russia because of the war.
Meanwhile, companies are also looking to support Ukraine as much as they can, both financially and in spirit.
The executive who is based in Milan said her outerwear company will go ahead and produce the garments ordered by Ukrainian retailers “as a sign of respect for our longtime clients. If the country wants to rebuild, we must give them the opportunity to do so, we are taking a risk but we want to do so as a sign of encouragement.” An appointment with a buyer from Tsum was confirmed for later in the week, she said.
Separately, the London-based etailer MyWardrobeHQ is looking to support the Ukrainian designer Shezhana Tkachenko, who makes embroidered shirts. MWHQ is asking customers to buy her embroidered blouses, which are made in Ukraine.
The company said that if dispatch is not possible, customers’ funds will be donated to charity, and they will receive a 100 pounds credit.
“We know that against the horrors that are unfolding, this is a very small act, but the support will give Shezhana and her team immediate work to go back to, and will give her access to additional funds to help her family and others around her,” the company said.
The fashion industry has been pledging to help the Ukrainians and those fleeing the country, with LVMH, Kering, Burberry, Valentino, the OTB Foundation and the Camera della Moda and its members making donations to the United Nations High Commissioner for Refugees and the Red Cross.
On Friday, Etro and Giorgio Armani also joined the relief efforts. Armani made a donation of 500,000 euros to the UNHCR and of essential clothing for refugees to be distributed through the Community of Sant’Egidio.