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Ukraine’s Fashion Industry Grapples with Geopolitical Tensions

Ukrainian Fashion Week will go ahead as planned this week despite concerns about a potential military escalation between Russia and Ukraine amid growing US-Russia friction.
Outfit from the brand Kohhen by designer Oleksandra Volchak, who will show at Ukrainian Fashion Week (UFW), photographed by Adam Katz Sinding and styled by Sebastian Felix Topescu.
Outfit from the brand Kohhen by designer Oleksandra Volchak, who will show at Ukrainian Fashion Week (UFW), photographed by Adam Katz Sinding and styled by Sebastian Felix Topescu. (Adam Katz Sinding)

KEY INSIGHTS

  • One reason for the current escalation of tensions is a disagreement between Russia and the US over the possible future expansion of NATO into Ukraine.
  • Forecasters such as Oxford Economics contend that the base case scenario for the current crisis is that it will be resolved by diplomatic rather than military means.
  • Retailers and designers in Ukraine caution against panic but some are anxious, citing concerns about a potential negative impact on business if the situation worsens.

Ukrainian fashion industry leaders are hopeful that a diplomatic solution can be found to defuse heightened political tensions between Ukraine and Russia, which the US and other Western governments say are being inflamed by signs of a significant military build-up on the Russian side of the border between the two neighbours locked in a protracted conflict.

People like Katerina Rutman, a designer from the eastern Ukrainian city of Dnipro, seem as concerned about the escalation of rhetoric surrounding the conflict as they are about the conflict itself. “Don’t be hysterical,” she cautions observers of the dispute. “We can do more than simply give up and invest our energy in negativity… we have to be prepared, responsible and thoughtful.”

Moscow has rejected Washington’s claims that Russia is engaged in “aggressive actions” toward Ukraine and said it does not want war. But as talks between Russia the US have so far failed to yield a resolution, some European Union countries have sent military support to Ukraine and the US has indicated it has troops ready to be deployed at short notice. Meanwhile, Russia has warned the US to not follow through on pre-emptive threats of sanctions against it.

One reason for the current escalation of tensions is a disagreement between Russia and its supporters including some post-Soviet states on one side, and Ukraine and its Western allies on the other, over the possible future expansion of NATO (the North Atlantic Treaty Organisation) into Eastern European countries. Russia sees NATO membership for Ukraine and Georgia as a red line in a region it considers to be its traditional sphere of influence.

On Friday, Ukrainian president Volodymyr Zelensky appeared to downplay talk of an imminent Russian invasion of Ukraine despite relations between the two countries being hostile for eight years. Recent warnings of an invasion made by Western governments and media outlets are creating unnecessary “panic,” he said. Moreover, such rhetoric risks having a negative impact on the Ukrainian economy and otherwise risks destabilising the country.

It is a sentiment that is partly echoed by Rutman, though the designer says there has not been any financial impact of recent tensions on her business. “Certainly, due to the current situation, there are reasons for concern [though] I do not support the general panic and comments in the Western media,” she said, adding that she hopes the current political tensions can be resolved peacefully.

“Our team is working as usual, we’re preparing a new collection and planning trips to do [trade shows]. Orders continue to come in and current orders are not being cancelled… The only interruptions so far are the cancellations and rescheduling of flights due to weather conditions and a slight delay in fabrics at customs before New Year but that had more to do with the holidays. Otherwise everything else is going according to schedule.”

I can’t say that this did not affect the creation of the collection, because the war has affected many areas of our lives for a long time already.

Others working in the Ukrainian fashion industry, however, have found the recent flare-up more disruptive. “I can’t say that this did not affect the creation of the collection, because the war has affected many areas of our lives for a long time already,” says young designer Oleksandra Volchak from Lviv in Western Ukraine, who will show her brand Kohhen at the upcoming fashion week.

“Since the war in Ukraine began in 2014, I no longer find it surprising that there are media campaigns like the current one about an invasion but, of course, as citizen of Ukraine, I am offended by some incorrect statements by some Russian politicians and journalists about Ukraine.”

Companies report a mixture of anxiety and calm at work

Heightened tensions have not affected Ukrainian Fashion Week’s plans to hold its regular event this week from the 3rd to the 6th of February in the capital Kyiv.

“Ukrainian political instability and its shifting economic agendas have made uncertainty a part of our everyday lives since 2014,” said Iryna Danylevska, chief executive of Ukrainian Fashion Week (UFW).

That was the year which saw the protests of the Maidan revolution oust Ukraine’s then president Viktor Yanukovych, Russia’s invasion and annexation of Crimea from Ukraine and the start of the ongoing military conflict in Ukraine’s eastern Donbas region.

“We are used to performing everyday routines, working, organising events, and even launching new businesses in a tense environment, where all the usual constants — even one’s own safety — are skewed. [The author] Nassim Taleb would call this ‘antifragility’, whereas we in Ukraine call it ‘resilience’,” Danylevska added.

Several Ukrainian designers who show at this and other events have found success abroad in recent years, with retailers like Selfridges in the UK, Nordstrom in the US and Rare Market in South Korea regularly stocking brands from the country.

As they put the finishing touches on the upcoming season’s collection, most participating UFW designers interviewed by BoF say they do not foresee any immediate changes to their business plans, though some express concern about the worsening conflict between Russia and Ukraine.

Ukrainian President Volodymyr Zelensky visits soldiers at the frontline in Donbas, Ukraine in June 2021.

According to Ivan Frolov, the designer behind the brand Frolov who has dressed Ukraine’s first lady Olena Zelenska as well as local and international celebrities, production is running at full capacity and business is uninterrupted but “we can’t deny that this situation greatly affects the overall well-being of each Ukrainian, including our team. As no one can predict anything, in order to support each of our employees we have developed strategic plans of action for all possible scenarios.”

Co-founder of the accessories brand and art studio Bob Basset, Serhii Petrov from Kharkiv, which is situated in the east of the country just 26 km from the Russian border, told BoF that he feels anxious. Though he has not noticed a fall in demand, he does not expect to attract new clients due to the current crisis.

“General anxiety and anxiety for loved ones interferes [with day-to-day life and] sometimes it is difficult to concentrate on work. But the experience of 2014 helps a lot. It was scary back then too,” Petrov confessed.

However, another fashion industry leader from Kharkiv said she feels calm about the situation as she readies for rehearsals at Ukrainian Fashion Week.

We just try not to spread panic and work as usual, being attentive and analysing carefully what’s happening around us.

“Right now I am sitting with student designers at my private fashion school in the heart of Kharkiv,” said founder of the Ukrainian Fashion Education Group, Marina Loseva. “All of us are calm and everything is on schedule [like normal]. We really don’t even have a few minutes to discuss things around us, because we’re [so] busy with our work.”

Others like Kyiv designer Kate Silchenko, who will present the brand Coat by Katya Silchenko, noted a growing sense of solidarity at her company which she believes is in part linked to recent and current events.

We have faced a challenging time in Ukraine. However, I have gotten closer to my team. I did everything to save workplaces for both my employees and Ukrainian factories, providing all the needed resources.”

At Nadya Dzyak’s namesake brand in Dnipro, the designer said her team members are remaining “calm and very optimistic” in the hope and belief that “everything will be fine.”

“Dnipro is my homeland. I love this city, which is now actively developing. There are many plans for the future… [so] our task is to continue doing our job, in which we put our [heart and] soul.”

How likely is military conflict or an economic crisis?

In Oxford Economics’ report entitled “Russia-Ukraine Tensions: Asset Market Scenarios,” released on Jan. 27, analysts from the global forecaster state that their “base case scenario is that the crisis is resolved by diplomatic means,” thanks in part to “feverish diplomatic activity, especially by European leaders… to avoid a new war,” driven in part because they are “worried about the possible impact on local energy markets and the secondary economic impacts.”

Oxford Economics’ lead emerging market economist Tatiana Orlova told BoF that, “in our main scenario, the current standoff between Russia and NATO is going to be resolved by diplomatic means. The markets will gradually calm down, and there will be little or no impact on discretionary consumer product categories.”

However, if diplomacy fails, the forecaster envisages one of the following scenarios could materialise: (2) Russia continues trying to undermine Ukraine by non-military means, “via cyberattacks and disinformation campaigns”; (3) there is a limited incursion into Ukraine’s territory, most likely in a form of air raids to destroy military infrastructure; (4) there is an invasion in another form, for example, Russian ground troops move into Ukrainian territory; or (5) something else happens that the US and NATO have not considered.

For both military scenarios, the ensuing conflict could negatively affect discretionary spending in Ukraine for consumer goods categories such as apparel, footwear and beauty.

“In scenario three, the impact on business sentiment would likely be short-lived and there could be a short-term dip in consumer demand. In scenario four, business sentiment will likely be depressed for longer, likely for the duration of the hostilities and perhaps beyond, [and] companies’ decision making will be affected by uncertainty,” Orlova added.

“The Ukrainian retail market is quite vulnerable to severe geopolitical shocks such as war. As a precedent, we can refer to 2014-2015 when real private consumption fell by 8.1 percent during the first year of the conflict and then by 19.6 percent in 2015.”

“The Ukrainian retail market is quite vulnerable to severe geopolitical shocks such as war. [Back in] 2014-2015 real private consumption fell by 8.1 percent during the first year of the conflict and then by 19.6 percent in the next.”

The Ukrainian economy is already suffering due to headwinds. According to the World Bank, GDP contracted 4 percent in 2020 and the recovery in 2021 was hampered by several constraints including a second wave of Covid-19 infections. On the back of last year’s double-digit inflation rise, Ukrainian assets and the national currency, the hryvnia, were hit hard.

If current tensions escalate further, there is also the possibility of an impact on the Russian economy and fashion retail market. “If the West imposes sanctions, the Russian rouble will depreciate… This will boost inflation further. Both rouble depreciation and higher inflation will negatively affect consumer confidence. Higher inflation will also depress real incomes [so] consumers will have less to spend on discretionary items,” said Orlova.

Heightened hostilities between Russia and Ukraine and its allies comes at a time of growing instability across other markets in the Eurasian region of post-Soviet states and Commonwealth of Independent States (CIS). Since 2008, Russia has had no formal diplomatic relations with neighbouring Georgia due to the Russo-Georgian War and Russian support of the government in Minsk has frustrated some Western countries especially when there was a migrant crisis spilling over from Belarus into the EU.

Last month’s protests in Kazakhstan, which saw more than 100 businesses including fashion retailers experience suffer millions in damage and theft, were estimated to have cost the country over $2 billion. At the request of Kazakhstan’s president, troops from Russia-led Collective Security Treaty Organisation (CSTO) countries were dispatched. Meanwhile, Lithuania’s diplomatic row with China over Taiwan risks dragging other countries into the dispute.

Luxury retailers report growth despite ongoing conflict

Despite the challenging environment facing major retailers in the Ukrainian market in recent years, some luxury players have reported a boost in sales.

In 2014, the year of the Maidan Revolution, models at the Rybalko show at Ukrainian Fashion Week in Kyiv wore masks at the catwalk.

The chief executive of the landmark Tsum Kyiv department store Evgeniy Mamay told BoF that “in 2021, our sales increased by 50 percent in comparison to 2020, and 36 percent growth compared to pre-Covid 2019 [levels].”

The department store sells over 250 global brands such as Jimmy Choo, Victoria Beckham, Stella McCartney, Marni, Dolce & Gabbana and Versace. In total, more than a thousand brands are available there and, among them, Ukrainian designers are proving increasingly popular. “Within three years, their [collective] sales have quadrupled,” Mamay says.

Mykhail “Michael” Kavitskyi, president of Helen Marlen Group, a premium and luxury fashion retailer in Kyiv which has a network of multi-brand boutiques and mono-brand stores which it operates for brands such as Burberry, Salvatore Ferragamo and Gucci across the city and a showroom in Odessa, told BoF that “despite the uncertainty and the situation we are now in, we see growth in sales and margins.”

However, when considering business performance in the most recent weeks, he concedes that the company has observed a downturn in sales which he believes to be linked to the heightening of geopolitical tensions.

With so many different scenarios that could yet unfold, it is impossible to estimate how the current conflict will affect business in the year ahead, he adds.

“It is very hard to make any forecasts, everything is undetermined, but we definitely hope for the best,” Kavitskyi says. “We just try not to spread panic and work as usual, being attentive and analysing carefully what’s happening around us.”

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State of Fashion 2023
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State of Fashion 2023