15TH APRIL 2024

Fashion on the Frontlines: Navigating Luxury

Supply Chains Amidst Geopolitical Conflicts

T H E I M P A C T O F U K R A I N E C O N F L I C T O N F A S H I O N S U P P L Y C H A I N S
 [ 01 ]

THE AGENDA

1. 2. 3. 4.
Introduction Impact analysis Case study and Conclusion and
responses future outlook
Introduction
In the landscape of interconnected
global commerce, supply chains are the
vital arteries that sustain the flow of
goods and services across borders.

However, the specter of conflict and

war casts a profound shadow over
these intricate networks, disrupting the
very foundation of global trade and
economic stability.
[ 02 ]
In recent times, geopolitical tensions and
armed conflicts have reverberated through
supply chains, underscoring the vulnerability
of these systems to external disruptions.
Wars, whether regional conflicts or broader
geopolitical tensions, possess the potential to
unleash a cascade of challenges that ripple
across industries and economies
worldwide.
Disruption of
Production
and Logistics
War zones disrupt not only local production
but also the transportation and logistics
channels critical for supply chains.
Infrastructure damage, port blockades, and
border closures hinder the movement of
raw materials and finished goods. Moreover,
disruptions in transportation routes and
increased security risks raise logistics costs
and timelines, impacting the timely delivery
of products to markets.
[ 03 ]
Supply Chain
Complexity and
Risk Exposure
The intricacy of modern supply chains,
characterized by global sourcing, just-in-
time manufacturing, and lean inventory
strategies, magnifies the susceptibility to
war-induced disruptions. Businesses
relying on suppliers or manufacturing
facilities situated in conflict zones face
heightened risks of production halts, delays,
or quality issues due to the instability and
unpredictability of war-torn regions.
[ 04 ]
Financial
Strain and
Uncertainty
War-induced disruptions inflict financial
strain on businesses as they grapple with
increased operational costs, insurance
premiums, and the need for alternative
sourcing or production solutions. The
uncertainty and unpredictability stemming
from conflicts impede long-term planning,
investment, and business expansion
strategies, affecting investor confidence and
market stability.
[ 05]
Resilience Strategies
and Mitigation
Measures
In response to these challenges,
organizations are increasingly focused on
building resilience within their supply
chains. Diversification of suppliers,
establishing redundant logistics routes, and
fostering agility in response to dynamic
geopolitical scenarios are strategies adopted
to mitigate the impact of conflicts on supply
chains.
Collaborative efforts among
governments, international
organizations, and businesses are
crucial in developing contingency
plans and frameworks for crisis
management. This includes leveraging
technology for real-time monitoring
and risk assessment, fostering closer
relationships with suppliers, and
investing in sustainable and adaptable
[ 06]
supply chain structures.
The Call for
Ethical
Responsibility
Amidst the turmoil caused by conflict, a call
for ethical responsibility echoes through the
corridors of global commerce. Organizations
are urged to consider the ethical
implications of sourcing from conflict zones,
emphasizing the importance of
responsible and ethical supply chain
practices. Ethical considerations extend
beyond mere business viability to uphold
human rights, support local communities,
and ensure ethical sourcing practices. [ 07 ]
For Fashion A. Russia-Ukraine Conflict

Supply
Chains, B. Israel-Hamas Conflict

Chaos Is the
New Normal C. Red Sea Shipping Disruptions

First came the pandemic which saw

D.
government-imposed lockdowns and port
and factory closures lead to supply chain The trade War with China
bottlenecks across the world. Since then, the
escalation of geopolitical tensions from
Ukraine to the South China Sea and most
recently the Middle East have also served to
spook markets and disrupt global trade.

[ 08 ]
A. Russia-Ukraine Conflict

The Russian invasion of Ukraine has disrupted global supply

chains, including the apparel markets of both countries. Although
they play a minor role in the global luxury fashion market, the
conflict has significantly impacted stakeholders across the
industry.
Oil price rise led to increasing costs of oil-based textile fibers like
polyester. However, this presents an opportunity for innovation and
adaptation towards natural fibers, which may lead to a positive shift
towards sustainability in the industry despite the indirect price
inflation due to the conflict.
The conflict's disruptive reach extends beyond the borders of Russia
and Ukraine. It has significantly impacted European markets and
Indian traders in Panipat. These traders heavily rely on exporting
handloom products to Europe, making them vulnerable to the
conflict's economic repercussions. Furthermore, the sanctions
imposed by the EU on Russia have adverse effects, potentially
causing significant economic losses to EU nations.
Major fashion brands have stopped retail operations in Russia,
affecting the brands and consumers. [ 09 ]
 B. Israel-Hamas Conflict

The Israeli-Palestinian conflict has several implications for the global

fashion supply chain, particularly due to disruptions in transport
and logistics in key regional ports and heightened security risks.
Key Israeli ports like Ashdod and Haifa have experienced varying
levels of operational disruptions due to the conflict. Although
Ashdod Port has managed to continue its operations, the situation
remains volatile with heightened security measures, especially for
vessels carrying hazardous materials.
The conflict has heightened risks along critical maritime
chokepoints like the Suez Canal. Although the Canal remains open,
any significant escalation could disrupt this vital route, forcing
shipping companies to reroute around Africa via the Cape of Good
Hope.
There are direct financial implications, including increased
insurance premiums and shipping costs due to the perceived
higher risks of operating in or near conflict zones.

[ 10 ]
C. Red Sea Shipping Disruptions
Since November, Iran-backed Houthis — a militant group
that has controlled parts of Yemen since 2014 — have
staged mounting attacks on cargo ships in the region
ostensibly in protest of the Israel-Hamas war in Gaza. A
Houthi missile struck a US-owned cargo ship carrying steel
off the coast of Yemen as well as a Greek-owned vessel
sailing from Vietnam to Israel.
The Houthis’ intensifying aggression, spurred by Western
intervention, poses not only a diplomatic dilemma and a
potential new flashpoint in the Middle East war, but also
profound disruption to one of the world’s most vital
trade routes.
All vessels passing through Egypt’s Suez Canal must
traverse the Red Sea in order to make journeys between
Asia and Europe. The canal is a crucial passage for
international trade, through which roughly 15 percent of
global shipping trade, including as much as 30 percent of
container traffic, passes each year.
The fashion retailers
“Each of those containers will likely be carrying
thousands of products made in Asia … typically
including everything from Barbie dolls to iPhones to
fast fashion.”
“While there are minor changes of operations, they
have no significant impact for now on our
business. We are continuing to monitor the situation
closely.” retailer Uniqlo
“As of now we don’t foresee any significant
disruptions in the shipments. However, we are
following the situation closely,” a spokesperson for
Swedish retail giant H&M
[ 11 ]
C. Red Sea Shipping Disruptions

Since Houthi militants started their recent campaign

hijacking commercial vessels in the Red Sea, the rebel
group has launched drone and missile attacks on over two
dozen ships.
With an estimated 20,000 fighters, according to The
Guardian, the Houthis occupy most of the west of
Yemen and control its Red Sea coastline. The group
claims to only be targeting ships which are Israeli-owned,
or those headed for Israeli ports but many ships targeted
have no known connections to Israel.
Three of the world’s largest shipping lines have paused
all Suez Canal transits indefinitely. DHL advised its
customers to consider alternative shipping options as
operators switch away from the Red Sea; Oil giant BP said
it had paused all transits through the Red Sea; and French “It does look as if retailers will have to pass on
shipment costs to customers at some point, and
food conglomerate Danone warned of increased shipping the longer the crisis continues, in our view, the
times due to diverted cargo. Freight container volumes sooner and steeper those rises will have to be,”
through the Red Sea have fallen 65 percent from expected
levels since November, according to Reuters.
[ 12 ]
D. The trade War in China

The US-China Trade War, notably intensified since 2018, has

significantly impacted the global fashion industry.
The US and China have imposed mutual tariffs on a wide range
of products, including those relevant to the fashion industry like
textiles and apparel. This has led to increased costs for US
fashion companies reliant on Chinese manufacturing.
Due to increased costs from tariffs, US fashion companies have
been shifting their supply chains from China to other
countries like Vietnam, which has seen a rise in fabric exports to
the US.
The trade war has forced fashion retailers to deal with
increased product costs, which has affected pricing strategies
and consumer spending habits. Retailers have had to manage
these challenges without significantly impacting customer
loyalty. “Fashion’s cotton supply caught in crossfire of US-
China trade war. The US and the EU are taking
different approaches to target human rights
Regulations and restrictions from the trade war have also abuses in the fashion supply chain.” Vogue
impacted digital sales platforms, complicating US fashion
companies' like TikTok access to Chinese e-commerce
platforms, which are vital for reaching Chinese consumers.
[ 13 ]
Impact
Analysis of the
Ukranian war
The analysis of impacts highlights the
complex challenges that luxury fashion
houses and other Western companies
encounter while operating in Russia and
Ukraine, in the face of geopolitical tensions
and regulatory uncertainties. These factors
necessitate careful strategic planning and risk
management within their supply chain
operations.

[ 14 ]
Direct impacts
Loss of Market Share: The conflict has led to a loss of market
share in Russia, impacting apparel brand sales and revenues
Supply Chain Disruptions: Direct disruptions occurred in the
supply chain due to halted operations and transportation
challenges in conflict-affected areas, resulting in delays and
increased costs
Consumer Confidence: The conflict impacted consumer
confidence in Russia and Ukraine, which led to reduced
spending on non-essential items, such as clothing
Operational Costs: Brands and retailers faced increased
operational costs due to higher fuel and raw material prices,
which reduced profitability
Market Withdrawal: Many international retailers withdrew
from Russia and Ukraine due to the conflict, impacting their
sales and market presence in these regions

[ 02
[ 15]]
Direct impacts
Disruption of International Supply Chain Operations: The
sanctions imposed by Western countries against Russia
disrupted the international supply chain operations of luxury
fashion houses, making it challenging to import luxury goods
into Russia. This directly impacted their ability to deliver
products to the Russian market
Blockage of Foreign Currency Payments: Due to the sanctions,
luxury fashion houses faced challenges in receiving payments in
foreign currencies, further hampering their ability to conduct
business in Russia
Loss of Intellectual Property Rights: The Russian government's
threats against IP rights held by entities from "unfriendly"
countries, including luxury fashion houses, put their intellectual
property rights at risk. This directly impacts their brand
protection and market presence in Russia

[ 16]
Indirect impacts
Market Withdrawal and Re-entry Strategy: Luxury fashion
houses were compelled to temporarily withdraw from the
Russian market, resulting in indirect impacts on their supply
chain, including inventory management, production planning,
and distribution logistics. The uncertainty surrounding the
duration of their absence from the market complicates
strategic planning for their eventual re-entry
Trademark Protection Concerns: The uncertainty regarding
trademarks' protection in Russia poses a significant risk,
indirectly impacting supply chain decisions. Luxury fashion
houses may need to reconsider their global branding strategies
and intellectual property management practices to mitigate
these risks
Rise of Unauthorized Products: Disregarding trademark rights
could lead to a surge in unauthorized and infringing products
on the Russian market, indirectly impacting supply chain
dynamics. Luxury fashion houses may need to invest additional
resources in anti-counterfeiting measures and brand protection
efforts

[ 17 ]
Indirect impacts
Shift towards Parallel Imports: The possibility of legalizing
parallel imports in Russia as an alternative to unauthorized
products could indirectly impact supply chain strategies. Luxury
fashion houses may need to adjust their distribution networks
and pricing policies to address the changing market dynamics
Consumer Behavior and Market Perception: The geopolitical
situation could indirectly impact supply chain strategies
through consumer reactions, including potential boycotts or
shifts in purchasing behavior. To maintain customer loyalty,
luxury fashion houses must proactively adapt their marketing
and branding strategies to mitigate negative perceptions
Inflation: Rising commodity prices exacerbated inflation and
put pressure on consumers' purchasing power, impacting the
European apparel industry
Price Hikes: Brands passing on increased operational costs to
consumers have significantly reduced affordability and forced a
shift in purchasing behavior
Market Growth: The conflict affected market growth
projections due to disrupted trade relations and consumer
confidence, particularly in less developed markets like Turkey
and Eastern Europe [ 02
[ 18]]
Case study:
Balenciaga
Fashion brand Balenciaga showed its Autumn
Winter 2022 collection in a "snow globe", with
models walking the runway in a blizzard as a
comment on both the climate crisis and the
Ukraine war.

The war had impact on Balenciaga’s:

1. Cost of logistics
2. Consumer confidence
3. Demand distruption
4. Cost of raw materials
5. Production delays

[ 19 ]
Impact on Balenciaga:
Business Operations and Market Response: Balenciaga, like
many luxury brands, faced decisions about continuing
operations in Russia. The brand participated in fashion
movements and made symbolic gestures during fashion weeks,
such as distributing t-shirts in Ukrainian colors, to express
solidarity with Ukraine. These actions were well-received,
particularly by a young, socially conscious audience​
Economic and Social Impact: The sanctions imposed on Russia
by the US and the EU affected luxury goods, including those
from Balenciaga, by restricting exports to Russia. This impacted
the brand's business operations in Russia and required
adaptations in their global supply chain strategies​
Consumer Perception and Brand Image: The crisis also posed
challenges related to consumer perception. Luxury brands,
including Balenciaga, needed to navigate public relations
carefully, balancing between business interests and ethical
stances on the conflict. The reaction from the public, especially
through social media, influenced how these brands shaped
their responses to the conflict​

[ 20 ]
Impact on Balenciaga:
Supply Chain Disruptions: Along with the rest of the industry,
Balenciaga has also suffered disruptions in its supply chain due to
the ongoing Russia-Ukraine conflict, impacting the costs of
production along with logistics

Disruption on Materials: The war has led to heightened risks

and disruptions in the supply of critical raw materials. Russia
and Ukraine are significant sources of several critical minerals
and other raw materials vital for various industries
Inflationary Pressures on Commodities: The conflict has
driven up prices for various commodities prevalent also in the
fashion industry, for instance, the increase in prices of nickel
and neon, where Russia and Ukraine play significant roles in
global supply
Logistical Challenges and Cost Increases: The geopolitical
situation has reinstated several logistical challenges, leading to
higher transportation and manufacturing costs due to
increased prices for energy and interrupted shipping routes.
These changes force brands to reevaluate their manufacturing
strategies and may lead to increased product prices​. Indeed, we
have seen an approximate 25% increase in luxury fashion prices
from 2019, kick-started by the COVID crisis, and sustained by
[ 21 ]
geopolitical conflict
Industry
Response

[ 22 ]
The industry united
The Russian invasion of Ukraine has been met with
widespread condemnation. The UK government has
introduced a package of trade and financial sanctions on
Russia, which include freezing the assets of Russian
individuals, businesses and banks, and excluding the latter
from the UK financial system. Russian banks have also been
barred from the international banking system Swift.

High-street fashion retailers including H&M Group, Mango,

Zara, Marks & Spencer, Asos, Boohoo Group, JD Sports
Fashion and Nike have responded to the conflict by closing
their Russian stores and suspending online trade. Luxury
fashion houses, such as Balenciaga, Louis Vuitton, Dior,
Hermès, Chanel, Prada, Gucci, Saint Laurent, Cartier and
Burberry, have also paused operations in the country.
[ [02
23]]
Impact of Collective Industry Response to Conflict:
Market Shifts and Entry Opportunities: The withdrawal of Western fashion brands from Russia due to sanctions and
ethical stances against the Ukraine invasion has paved the way for brands from China, Turkey, and other non-Western
countries to fill the market void
Luxury Shopping Redirection: Sanctions led to the closure of many Western luxury stores in Russia. Consequently,
Russian consumers have turned to international markets, particularly in the UAE and Turkey, to purchase luxury goods,
maintaining the flow of luxury spending outside Russia
Continued Market Activity Despite Sanctions: Despite the widespread closure of stores and exit of brands like LVMH,
Chanel, and Hermes, a robust grey market in luxury goods thrives within Russia. Luxury items continue to be available
through channels that bypass sanctions, utilizing third-party countries
Economic Impact on Retail: The Russian retail sector has seen significant economic downturns, with a reported loss of
about 200 billion roubles ($2.2 billion) in retail sales for 2022 alone due to high inflation, reduced wages, and the
diminished presence of Western brands
Apparel Market Setbacks: The conflict and subsequent sanctions have erased approximately $18.8 billion from the
Russian apparel market. Recovery to pre-war levels isn't expected until at least 2025, highlighting the enduring impact of
the conflict on domestic markets
Complex Exits for Some Brands: While many brands ceased operations directly, others like Hugo Boss have navigated
complex exits due to pre-existing contractual obligations with Russian partners, showing the intricate business
relationships affected by geopolitical tensions
Luxury Goods Accessibility: Despite official store closures, luxury goods continue to enter Russia via alternative routes
from countries not participating in sanctions. This has helped sustain a certain level of luxury consumption within the
country
Substitution by Non-Western Brands: With the exit of Western businesses, brands from countries like China and Turkey
have opportunistically filled the gaps, often taking over previously held business premises and market segments
Conclusions
and future
outlook

[ 25 ]
Key Conclusions
Disruption of Production and Logistics: Wars and conflicts disrupt
not only local production but also key transportation and logistics
channels. This includes damages to infrastructure, blockades, and
increased logistics costs​​
Increased Supply Chain Complexity and Risk: Modern supply chains
are vulnerable due to their complexity and the lean inventory
strategies employed by businesses. This increases the risk of
disruptions, particularly in conflict zones​​
Financial Strain and Uncertainty: Conflicts cause financial strain
through increased operational costs and the need for alternative
sourcing or production solutions. They also create significant
uncertainty affecting long-term planning and investment​​
Strategies for Resilience: Companies are focusing on diversifying
suppliers and establishing redundant logistics routes to build
resilience against such disruptions. Technology plays a crucial role in
real-time monitoring and risk assessment​​
Ethical Considerations: There is a strong emphasis on ethical
responsibilities in sourcing, with a focus on human rights and
supporting local communities affected by conflicts

[ 26 ]
Outlook
Sustainability and Innovation: The increase in costs for oil-based
textiles (like polyester) due to conflicts can shift the industry towards
more sustainable and natural fibers. This is seen as a potential positive
trend towards sustainability despite cost pressures​​
Shift in Consumer Markets and Behaviors: Major brands exiting
conflict-impacted markets (like Russia) are leading to shifts in where
and how consumers buy luxury goods. There’s a growing market in
non-Western countries and online platforms as alternatives​​
Increased Market Volatility and Risk: Ongoing conflicts are likely to
maintain or even increase market volatility and risks, necessitating
more agile and dynamic market strategies from global fashion brands​​
Technological Integration: Increased use of technology to manage
risks and maintain supply chain integrity will become more
commonplace. Companies will invest more in technologies that offer
real-time data and analytics to navigate uncertain environments​​
Ethical and Localized Sourcing: There will be a stronger focus on
ethical sourcing and local production as brands aim to reduce
dependency on risky overseas markets and improve their public
image concerning corporate responsibility​​
Adaptability and Customer Retention: Brands will need to remain
adaptable to changing geopolitical landscapes to retain customers.
This includes altering marketing strategies and possibly reshaping [ 27 ]
supply chains to be less dependent on volatile regions
Articles:
Links: [ 28 ]
https://www.drapersonline.com/insight/russia-ukraine
https://www.linkedin.com/pulse/impact-conflict-wars-ripple-effect-global-supply-chains-
arshad-azhar-9cdhf/
https://www.businessoffashion.com/briefings/global-markets/for-fashion-supply-chains-chaos-
is-the-new-normal/
https://www.csis.org/analysis/great-rewiring-how-global-supply-chains-are-reacting-todays-
geopolitics
https://www.just-style.com/news/wider-fallout-of-israel-gaza-conflict-concerns-fashion-supply-
chain/
https://luizadopradolima.medium.com/how-the-us-china-trade-war-is-affecting-the-fashion-
industry-271a6e3e7e78
https://www.luxurytribune.com/en/the-war-in-ukraine-forces-luxury-brands-to-take-a-stand
https://www.cxg.com/insight/how-luxury-brands-responded-to-the-russian-ukraine-war/
https://www.freightify.com/blog/russia-ukraine-war-global-supply-chain-problems
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4077865
https://fashionlawjournal.com/impact-of-russia-ukraine-war-on-the-global-apparel-industry/
https://www.deloitte.com/global/en/our-thinking/insights/topics/operations/supply-

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https://kpmg.com/us/en/articles/2022/impacts-russia-ukraine-war-supply-chains.html
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Thank you!
Maria Vittoria Ricordi
Paula Fernandez
Roberta Calvanese

[ 29 ]