Big-name brands are facing a dilemma over whether to continue selling their goods in Russia

The scene is an upmarket fashion store in Florence. A cheery middle-aged Russian couple have finished selecting their clothes and are ready to pay. The man brings out a roll of freshly minted €100 notes and starts to peel them one by one on to the counter. Russians, even those with foreign bank accounts, cannot pay by card because of sanctions imposed by Britain, the EU and the US in response to Russia’s invasion of Ukraine. 

‘How many of these can we accept?’ calls out the assistant as the crisp green notes pile up in front of her. Italy limits the amount of cash used to pay for a single transaction ‒ a ceiling imposed to curb tax evasion. 

The manageress appears and a solution is reached. The man and the woman divide their purchases to stay within the €2,000 limit and walk out smiling with two bags that bulge with elegant designer garments. 

EU ordinance bans the export to Russia of luxury goods ‒ anything on a long list of almost 50 kinds of apparel with a price tag of more than €300. Illustration: Marcos Farina

These are difficult times for the fashion business. And nowhere more so than in Italy where large swathes of the population depend on design for their livelihood. 

An industry normally focused on turning taste into turnover all of a sudden found itself grappling with article 3h of European Council regulation 833/2014 (an amendment of 428/2022). This is the EU ordinance which bans the export to Russia of luxury goods ‒ anything on a long list of almost 50 kinds of apparel with a price tag of more than €300. 

For most of the continental fashion houses the sanction represents a ban on all shipments to Russia. But firms making cheaper pieces can continue to export without busting the regulations. Whether they are morally right to do so is another matter. 

A department of Yale University in the US has been assiduously tracking the reaction of corporations to the invasion of Ukraine. Firms have a legal obligation to respect sanctions, but because of the way the regulations have been framed, some companies do not need to abide by them. Others that respect the sanctions to the letter can nevertheless find that their wares still end up on sale in Russia, after having been diverted from a third country to which they have been legally exported. 

Benetton has decided to continue its commercial activities in Russia 

Opponents of Vladimir Putin’s war who fled abroad say that friends in Russia can still buy many of the luxury items that were available before the invasion through Russian online retailers. ‘The only difference is that they have to wait for seven days for the clothes or shoes to be delivered,’ said a dissident who asked not to be named for fear of reprisals. 

Yale’s 29-strong team of researchers grades the firms from A (‘companies halting Russian engagements or completely exiting Russia’) all the way down to F (‘companies continuing business as usual in Russia’). 

Many of the luxury Italian brands ‒ Moncler, Salvatore Ferragamo, Prada and Zegna ‒ are rated B, the grade awarded to ‘companies temporarily curtailing nearly all operations while keeping return options open’. Many French and German competitors are in the same category. 

A senior executive at one of the big Italian fashion houses says that since the embargo on luxury goods took effect in March, ‘we’ve not shipped so much as a tiepin to Russia’. 

In the short term, the ban will cost his and similar companies surprisingly little. The figures give an impression that Italy’s couturiers do not rely on selling to the family of Russian oligarchs. Valentino disclosed earlier this year that sales in Russia accounted for a mere three per cent of its turnover. But that omits all the beautiful gowns, shoes and bags purchased by Russian tourists abroad, whether in Rome, Portofino or in shops elsewhere such as London, Paris and New York. All those sales remain perfectly legal, as the Russian couple in Florence demonstrated. 

In the longer term, however, there may be a price to pay. The fashion houses risk being sued in the Russian courts. Most do not own the stores in which their wares are sold. They are run by local franchise-holders with whom they have contracts. And, in many cases, the brands are in breach of those contracts because they are not supplying their Russian partners with goods, particularly those priced under €300 not subject to the embargo. 

‘This is an area in which companies have struggled to balance their legal obligations with doing the right thing,’ says Tom Cummins, a partner at Ashurst, a London law firm that has been advising firms on the sanctions. Set against the legal risks of cutting off supplies to Russia are the reputational dangers of exporting items that are not covered by the sanctions. 

‘Consumers may well say, “I don’t want to buy your products any more because you’re continuing to profit from business in Russia,”’ says Cummins. ‘Young people are particularly sensitive to ethical issues.’ 

In fashion, the further you go down the market where products cost less than €300 and young consumers are in a majority the trickier the balancing act becomes. 

Milan-based Yoox, the global online retail giant, is an example of a firm that could have continued working with Russia but decided not to. Its website offers plenty of products under €300. But within days of the invasion it suspended all its activities in Russia, posting a message in Russian on its website that read: ‘Due to the current situation, we are unable to complete any new orders in your country.’ 

According to Yale, however, four of the best-known names in Italian fashion have taken a different approach. Armani, Benetton, Diesel and Calzedonia have all been consigned to the ‘sin bin’ with the lowest possible grade, accused of carrying on as if nothing had happened. 

The most surprising is Armani, since it hardly belongs to the cut-price end of the market, even if its Emporio Armani stores appeal to a young clientele. When asked to comment, the Armani group issued a statement that said it ‘does not operate directly in Russia and the shops operating in the country with the brands of the group are managed by independent franchisees’. It added that Armani ‘adheres with strict compliance to the sanctions regime issued by the EU’. 

A spokesman said the group had suspended its online sales, but did not respond to a question as to whether it was exporting products priced less than €300 to the shops operating under its brand name. 

Diesel said that it had closed its online activities. It stressed that it did not have shops of its own in Russia and that it was respecting the sanctions while noting that they do not apply to products selling for less than €300. 

Calzedonia simply refused to discuss the matter. As for Benetton, a company that for decades has linked its products to notions of diversity and racial equality, its website declares: ‘Social responsibility is intrinsic to Benetton Group and has always been expressed through a way of “doing business” that is based on principles of respect for the environment and people ‒ at all levels ‒ and on campaigns defending human rights.’ 

True to these fine principles, after the invasion, ‘Benetton Group immediately expressed its deepest concern for the ongoing dramatic humanitarian crisis,’ according to a statement provided to YOU. ‘Within this context, the company has decided to suspend all its development business plans in Russia, allocating its commercial investments in favour of humanitarian assistance for the Ukrainian people handled by the Italian Red Cross.’ 

The Italian conglomerate has ‘also donated garments to Ukrainian refugees and is providing protection and support to Ukrainian refugees in Italy,’ the statement said. But donating clothes and cash is one thing and, in the present circumstances, putting future investment on hold might even be seen as a sound business decision. But what about stopping business in Russia to make the point that invading another sovereign nation does not square with respect for people ‘at all levels’, let alone ‘defending human rights’? 

No dice. ‘Benetton Group,’ the statement continued, ‘has decided to continue its commercial activities in Russia, based on longstanding relationships with commercial and logistical partners and on a network of stores employing over 600 families.’ 

For some fashion houses, expressing solidarity with Ukraine does not translate into halting commercial operations in Russia. But whether customers understand that and whether it will influence their choices as consumers remains to be seen.

  • John Hooper is Italy correspondent at The Economist