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Russian/Ukrainian Crisis Pinches Athletic Apparel; Nike, Adidas Take Hits

While the precise character of the fallout from the Ukrainian political crisis for the apparel and textile industry remains unclear, athletic clothiers like Nike and Adidas can confidently expect to take a significant hit.

Both Nike and Adidas are entrenched in Russia with aggressive expansion plans for the remainder of Central Europe. Nike, in particular, has pegged Russia a high-potential market, expecting as much as $1 billion in sales over the next year. Nike’s sales in Russia during 2013 were 28 percent higher than in 2012. According to Nike’s annual report, “Revenue growth in Central & Eastern Europe was driven by growth in all key categories, most notably Running, Football (Soccer), and Sportswear.”

Adidas is even more vulnerable to political chaos in Russia and the Ukraine since it is the leading retailer of athletic apparel in Russia. And, like Nike, Adidas intends to invest considerably more in the Russian market, making it its biggest source of sales after the U.S. and China.

Columbia Sportswear is not as exposed as Nike or Adidas, but Russia still accounts for approximately 14 percent of its sales. Also, Columbia Sportswear has attached its brand identity to Russia, outfitting its 2014 Olympic ski teams.

Retailers all over the world are anxiously wondering how the political chaos in the Ukraine will affect their business. The initial catalyst for the citizen uprising was a trade-related issue–the former Ukrainian president’s unpopular decision to reject a free trade agreement with the European Union (E.U.)–and the consequences of the unrest could significantly impact the textile and apparel industries in the near future.

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Anonymous officials in the Obama administration keep feeding leaks to the mainstream press warning that the Ukrainian predicament, now on the precipice of civil war, “will have an enormous cost for the Russian economy” and that the U.S. government is “looking at a broad menu of options to curtail our trade and economic relationship.”

Congressmen from both sides of the political aisle indignantly denounced Russia’s incursion into Crimea, calling the move politically opportunistic. Some have demanded that Russia’s membership in the G8 group and the World Trade Organization be revoked. Others have suggested that outstanding negotiations with Russia regarding an impending bilateral free trade agreement be suspended. Secretary of State John Kerry joined the chorus of detractors: “American businesses may well want to start thinking twice about whether they want to do business with a country that behaves like this.”

Alexis Rodzianko, president of the American Chamber of Commerce said that the real economic issue at stake is the behavior of the Russian consumer. “The growth rate last year was predicted to be close to 3 percent and turned out to be less than 2 percent. The result is consumers are being more cautious, and I think that that trend was expected to carry into 2014. To some extent, people adjust their spending to their mood and expectations.”

Of course, there is a welter of other ways the regional imbroglio could upset the apparel markets. Experts are still uncertain what effect the brewing political discord will have on the price of natural gas in Europe, especially if a prolonged and potentially destructive military engagement leads to supply disruptions. Already, the global benchmark price of oil, as well as wheat and corn, all major exports from the Ukraine, have skyrocketed. Richard Mallinson, an analyst at Energy Aspects, said, “If there was a prolonged disruption to gas supplies (say three-four weeks), then concerns would certainly start to build about supplies and the availability of gas to refill storage through the summer, which could translate into higher prices for 2014 summer contracts and 2014/15 contracts.”

At least for now, forecasts regarding the effects of turmoil in the Ukraine and Russia must remain hypothetical. There will certainly be some consequences that result from the inevitable trade embargoes, and the Russian consumer has already become wary of unnecessary shopping. What has become fairly certain, though, is that athletic apparel retailers like Nike and Adidas have no choice but to reconsider their designs on Russia as a stage for future growth.