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Adidas Takes Wait-and-See Approach to Ukraine Production

Cosabella is suspending production orders in Ukraine following Russia’s full-throated assault on its smaller Eastern European neighbor.

For the past two years, the lingerie label, which is headquartered in Miami and Italy, has been working with two facilities in the port city of Odessa to develop and produce underwire and structured bras with fuller cups for its European market.

Cosabella prized its Ukranian partners for their technical-fit expertise and consistent production, said co-CEO and creative director Guido Campello, whose Italian immigrant mother founded the brand nearly 40 years ago. He also favored Odessa for its Italian influences. “We would actually bring Italian laces and Italian elastics and bring them there for completion,” he told Sourcing Journal.

But the fierce fighting across multiple fronts has made the sourcing situation impossible, Campello said. The question of whether product shipments will be able to continue unmolested amid air and missile strikes also looms large. Russian troops have already penetrated Odessa, with numerous reports of heavy fire exchanges taking place Thursday.

“We wish for the best for the whole process—that the parties can come to a peaceful agreement quickly, but it’s better for us to be able to just press pause and then look forward to coming back as soon as we can,” Campello said. He doesn’t anticipate any inventory interruptions, however. Cosabella learned early on to “widen our footprint,” which spans the Mediterranean, Albania, Tunisia and Serbia.

“We’ve planned ahead and we’re able to be a bit more flexible with adjustments when they occur,” he said. “We want to continue and build up but right now we have to take a step back. At some point [the Ukrainian suppliers] will resume and we will be there.”

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Cosabella is suspending production orders in Ukraine amid Russia’s full-throated assault on its smaller Eastern European neighbor.
Cosabella will “take a step back” from sourcing in Ukraine while the Russian invasion continues. Cosabella

Hugo Boss, which works with three suppliers in Ukraine, told Sourcing Journal that it is monitoring the situation closely and sees “no reason” to change its sourcing policies “from today’s perspective.” S.Oliver, another German firm, also said it is “following with concern” the escalation of military action and is in regular contact with its production partners. Like Cosabella, S.Oliver expects only “minor effects” because it doesn’t have significant volume order in the country.

Adidas, which contracts from three Ukraine suppliers, is likewise taking a wait-and-see approach. “What we can tell you is that we are monitoring the situation very closely and in doing so, the protection and safety of our employees is naturally our top priority,” a representative told Sourcing Journal.

Other retailers that don’t source from Ukraine but have a retail presence there are battening down their own hatches. “The safety and security of our colleagues is our main priority and therefore our stores in Ukraine will be closed until further notice,” an H&M spokesperson said of its nine outlets. Mango did the same with its 14 doors, closing its online shop temporarily as well.

Some 92,000 garment workers are employed in roughly 6,000 factories in Ukraine, according to the Clean Clothes Campaign, whose most recent data is from 2010. In 2012, clothing and footwear production accounted for 0.8 percent of the country’s gross domestic product. More than 90 percent of Ukraine’s apparel sector, the coalition said, operates “in the shadows,” with poverty wages and dismal working conditions. Germany accounts for 37 percent of its exports, one 2015 study estimated.

While neither Russia nor Ukraine plays a major role in apparel production and trade, the industry is “by no means immune” to the “ripple effects” of the military conflict, said Sheng Lu, an associate professor at the University of Delaware’s department of fashion and apparel studies.

“For example, as the immediate result of the escalated tension, the world oil price jumped substantially,” he told Sourcing Journal. “This means textile fibers derived from oil, such as polyester, could face tremendous price pressure. As man-made fiber becomes more expensive, the demand for natural fiber could also increase, extending the price inflation to natural fiber eventually.”

The “vast uncertainty and risk” that Russia’s aggression incites could pose an even more serious concern to a global economy in recovery from Covid-19’s slings and arrows. Turkey, a leading apparel supplier for the European market, could even slip into the danger zone by virtue of its proximity.

“Apparel companies that rely on sourcing from Turkey may need to prepare for a contingency plan,” Lu said.

Supply chains could also see further snarls. Russia’s invasion has already begun to disrupt maritime, air and land-based export routes, Ophelia Coutts, Russia and FSU analyst at risk-intelligence company Verisk Maplecroft, told Sourcing Journal. The superpower, she noted, has banned ships from traveling through the Sea of Azov and some companies are charging a “danger premium” for sailing near Russia and Ukraine. A potential blockade of commercial shipping transiting through the Black Sea and Sea of Azoz is “on the cards” and would “compound the situation.”

“Widespread insecurity, a significant risk to personal life and damage to infrastructure are all likely to make sourcing from Ukraine untenable in the short term,” Coutts said, adding that a “looming labor shortage caused by refugee outflows, internal displacement, and the need to mobilize manpower for fighting is another source of potential export disruption.”

“The conflict in Ukraine will create a great deal of internal displacement, which would likely correspond to an increased risk of association with human trafficking and other labor right violations,” she said. “Sourcing goods from a country either occupied by Russia or governed by an authoritarian puppet regime would be a source of severe reputational risks.”

Steve Lamar, CEO of the American Apparel & Footwear Association, a trade group that represents brands such as Adidas, Gap and Patagonia, called Thursday a “terrible day for the citizens of Europe and indeed the globe.”

“The political instability and strife we are seeing boil over today [are] incredibly upsetting,” he told Sourcing Journal. ”We are working closely with our members to track the evolving situation, including effects this will have on supply chains, other global economic factors, and the imposition of sanctions. Our industry goes to great lengths to make sure their operations are fully compliant with all existing and any new sanctions.”