Ever since the 2014 Revolution of Dignity, Ukraine’s fashion industry has enjoyed a rising international profile while also benefitting from increased kudos among domestic audiences eager for anything with a “Made in Ukraine” label. This newfound popularity has attracted considerable media coverage, with journalistic interest amplified by a backdrop of geopolitical drama. Ukrainian designers have become regular features in the pages of Vogue magazine and other bibles of the global fashion press. Meanwhile, outlets offering the latest collections from Ukrainian designers have begun to appear alongside the international brand names throughout the country’s retail scene, with a flagship department store in the heart of Kyiv cementing the trend in the collective Ukrainian national consciousness.
The expansion of the Ukrainian fashion industry over the past four years has certainly been exciting, but has it been profitable? How big a role in the Ukrainian economy could companies from the fashion sector actually play? These questions remained largely unanswered until autumn 2018, when international cultural diplomacy and fashion industry expert Anna Varava presented the results of the first major study into Ukraine’s fashion industry and its place within the wider Ukrainian economy.
Ms. Varava spent around half a year researching the realities of the Ukrainian fashion and textiles business. She received guidance from British DCFTA expert Mark Hellyer alongside Dr. Marc Peter Radke and Dr. Paul Taylor of Germany’s Hochschule Furtwangen University. The initiative also enjoyed support from the Ukrainian Cultural Foundation and the Association4U project, which seeks to help Ukraine gain maximum benefit from the opportunities arising from the country’s Association Agreement with the European Union.
Ms. Varava’s findings paint a picture of a dynamic industry with a number of encouraging tendencies that nevertheless has much work ahead as it seeks to emerge from the shadows of the grey economy and meet the challenges of the rapidly evolving digital retail environment. She has prepared an overview of her research for Business Ukraine magazine readers to provide insight into the challenges facing Ukrainian fashion brands and textile companies as they seek to match the progress of their more established European neighbors while adapting to the rapidly changing fashion retail sector.
Global Economic Powerhouse
The global fashion industry is worth an estimated USD 3 trillion, making it considerably larger than many more readily acknowledged economic powerhouses such as the international telecommunications industry. Within this USD 3 trillion, women’s wear alone accounts for an estimated USD 621 billion in annual sales, of which USD 340 billion is concentrated in the luxury goods segment. These figures underline the potential importance of the fashion and clothing industry to individual national economies. They also highlight the considerable room for growth in today’s Ukraine.
Significant further expansion of the Ukrainian fashion industry would certainly be in line with global trends, which have seen clothing manufacturing serve for many decades as an important export for emerging economies. Indeed, clothing is a staple of the light industry sector, traditionally seen as one of the easiest areas of any economy to mobilize during periods of growth and transition. The advent of free trade with the EU courtesy of Ukraine’s 2014 Association Agreement opens the door to far greater volumes of clothing exports to European markets. These exports can include everything from basic everyday items to designer brands.
Still in the Shadows
Researching the Ukrainian fashion industry is challenging due to an absence of reliable figures for the industry as a whole. Nevertheless, recent research was able to identify numerous broad trends within the industry, leading to some key conclusions and recommendations. In 2017, the domestic women’s wear market in Ukraine was valued at approximately UAH 8.66 billion. However, the bulk of Ukrainian clothes manufacturing currently focuses on export markets. The country’s textile industry is officially worth around USD 3.43 billion, but according to some estimates, as much as 90% of the sector’s output may still be in the shadow economy.
Ukraine currently has 6,000 manufacturing plants operating in the textile industry, with between 80% and 90% of all production bound for export markets. Meanwhile, there are between 500 and 600 Ukrainian fashion designers engaged in the retail trade with their own brands and collections. Around one third of this total, or approximately 200 designers, are regular participants in fashion weeks and other industry events, both domestically in Ukraine and on the international stage. Popular foreign retail markets for Ukrainian designers include the EU (especially Poland), USA, Middle Eastern and Asian countries.
Made in Ukraine
The past few years have been a period of accelerated national awakening for Ukraine, with the country going through the turbulence of revolutionary upheaval and international conflict. One of the byproducts of this instability has been rising patriotic interest in all things “Made in Ukraine”. This trend has been particularly prominent in the fashion industry, with Ukrainian brands benefitting from rising visibility and greater kudos as a result.
According to official Ukrainian government figures, retail trade increased by just 3% in 2017. However, anecdotal evidence from individual designers points to a far larger increase in sales of branded clothing by Ukrainian designers, with many middle class and wealthier customers in particular now preferring to mix and match local and international brands. This hybrid approach has enabled Ukrainian brands to leverage the “Made in Ukraine” trend and position themselves among domestic audiences alongside some of the most globally recognized labels.
As is the case in any fashion industry, a clear hierarchy is now emerging among Ukrainian designers and domestic clothing brands. Some of the country’s more established designers remain very much aloof from the emerging mass market and continue to focus on small circles of private clientele, while others seek to turn their catwalk credibility into international business success. Some of the most successful Ukrainian fashion brands at present, both inside and outside the country, include Ksenia Schnaider, The Coat, and Andre Tan.
Clothing sold under the Ksenia Schnaider brand is currently available in 16 countries around the world. This Ukrainian designer’s iconic jeans and other creations are available in exclusive boutiques and prestige department stores such as Selfridges in London and Isetan in Japan. The brand currently has an annual production output of around 6,000 items of women’s wear apparel, with an average price per item of USD 600. The growing Ksenia Schnaider business empire is a pioneer of the online retail segment among Ukrainian brands, with around 40% of sales coming digitally via the Shopbop and Bloomingdale’s platforms.
Ukrainian brand The Coat has strong representation in Ukraine itself with central showroom in Kyiv. It has an official representative in Moscow, while also cooperating with Milan-based Guffani, which is official distributor of the brand for CIS countries, the Middle East, the Baltics, and Eastern Europe. This brand is another example of the power of a strong online presence, with 65% of The Coat sales coming online and via a popular instagram account that has accumulated over 120,000 subscribers. Annual production currently stands at about 6,000 items, with an average price of USD 400 per piece. The company focuses its attention on status- and fashion-conscious women in the twenty-five plus age category, which means an inevitable luxury premium and heightens the need to maintain an air of exclusivity around the brand.
Perhaps the most impressive Ukrainian brand name on the market today in terms of business model and company structure is the eponymous Andre Tan brand, which currently boasts 58 boutiques across Ukraine including spinoffs such as Andre Tan KIDS and Andre Tan Man. The success that designer Andre Tan has had in developing his own brand on the domestic market is a reminder that Ukrainian consumers represent a vast marketplace that is receptive to local designers who are able to position themselves in the same bracket as exclusive international labels. Tan first rose to prominence in Ukraine over a decade ago and has managed to cultivate his personal brand via an extensive media presence on Ukrainian TV. He has recently opened his first international store, Andre Tan California, and maintains a strong online retail profile. Nevertheless, the Andre Tan model is much more oriented towards large-scale sales and a domestic clientele, with just 10% of sales currently via online platforms and an average price per item of around USD 100.
Huge Economic Potential
The available data from state organizations such as Ukrlegprom, the State Statistics Service of Ukraine, and the Ukrainian Institute of Economics indicates that the Ukrainian fashion industry is an entrepreneurial environment dominated by small and medium-sized enterprises (SMEs). Larger enterprises are almost 100% focused on so-called Cut, Make and Trim (CTM) work, which is at the bottom of the fashion industry food chain and contributes relatively little to the country’s overall GDP.
There are already considerable indications of the potential within the Ukrainian fashion industry to become a driver of economic growth. Current statistics place the contribution of women’s wear apparel at 0.06% of Ukraine’s GDP. This is equal to approximately half the value of honey production in today’s Ukraine, yet the honey industry receives significantly more attention, interest and state support. Based on the current figures for the fashion industry, it is clear that more state support is required if the sector is to reach its obvious potential.
Key constraints on the evolution of Ukraine’s apparel sector include the absence of a coherent development strategy, the oversaturation of the domestic market with imported second-hand clothing, and a lack of both equipment and skilled personnel. Another major barrier to growth is the high number of producers operating below the radar in the shadow economy, which some observers believe could be as high as 90% of the market. There are also considerable concerns over illegal imports, especially in relation to second-hand clothing shipments, which are particularly susceptible to various shadow schemes. None of these obstacles is insurmountable, but they do underline the need for a proper review of existing regulations and industry monitoring.
An Industry in Transition
As Ukraine looks to modernize its fashion industry and integrate into wider European markets, many within the industry are looking towards France as a model for a successful fashion sector that has many of the structural features also present in Ukraine. The French fashion industry is both an economic engine and a powerful soft power tool that helps to promote France globally, making it even more strategically appealing.
As a transitional economy with a proven aptitude for change, Ukraine is in many ways well placed to succeed at a time when the entire global fashion and clothing industry is undergoing dramatic changes that will shape the future development of the sector in countries around the world. The fashion industry of the future will focus increasingly on digital presence with e-commerce, digital marketing, VIP loyalty programs, and online brand building all set to be crucial components to any fashion success story. In this evolving environment, physical stores can and will be replaced by internet-based applications and online services. The adoption of disruptive technologies such as advanced robotics and analytics, virtual and augmented reality, and smart phone retail is already accelerating. These processes have the potential to disrupt entire industries, with fashion no exception. Then there is the growing potential of artificial intelligence to make an impact throughout the fashion value chain, blurring the lines between technology and creativity.
As consumers become more demanding and expectations continue to rise, we will see greater emphasis on flexible, short-term and on-demand fashion production, together with digital manufacturing and higher levels of customization. The right legislative and regulatory landscape will be crucial for the sustainable growth of the fashion industry in this challenging and dynamic environment. In Ukraine’s case, access to financing will be potentially decisive, as SMEs will need the necessary financial tools if they are to invest in growth and innovation.
Remaining in Fashion
Detailed research into Ukraine’s fashion and clothing industry reveals a number of areas that will likely determine the further development of the sector. One obvious point is the need for modernization, both in terms of technologies employed in the industry and in terms of the professional knowledge of those charged with leading Ukrainian clothing manufacturers of all sizes. There is also a need to review legislation governing the import of second-hand clothing and other loopholes that make the large shadow fashion economy in today’s Ukraine possible.
International investors are already present in the Ukrainian fashion and textiles market. In order to attract investors in greater numbers, Ukraine requires a more transparent business climate complete with safeguards and guarantees. Likewise, Ukrainian clothing exporters need to receive more state support in order to boost their presence around the world and establish themselves in new markets.
The current domestic popularity of “Made in Ukraine” brands presents excellent opportunities for the growth of the Ukrainian fashion industry. A strong presence on the domestic Ukrainian market can act as a platform for future international expansion. It is therefore vital that this “Made in Ukraine” trend receives as much support and promotion as possible over the coming years.
Any future support initiatives will need to focus on the SMEs that form the innovative core of the Ukrainian fashion industry. Promoting SMEs is a winning strategy for emerging economies like Ukraine. SMEs offer flexibility, value added production, and an ability to generate local employment, both directly and indirectly. This is particularly true within the fashion industry.
If these guidelines for the future development of the Ukrainian fashion industry become reality, the results should include an increasing export trade to the EU and a growing Ukrainian presence on other attractive global markets. It will also help to foster a thriving domestic fashion scene that can provide Ukrainians with high quality, fashionable and inexpensive clothing.
About the author: Anna Varava is the author of the first major research paper on the Ukrainian fashion industry. She is a senior expert of the Association4U project at the Ukrainian Ministry of Foreign Affairs (Directorate General for the EU and NATO)