MOSCOW — Caught in the middle.
That’s a feeling shared by Russian retailers and Turkish manufacturers over the past months as political tensions persist between the two countries following the downing of a Russian bomber aircraft near the Syrian border last November.
Trade bodies in Turkey have begun to tally up the costs — and they are hefty.
“The central government is going to great lengths in order to prevent the flow of free trade between Turkish and Russian establishments,” lamented Burak Celet, chief executive officer of Turkish leather goods firm Desa and a board member of the Turkish Leather Council. He cited “official and unofficial sanctions” that are restricting the flow of goods.
“Traditionally, Russia has been the most important trading partner for the Turkish leather industry. The total volume in 2014 was $438 million and the number already shrank to $236 million in 2015,” he said. “I do not believe that the situation is going to get any better in the very short term, unless the situation in Syria is resolved.”
Still, given long and fruitful business relations between the two countries, Celet held out hope that the political tensions would eventually ease.
“If tomorrow we receive an offer or an opportunity from Russia, we will definitely cooperate and collaborate with our Russian colleagues,” he said.
Given the current chill, Turkish manufacturers are scrambling to offset lost business by strengthening ties with neighboring countries such as Iran and Iraq, as well as traditional partners in Europe, according to Celet, whose firm Desa is also eyeing expansion in the U.S.
Russia is one of Turkey’s most important economic partners. The country accounts for 7 percent of total Russian textile and clothing imports, second only to China.
An important meeting of the two partners, the Collection Première Moscow trade fair in Moscow, recently went ahead with a vastly reduced Turkish presence. The country has traditionally been important at CPM, and it is understood many Russian buyers attended the fair primarily to do business with Turkish brands.
Organizers of the event, which ended its four-day run Feb. 26, cited a 20 percent jump in attendance to 19,950 — partly due to retailers seeking alternatives to Turkish apparel. According to CPM, Russian collections received particular attention as local production is seen as safer, more stable and it’s easier to make deals in rubles nowadays rather than foreign currencies.
In the past, ITKIB organized a large country pavilion, with half of the expenses of ITKIB financed by the Turkish government, according to Anna Lebsak-Kleimans, chief executive officer of Moscow-based Fashion Consulting Group.
At the most recent session, CPM registered the participation of only three Turkish brands — Arda Tex, Biza and Guzella — that are not connected with ITKIB.
By contrast, in February 2015, the Turkish pavilion at CPM housed between 30 and 40 exhibitors — among them Climber, AVVA, Mavi, Sassafur and Gizia — over a floor space of around 11,000 square feet.
ITKIB decided not to sponsor the Turkish pavilion at the 26th edition of CPM in light of the opaque situation following the Nov. 25 incident involving the Russian plane.
Reinhard E. Döpfer, an international textile and fashion marketing consultant, noted clothing and textiles are not on the official embargo list of the Russian government.
“So technically there should be no fear for both sides of exporting and importing. The only problem is customs,” he said.
Döpfer noted many European brands in Russia subcontract or produce in Turkey. For instance, Hugo Boss subcontracts production of garments in Izmir, but this supply is not affected. Furthermore, Hugo Boss is compliant with Russian rules and regulations as the German men’s wear giant has operated a limited liability company in Russia in 2014. Ditto for Turkish retail chains including LC Waikiki and Koton.
Still, batches of clothes are often exposed to “individual inspection” at the border, which includes surveillance of shipping documents and physical inspection of garments with regards to correct labeling, Döpfer said. For example, fiber content must be identified on tags in Cyrillic script, along with the country of origin.
“Made in Turkey” items are supposed to be shipped separately and the average length of inspections can stretch from six to eight weeks — risky for seasonal fashions and often leading to a pileup of goods.
One loophole that manufacturers are employing to bypass these checks is to change Made in Turkey to Made in Azerbaijan. However, Döpfer warned this process is not speeding the movement of goods.
According to Lebsak-Kleimans, Turkey has long been a key supplier to the Russian retail industry because of its ability to provide a market-right product. Makers there have the know-how and an ability to adapt to Russian tastes, which is crucial, she noted.
Turkish manufacturers can also deliver small quantities, are very flexible on orders and can typically make deliveries within as little as five days. Such flexibility and speed cannot be offered by suppliers from China or Southeast Asia, Lebsak-Kleimans noted.
The Turkish tensions join a long list of woes for Russia’s retail sector, facing a tough moment marked by an economic crisis, a currency in free fall, Western sanctions and a drop in oil prices.
All of the above continue to affect travel patterns.
“Turkey is particularly hit by the fallout of Russian tourists,” Döpfer said. “The construction sector is also hit for the Turks, because they build large commercial real estate, and stadiums for the FIFA event [in Russia] in 2018.”
Shortly after the November incident, the Russian government asked tour operators to stop selling packages for Turkey’s Mediterranean coast, one of the most preferred resort destinations for Russians.
The most recent data from tax-refund operator Global Data shows that Russian tourism fell 21.7 percent in January after a slight improvement in December, suggesting that a falling ruble, anemic oil prices and sanctions continue to sap consumer appetite for travel. This was the 25th consecutive monthly decline for the Russian tourist globally.
Celet noted that Russian visitors to Turkey also represent an important customer base for leather manufacturers, “which should easily double the export figures under normal circumstances.” The usual 4.5 million visitors from Russia is expected to shrink to less than one million, he said.
Döpfer noted that Russian retailers are also trimming buying excursions outside of the country due to the high costs. He attributed the bump in traffic at CPM to the fact that many buyers bypassed their usual visits to trade fairs in Germany.