Navigating the luxury supply chain since the war on Ukraine
The very moment Russia invaded Ukraine, a dramatic ripple effect was felt across the global retail space. The vast majority of international brands began ceasing operations in Russia, and the same applied to most luxury brands. Despite not having a large share of the global market, both countries are home to a significant portion of new investments and production. As a result, the lack of access to these markets and producers has been felt, especially in the post-COVID world we live in today. Furthermore, it illustrates just how hard it may be for brands and businesses to navigate the aftermath of war and how significant disruptions in a single market can have a far-reaching impact.
In light of the circumstances that led to the outbreak of war, many international brands have temporarily ceased operations in the Russian market, in some cases permanently. Failure to do so may anger consumers in core markets, particularly for luxury brands based in the United States.
Despite only accounting for 5% of the global luxury market before the war, Russia’s GDP and standard of living had increased dramatically in a relatively short time. The result was a rapidly developing market with a particular taste for luxury brands. In fact, most international luxury brands had already begun investing heavily in the country, so the pullbacks have hit the brands hard and marked the end of years of investment in Russia-based operations. Moreover, even if the war were to end soon, it is unlikely that businesses would resume operating in the country for some time.
Effect on Supply Chains
The production and supply chains, however, were much harder hit than consumption. While the luxury ecosystem is still recovering from the pandemic, the war has only compounded their problems, making recovery even more challenging. Increasing energy, logistics, and sourcing costs are having far-reaching effects on the industry, well beyond the borders of Ukraine and Russia.
The conflict has cut off many trade routes, especially those crucial to luxury fashion brands, both overland through Russia and the Black Sea. In addition, Ukraine had over 2,500 textile, clothing, and footwear factories, 80% export-oriented. Luxury products are also heavily reliant on wood-based packaging, particularly those made from sawn softwood timber from Ukraine and spruce and pine from Russia, both of which have been effectively cut off since the war began.
In conjunction with rising energy costs, commodities have seen their prices rise sharply. This has been made worse by supply delays and stoppages from the region. The global supply chain has also been subjected to additional pressure in the wake of sanctions against Russia.
This, however, doesn’t mean brands are left defenceless. Several steps can be taken to address these disruptions and boost a supply chain’s resilience.
What Can We Do?
Brands worldwide have been given a wake-up call in the last few years. It has shown us that large-scale supply chain disruptions can happen any time, and we are woefully unprepared to deal with them. Consequently, many businesses have responded largely in a reactionary manner. Although this provides temporary relief, it isn’t conducive to long-term risk mitigation and business sustainability. Therefore, once a business’s immediate risks are managed, they need to empower their organization to deal with such situations more effectively in the future.
For this to happen, a carefully selected cross-functional team must first conduct an impact analysis. It may also be beneficial to partner with supply chain consultants since they can provide businesses with up-to-date market intelligence as well as deeper insights into the current situation. An effective mitigation plan should then be developed based on these results. Even restructuring their portfolio may be necessary to align their supply chain with market demands better.
Once the immediate crisis has been dealt with, businesses could consider equipping themselves to better deal with disruptions of this scale and improve risk mitigation in the future. To achieve this, an effective omnichannel analytical solution is highly recommended, one that provides a consolidated view of the whole supply chain. By doing so, they will be able to assess, monitor, and proactively react to risks and ensure disruptions don’t have dire consequences for their organization. Moreover, these solutions typically provide end-to-end visibility, scenario planning, what-if analysis, and demand sensing, all of which can be used to streamline and, in some cases, completely redesign supply chains.
The result is a flexible and resilient supply chain capable of safeguarding a business against risk and large-scale disruptions.
At XY Retail, our omnichannel retail platform offers brands precisely what they need – a consolidated view of your entire supply chain utilizing the latest in retail technology. Get in touch today and learn how our platform can safeguard your retail business and boost your supply chain resilience.