The clothing business in Ukraine is on the rise, but there’s still lots of room for growth.
The country’s textile industry until recently accounted for less than 1 percent of Ukraine’s industrial output. In 2014, the country manufactured Hr 11.5 billion (about $460 million) worth of textile products, according to the State Statistics Service of Ukraine.
That is changing. According to the service’s latest data on the textile industry, output rose by 3.3 percent this year from January to March, compared to the same period in 2015. Most of that growth came from the production of textiles (which was up by 29 percent), with the growth in finished clothes more modest, at about 2 percent.
Although the country still produces few of its own clothes, Ukrainians are savvy and trendy garment consumers.
Oleksii Omelianchuk, the CEO of Shopping Mall, an online e-commerce platform that promotes 80 Ukrainian clothing brands, says that when it comes to purchasing clothes via the internet, the fashion segment is the fastest-growing one in Ukraine right now. About 70 percent of purchases are made using cell phones.
The most active clothing consumer group in Ukraine is people aged between 25 and 34, and most buyers are female.
Growing trends
Omelianchuk says that at the grass-roots level, Ukrainian fashion is booming, and that most Ukrainian fashion brands appeared only in the last two years. It’s not a coincidence that the boom has happened since Ukrainians ousted their corrupt former government, he thinks.
“It’s due to a change in mentality, because after the (EuroMaidan) Revolution in 2013 a lot of people realized that something had shifted in the consciousness of the nation,” Omelianchuk said.
Indeed, after the revolution, lots of Ukrainian entrepreneurs jumped into new fields of business, and making clothes was a popular choice. The number of Ukrainian clothing brands is now anywhere between 500 and 600.
But Ukraine’s current legislation is not helping these entrepreneurs to develop their new businesses, and the domestic clothing industry is a typical example of how difficult it is for businesses both new and old to carve out and maintain a niche in an economy that is dominated by big business groups.
Tatyana Abramova, the director of Ukrainian knitwear producer RITO, has been in the clothing business in Ukraine for 24 years. Today her company has one knitting factory outside of Kyiv employing 100 people. The company produces at least 25,000 items of clothing per year.
Abramova was considering whether to build a new factory last year, but bureaucratic hassles, uncertainty and worries over the stability of the economy quickly put her off the idea.
“Why should I start doing this – just for the sake of losing sleep at night?” Abramova said. “Today our company doesn’t have a problem with finding financing, we’re even getting proposals to invest in our business from our own clients.”
One of those proposals was to build a factory abroad.
“Our Lithuanian partners have proposed that we start up production in Lithuania, and we’re still looking at this question,” Abramova said. “Of course a European bridgehead would be very interesting for us as a springboard.”
After visiting a clothing fair in Copenhagen, Denmark, RITO recently started to export to the European Union. But most of the demand remains in the domestic market. Her company exports goods worth €6,000, no more than 5 percent of production.
Legislative problems
But the rise in demand and the post-revolutionary boost to entrepreneurship might be short-lived if Ukraine’s government doesn’t make some key changes soon.
Editor-in-chief of Vogue Ukraine fashion magazine Masha Tsukanova says that while the clothing industry got some good press in the wake of the EuroMaidan Revolution that drove President Viktor Yanukovych from power, it’s proving difficult to translate this into more exports.
“A lot of people started to write about Ukraine, Western journalists wanted to support Ukraine by the means available to them, and started to write more about Ukrainian designers,” Tsukanova said. “But it’s a little difficult for us to export what we make in Ukraine, because the legislation is written in such a way as to be completely against this.”
The Ukrainian customs service remains the top problem for clothing companies in Ukraine.
Abramova says that Ukraine is still considered a “zone of risk” by potential investors, who are scared off by Ukraine’s corrupt and unpredictable customs service.
Affordable financing and Ukraine’s high value-added tax rate are also problems, especially for small- and medium-sized enterprises.
“Everything has a 20 percent value-added tax on it, even on technical equipment, for the creation of jobs and more production,” Abramova said. “Right now we’re bringing in equipment that costs €45,000, and we have to pay 20 percent VAT.”
Exporters are also drained of their earnings from abroad by the regulations of the National Bank of Ukraine. Companies are required to sell 75 percent of their foreign currency earnings as soon as they bring the money into Ukraine.
The temporary currency control was imposed by the government to stabilize the economy following Ukraine’s revolution and the 2014 start of Russia’s war against Ukraine, but it has been in place for two years now.
Exporters also have to sell all of their goods within a 90-day period.
“This also limits our abilities to export unbelievably,” Abramova said. “Especially when we’re talking about seasonal collections, when you can’t sell everything right away.”
Gap in the market
Most of the growth in the industry has so far been at the luxury end of the market. Factories that make goods for Western brands for export are also growing.
“But the middle niche, which is similar to where our company works, basically doesn’t exist,” Abramova complained.
Tsukanova agrees. There is a big gap in the domestic clothing market because domestic clothes manufacturers need export earnings to fuel their growth on the home market. And for that, they need to be able to export.
“In order to work in the mass market, ideally you need to sell globally as well,” Tsukanova said. “Since nothing can be easily exported legally out of Ukraine, then there are problems of how to manufacture for the mass market in Ukraine.”
Abramova puts the industry’s problems down to the shortsightedness of Ukrainian officials, who she thinks favor commodity exporters, rather than supporting mid-sized manufacturing.
“Light industry is undeservedly being ignored… even though it creates the most turnover,” Abramova said.
