The energy crisis that has forced the closure of steel mills and aluminum smelters across Europe is now affecting the continent's fashion industry. In 2022, the fashion industry in Europe has seen a substantial downturn due to the Russia-Ukraine conflict, worries over ongoing cost pressures from inflation, and the energy crisis, which continue to dominate the present economic situation. Several smaller businesses and workshops that manufacture products for brands such as Gucci and H&M have seen their business models fall apart as a result of the rise in electricity and natural gas prices brought on by Russia's invasion of Ukraine and the decision to cut off the continent's supply of gas.
According to European Apparel and Textile Confederation, several textile manufacturers' profit margins have shrunk as a result of the increase in energy expenses from 5% of manufacturing costs to around 25%. Energy prices have climbed so much that utilities and other energy suppliers, worried about not being paid, are requiring the textile businesses to obtain bank guarantees, or come up with cash advances to cover months of expected energy bills. Many textile manufacturers were unable to get the energy purchase contracts that had previously safeguarded them from sudden price fluctuations.
The impact is being felt across the whole supply chain, from the spinners and weavers who use a lot of electricity to turn wool bales into yarn to the fabric dyers who utilize gas-powered water tanks and large industrial dryers. It is difficult for fabric manufacturers to simply transfer those higher costs to buyers. Many are required to supply products at costs that were already agreed upon. Furthermore, higher prices would likely prompt many fashion brands and stores to move their operations outside of Europe. Some companies have already shifted production to other countries including Turkey, where production costs are less.
The current energy crises and high inflationary environment pose a big challenge to the fashion industry. Some brands or companies that have endured for decades could falter under these pressures. Countries in Europe are cushioning the impact for businesses by subsidizing caps on energy costs for instance Germany announced energy-relief measures worth close to EUR 300 billion, including caps on electricity and gas prices. France plans to allocate EUR 100 billion to its own crisis-fighting measures.
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