Major apparel brands delay & cancel orders in response to pandemic, risking livelihoods of millions of garment workers in their supply chains
Major apparel brands and retailers are cancelling or postponing orders (including those already produced) as the COVID-19 pandemic forces store closures in Europe and the United States, risking the livelihoods of millions of garment workers in their supply chains. Suppliers in garment-producing countries have faced an onslaught of order cancellations, reduced order volumes and extended payment terms, which have left many having to reduce operations or stop them altogether, unable to bear the financial burden. This has forced many suppliers to lay off or suspend millions of factory workers, often without pay and severance, pushing an already precarious group of workers to greater economic vulnerability.
As it is standard practice for brands not to pay for products until after they are shipped, when an order is put on hold or cancelled, payments are also held or cancelled. Some brands have even reportedly asked for discounts on orders already shipped. Non-payment and reduced payment for orders risks leaving suppliers unable to pay wages owed to their workers.
Exporters and manufacturing associations have appealed to buyers asking them not to cancel orders and fulfil existing contractual obligations. H&M, Inditex, Marks & Spencer, Kiabi, PVH, VF Corporation and Target are among the brands that have confirmed they will receive and pay for placed orders from their suppliers. Worker Rights Consortium is tracking brand commitments here and Labour Behind the Label is tracking how UK brands are protecting supply chain workers here.
Labour groups and unions are calling on apparel brands and governments to urgently mitigate impacts on the 60 million garment workers bearing the brunt of the COVID-19 crisis. Their demands can be found here.
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Retailers allegedly trying to unpick existing contracts with Asian garment manufactures, risking livelihoods as supply chain crisis deepens amid COVID-19
Author: Patricia Nilsson & Emiko Terazono, Financial Times
“Can fast fashion’s $2.5tn supply chain be stitched back together? Shuttered shops in London and New York translate into closed factories in Bangladesh and stockpiles of cotton in India”, 17 May 2020
[D]emand for new clothes has collapsed [and]…revenue streams for many of the world’s largest companies have been wiped out. [T]he impact is being felt all along the $2.5tn industry’s complex supply chains, hitting places where companies and employees cannot always access government-funded emergency support. [At] a time when retailers would normally be placing orders for their Spring 2021 collections, they are instead trying to unpick existing contracts...
[In] Bangladesh... clothing manufacturers have…lost out on more than $3bn in payments for [garments]... already produced or sourced...[and] workers demanding that employers continue to pay wages clashed with police, prompting the government to step in and cover 65 per cent of wages — a loan that manufacturers are expected to repay...
Lecturer, Patsy Perry, says retailers... have always had the upper hand in their relationships with Asian manufacturers, with demands of retroactive discounts commonplace in the industry: “We hear a lot of talk about partnerships but if a supplier says it cannot agree to certain terms, then the retailer can always go somewhere else…”
In Vietnam... the country’s textile and garment companies could lose more than $500m in revenues...[and] [f]urther along the supply chain..., Indian cotton farmer[s]... [are] bracing for…impact. Unless retailers pay for clothes already in production, [one manufacturer]…says, he will have no business to save…“unless people understand the [scale of this] disaster”.
Following campus activism, Under Armour commits to paying garment factories in full & on time amid COVID-19 outbreak
Author: Elizabeth L. Cline, Forbes
“Under Armour follows rivals, commits to paying garment makers in full”, 13 May 2020
Workers at an Indonesian factory, PT Kaho Indah Citragarment, claimed that their pay was cut in half after Under Armour cut back its orders, according to the United Students Against Sweatshops (USAS). Under Armour and Nike were targeted by campus activists in recent weeks.
After Nike agreed publicly to pay for orders, USAS circulated an online petition and launched a hashtag campaign (#WorkersOverUnderAmour) to pressure Under Armour to follow suit. It’s significant that Under Armour, despite its financial troubles, is [now] paying its factories and not asking suppliers for price cuts on finished goods.
To date, 14 brands and retailers have publicly agreed to pay in full for all orders and on time. But for the factories who are still owed money by major brands (debts owed are as high as $10 million at one factory and over $3 billion in Bangladesh alone), there’s a singular hope for the future: Getting paid for the clothes they’ve already made.
- Related stories: Major apparel brands delay & cancel orders in response to pandemic, risking livelihoods of millions of garment workers in their supply chains
- Related in-depth areas: COVID-19 (Coronavirus) Outbreak: Supply chain workers
- Related companies: Under Armour
Bangladesh: suppliers bear the brunt as Debenhams enters into administration, demanding 90% discount on completed orders
Author: Refayet Ullah Mirdha, The Daily Star
“British upscale brand Debenhams leaves its Bangladesh apparel suppliers high and dry”, 05 May 2020
[Debenhams] which used to purchase more than $120 million worth of mainly high-end garment items from 40 manufacturers in Bangladesh in a year, has now demanded … a 90 per cent discount…
Currently, Debenhams, which has appointed an administrator last month, its second in the past year, owes a staggering $66 million to its vendors in Bangladesh.
Of the amount, garment items worth $26 million is lying in the UK ports and another $40 million is in the factory floors ready to be shipped.
"We are uncertain about receiving payment from Debenhams as the company has appointed administrators," said Alam, also the managing director of Design Source.
Demanding a 90 per cent discount from the suppliers is abnormal. Many small and medium scale factories will not be able to sustain such a big blow to their business.
Moreover, if the UK court declares Debenhams as bankrupt, it will take at least five years to get any money, by which the local suppliers will crash and burn.
Meanwhile, Debenhams has already laid off all 69 employees in its Dhaka office…
The termination of the employees is illegal because the move does not follow the agreements that were signed with the Bangladesh Investment Development Authority.
Bangladesh: garment manufacturers bear the brunt of Covid-19 as major apparel brands cancel orders, defer payments and demand discounts
Author: Syed Ashfaqul Haque, The Daily Star
“You die, we live!”, 03 May 2020
.... As Europe stutters to reopen after the coronavirus pandemic, global apparel businesses are making up their loss with money of manufacturers.
… [G]oods that were already in stores of buyers but not paid for, goods that are still lying at ports of export destinations and work of goods that are in progress at factories in Bangladesh.
For goods that are already in stores, buyers are pressing garment-makers to take payments six months later or wait till the end of year for an amount that's to be determined on sale.
For goods that are lying at ports … [brands demand] up to 50% discount on agreed prices…
And prices of goods that are to be shipped in the next 3-4 months would be slashed by up to 30 percent.
Orders worth $3.15 billion (of 1,153 factories) have already been cancelled … "It will directly impact the lives of 2.2 million workers, not to mention their families." [said BGMEA]
About 80 percent of 5,000 factories in Bangladesh supply the cheap clothes to the world market … Factories in this bracket are barely-surviving and set to be hit hard …
Garment-makers … hurried … to cut short the lockdown period and open factories…
"Garment manufacturers are in fear of their apparel-rivals in Vietnam that has recovered fast from the pandemic and is open for business," observed development economist, Prof. Rashed Al Mahmud Titumir…
Asian suppliers condemn Edinburgh Woollen Mill for 'unethical' buying practices amid pandemic; Company says its response is 'a necessity'
Author: Kieran Guilbert, Naimul Karim & Anuradha Nagaraj, Reuters
"As fashion sales fall globally, big brands leave Asia's garment workers in limbo", 30 April 2020
... [M]anufacturers expressed frustration with the inability to negotiate with Western buyers which was causing job losses. “As far as buyers are concerned, there has never been any real room for negotiations,” said a major garment supplier in south India...
Garment brands, unions and employer organisations last week announced a working group... to help manufacturers pay wages... while ensuring access to healthcare and welfare for workers. Yet some of the retailers backing the initiative have not met its aim of ensuring their suppliers are paid for all finished and ongoing orders...
Two Bangladeshi suppliers... said some retailers such as Britain-based Edinburgh Woollen Mill (EWM) had demanded discounts of up to 70%, a figure that would see the manufacturers make a loss on those orders.
A factory owner in India said EWM told him it required a 50% discount and would only pay once it had sold 70% of the goods. “EWM are being opportunist, unreasonable and unethical,” the owner said, adding that most of his other Western buyers had “acted reasonably” when it came to negotiating over orders.
A spokesman for EWM Group - which also owns... Jane Norman and Peacocks - said it was negotiating with its suppliers individually to find a solution “that works for them”. “This is not what we would ever normally wish to do but the current circumstances are such that it is a necessity,”...
Commentary: Apparel industry needs to overhaul payment terms after COVID-19 crisis has exposed how existing system benefits brands while suppliers bear financial risks
Author: Mostafiz Uddin, just-style
[Article requires subscription]
"Apparel industry payment terms no longer fit for purpose", 20 April 2020
... [T]he immediate reaction of a large proportion [of brands and retailers to the Covid-19 crisis] has been a scaling back or delay of current production orders. This has caused major problems to apparel manufacturers... as their cashflow is immediately affected and they struggle to raise the necessary funds to pay their workers, their suppliers and to cover overheads and utility bills…
Payment terms within the apparel industry... differ sharply from normal trade practices… More often than not… payment terms… benefit the customer but expose the supplier to financial risks…
[The] prevalent system... is that of the Sales Contract (SC)... [where] a manufacturer will rely on a Purchase Order (PO) from a customer to execute an order. Based on the PO the manufacturer and customer will create a SC to allow the manufacturer to raise his own [Letter of Credit] to procure the necessary raw materials to complete the customer’s order... [T]he buyer commits to making payment for the goods after receiving copies of the documents relating to the shipment of the order… [T]he manufacturer has a legal right to receive payment for goods produced under the proviso that the goods comply with the customer’s terms…
The flaws in the SC payment system has been harshly exposed by the Covid-19 pandemic as customers... are withholding payments or cancelling orders, leaving the manufacturer, without the security of a bank guarantee, financially exposed. It is fair to suggest that the current payment terms... benefit the customer to such an extent that they are untenable for the future. A new system of payment terms needs to be established for the industry… that is endorsed by international agencies and is respected by all participants…
Author: Rebecca Wright & Salman Saeed, CNN Business
“Bangladeshi garment workers face ruin as global brands ditch clothing contracts amid coronavirus pandemic”, 22 April 2020
The coronavirus pandemic has led factories to furlough or lay off more than half of the country's nearly 4.1 million garment workers … most of them are women, and the roughly $110 they earn every month is often their families' only source of money.
Global lockdowns and unprecedented job losses have caused demand for [clothing] … to evaporate ... international apparel brands and retailers … [have cancelled or suspended] an estimated $3.17 billion worth of orders in the country …
"We have families in our village who are dependent on us," [a laid off worker] said. "Whatever we earn here we send it back home. Now my family (will) have to live without eating."
… Wages are already low in the industry … [and] workers don't have a lot of savings …
… [T]he brands [factories] work with aren't fulfilling the terms of their contracts. More than half of the 316 Bangladesh suppliers surveyed by Penn State University's Center for Global Workers' Rights said that most of their finished or in-process orders have been canceled since the pandemic began … [by] mostly European and American brands.
The survey found that more than 98% of buyers refused to contribute to the partial wages of furloughed workers that the law requires …
"These workers are really poor," said [Aruna Kashyap, senior counsel. women's rights division of Human Rights Watch] " … And at this moment of crisis it's really important for brands and retailers to live up to their human rights responsibilities."
The Bangladeshi government is providing some assistance. In March and April, Prime Minister Sheikh Hasina announced more than $8.5 billion in stimulus measures that includes loans to help factory owners pay worker salaries.
Even so, factory owners said they are concerned about taking out the government loans. The money would still have to be repaid within two years — a commitment they feared making given how unclear the coronavirus pandemic remains.
Asda: supermarket chain cancels orders with clothing suppliers despite record food sales amidst COVID-19 crisis
“Coronavirus: Asda cancels orders with suppliers”, 19 April 2020
Asda is cancelling a quarter of orders with clothing suppliers despite seeing record food sales during the coronavirus pandemic.
One supplier told the newspaper that the "behaviour is totally unacceptable". They added that it was "ridiculous" for the firm … "not to pay for orders".
Asda … [said] suppliers will be paid 30% of the order value for those that have not yet been finished, and half for those that have. That rises to 60% for manufacturers based in Bangladesh.
"We have longstanding and valued relationships with our suppliers, and want to help them weather this crisis," the Asda spokesperson added.
The supermarket says its warehouse and in-store colleagues are focused on "getting food onto our shelves for essential retail".
"Some brands are showing a true sense of partnership and high level of ethics in trying to ensure at least enough cash flow to pay workers," said Amit Mahtaney, the chief executive of Tusker Apparel Jordan.
"But we've also experienced demands for cancellations for goods that are ready or are work in progress, or discounts for outstanding payments and for goods in transit..."
Primark: retailer reverses decision to withhold payment for cancelled orders, committing to pay £370 million to suppliers across Asia
Author: Alex Lawson, Evening Standard
“Primark agrees to pay out £370 million for coronavirus-hit orders”, 20 April 2020
… Primark … did a major U-turn on its refusal to pay suppliers in Asia for clothes ordered amid the Covid-19 crisis …
The retailer … provoked a public outcry … after it cancelled payments for clothes already being made and shipped from low cost suppliers in Asia.
Today it committed to pay £370 million of the unwanted stock.
The retailer had previously only committed to paying for orders that were in transit or booked for shipment by March 18 …
The group initially … [established] a fund to ensure workers in developing countries were paid … But there was scepticism about how practical this would be if factories were forced to close …
Independent retail analyst Nick Bubb said: “It looks like a massive U-turn by Primark, after the outcry over its brutal treatment of Bangladeshi suppliers …”
Mostafiz Uddin, the chief executive of the Bangladesh Apparel Exchange, said Primark’s reputation had already been tarnished by the 2013 collapse of the Rana Plaza building which housed factories for … Primark and killed 1134 people.
Uddin said funds to support workers was not the answer. “My workers say ‘I do not want charity. I just want a job’ … Just pay the money that has been contracted.”
Pakistan: 1 million garment workers set to lose jobs due to declining global orders amid COVID-19 pandemic
Author: Hassan Naqvi, Pakistan Today
“Over 1 million textile workers set to lose jobs amid Covid-19 fallout”, 18 April 2020
More than 1 million textile workers are set to lose jobs in Pakistan … amid the coronavirus crisis, according to … [t]he recent study … conducted by Mazdoor Akath (Labour Collective).
… Mazdoor Akath stated that while ordering a lockdown, the Sindh government … asked … employers to pay workers for the next three months. However … the Employers’ Federation of Pakistan (Sindh)… said, “businesses are run for profits and it is the fundamental right of the employer to decide … to hire and fire ...”
… [E]mployers proposed that workers should be paid from the workers welfare fund for the labourers of the province and the Sindh Employees Social Security Institution and not from their own profits.
According to the [National Trade Union Federation] report… [a]lmost 75 percent of workers … in the textile … industry are in the informal sector of global value chains. “There is huge discrimination [against] female workers … 93 percent are receiving less than minimum wage,” the study said.
…[T] sudden lockdown left contractors and workers in limbo in terms of wages … The study stated that they are also threatening workers not to contact activists …
The study stated that there were no promises for wages for the next month or rehiring…
… [T]he danger for workers extends into the future … workers who retain their jobs might be required to work at less than normal wages for next few months …
… [W]hen industry resumes, it might only hire a fraction of the workforce with lower wages and security, with particular effect on women ... They maintained that there will be … [even more] compromises on safety …