- Suppliers in countries like Bangladesh and Cambodia are left to shoulder the brunt of retail’s sales disruptions even as companies like H&M and Inditex promise not to cancel existing orders.
- Retailers don’t pay for orders until they’ve shipped, and with stores closed, shipments along with payments are delayed.
- The current reality has shed light on the fragility of the supplier network; activists and factory owners are calling on brands to extend responsibility to their entire supply chains.
Shelter-in-place orders to stop the spread of Covid-19 across the world have caused a ripple effect in retail’s supply chain. With stores closed and unemployment rising, sales have stalled, prompting retailers to cancel orders with suppliers, leaving factories in countries like Bangladesh on the hook for millions of dollars worth of product.
After public fallout, H&M committed to keeping its financial commitments with suppliers. Target, Zara parent Inditex, The North Face parent VF Corp, Tommy Hilfiger parent PVH and French label Kiabi all followed suit, announcing they would pay, per regular terms, for all orders already produced or in production.
But the reality for suppliers is more complicated than whether or not orders are cancelled. Labour rights activists say typical contractual agreements leave suppliers vulnerable, as brands don’t pay for orders until they’re shipped, and they decide when product will be shipped. With Covid-19 causing mass disruptions, retail’s already fragile supply chain is buckling.
Interviews with suppliers and reviews of correspondence between brands and suppliers show that some brands are taking orders but asking for discounts or rebates from suppliers, which can leave them in the red. Some retailers are backing down from future orders, which is less detrimental but still costly for suppliers who have made plans based on brands’ projections, including having turned away other orders. Others are not cancelling orders but are not accepting them either, which means suppliers have to store them and wait to be paid until the brand decides to remove the hold.
And some advocates are hesitant to believe, until suppliers have cheques in hand, that brands will carry out their public commitments in a timely fashion. In no scenario do suppliers have any leverage, or realistic access to recourse if brands don’t keep their end of a deal.
What this amounts to is a vast grey area. Cancelled orders have drawn the most negative publicity, but alternative actions can leave suppliers just as vulnerable. Labour activists are concerned that commitments to pay up could become meaningless if they end up falling into a semantics trap, deferring but not cancelling orders.
“They never said they will pay. They only said that we’ll not cancel the goods,” says Mostafiz Uddin, a denim factory owner in Bangladesh. “Cancelling the goods or not taking the goods — for my workers, it is the same. The worker is not getting the money.”
Many suppliers are unwilling to talk with reporters about arrangements with specific brands or at all for fear of retribution and because they rely — and hope to continue to rely — on their business partners. Several sources in Bangladesh who asked to remain anonymous to protect relationships said that H&M and Inditex have taken their orders on time, as they’ve publicly committed to doing.
The specific commitments vary across the six brands, and not all the details have been made public. Scott Nova, executive director of the Worker Rights Consortium, which investigates working conditions in factories around the world, says that his team has confirmed “based on public statements, statements to suppliers, statements to the WRC or Penn State [Center for Global Workers’ Rights], and/or confirmation from export associations” that each has essentially promised to stick to the original terms, including original timeframes for payment, for all orders already produced or in production.
But outside of the group of six, most brands have not done so. One supplier said European fast fashion retailer C&A in late March cancelled all orders through June, including some goods that are ready to ship and others in various stages of production; one said that Denmark-based Bestseller cancelled everything in mid-March while asking for a discount on orders that shipped anytime since late January; and two said that Gap similarly cancelled orders while also asking for discounts on others.
Vogue Business reached out to every brand mentioned in this story, asking for a timeline for the commitments they’ve made, among other details. Most did not respond; H&M, Inditex and Target responded that they would stand by their commitments with suppliers, but did not provide a specific timeline for when they would pay for orders or confirm if they have already paid; C&A said it aims “to take delivery of as many orders as commercially viable”; and Bestseller said it would do its “utmost” to live up to its commitments. Internal correspondence between suppliers and brands reviewed by Vogue Business is consistent with what suppliers have described.
While giving no clear commitments regarding suppliers, C&A said it is supporting collaborative efforts to help affected countries: “It is important to acknowledge that no single company can deal with the economic repercussions for the production countries alone. We are in talks with other industry stakeholders including other brands and the International Labour Organization (ILO) to find ways to work together to mitigate the impact this crisis has on the supply chain.”
According to data provided by the Bangladesh Garment Manufacturers and Exporters Association, $1.5 billion worth of garments have been cancelled across about 1,100 suppliers, while $2 billion have been put on hold. BGMEA president Rubana Huq says deferred orders and cancellations of both existing and future orders are common throughout the country’s garment manufacturing sector. “They say, ‘OK, we are taking the goods, but we don’t know when.’ It can be anywhere between 120 days to 360 days,” she says. That doesn’t help suppliers pay their bills in the meantime — and they may not survive anyway if orders don’t pick back up.
Suppliers in Bangladesh and other manufacturing countries look with worry to the future as brands back down from the projections of orders they had given to factories. Suppliers understand that brands are facing unprecedented uncertainty about their own futures — but they have a much smaller financial cushion than brands and lack the safety net protections of government bailouts for businesses or social services for laid-off workers. They are calling on brands to extend their sense of responsibility to their full supply chains, rather than cutting it off at their own assets and employees.
Factories operate with much smaller margins than brands. Sharif Zahir, managing director of Ananta Group, which owns seven factories that make denim, men’s suits, knitwear and other apparel for retailers including H&M, Zara, Gap and Levi’s, says cancelled orders pose the biggest threat to suppliers, who have to pay for all the expenses involved in products that have already been made. But until they’re paid for, deferred orders cause the same challenges with cash flow. “The factories are not in a position to cover these expenses,” says Zahir.
He estimates 40 per cent of his March orders have been held back, and a smaller percentage cancelled entirely. Retail partners have communicated that they’re waiting out the market. “Right now, they’re putting all the burden on us,” he says.
“It’s already April, and several manufacturers are unable to make payroll,” says Ayesha Barenblat, founder of the nonprofit Remake, which has organised a campaign to push brands to pay their suppliers on time. “We don’t have 60 to 90 days. People are already going hungry.”
Challenging common practices
Kalpona Akter, executive director of the Bangladesh Center for Worker Solidarity, says she wants to see contracts changed such that factories are paid once they complete an order, whether or not it can be shipped. There are also growing calls for a relief fund to help workers in manufacturing countries grapple with the crisis. Suppliers and advocates have little confidence that brands will actually pay for the orders in question; even if they do, Bangladesh, Cambodia and other manufacturing countries are ill-equipped to deal with the severity of the pandemic.
“Brands should step up. It is not humanitarian or generosity we are asking now. It is a responsibility that we are asking now,” says Akter.
She and others argue that if brands don’t come through, it will be an epic moral failure. Zahir says brands have been focused on improving welfare since Rana Plaza. “Now suddenly they cannot turn their back. It’s the workers who are ultimately making their products. Look at the way they’re treating their own employees. They need to be responsible for their entire supply chain.”
He points out that the US and Europe offer easier access to funding overall, and the governments will create large bailout packages. “[Brands] need to look at that access to those liquidities. They should find a way to pay us. We are all long-term suppliers for them. We expect them to work with us.”
Nova wants to see more brands step up the way that H&M and the five other brands have — although it’s too soon to verify that they are keeping their promises. Some activists, such as Barenblat, are hesitant to publicly praise them until cash has changed hands, but Nova is encouraged by at least a step in the right direction and is keeping track of whether they act on their commitments. Whether they do or not may inform their reputations into the future, but more than that, will have significant impacts on the health and livelihoods of millions of workers in Bangladesh, and all the countries that fashion relies on to produce its goods.
“The brands and retailers hold all the cards here and they can choose to act responsibly, or they can use their leverage to push all the pain down the supply chain,” he says. “The choice they make is going to have a lot of implications for a lot of people around the world.”