As shuttered fashion retailers cancel orders, suppliers around the world face a bleak future. Grace Bowden looks at the impact of the coronavirus crisis on retail’s supply chain.
- Bangladesh could see 2 million unemployed “unless there is intervention to protect the supply chain”
- One supplier says relationships with retailers have not moved on since Rana Plaza
- Retailers must protect suppliers now if they want them to exist in the future, says UKFT chair
Fashion retailers have been some of the hardest hit by the pandemic, faced with the double whammy of mandated store closures and a plummet in demand as shoppers working from home cut back on buying clothes.
Fashion sales plummeted 28.4% year on year in March, according to the Office for National Statistics.
“Cash preservation has become the most important aspect to a non-essential retailer”
Erica Vilkauls, formerly of LK Bennett
As former LK Bennett chief executive Erica Vilkauls explains: “Sales of fashion and home goods have crashed as consumers spend on essential items.
“Retailers and their logistics systems, distribution facilities and supplier networks weren’t engineered for the rapid shifts in demand patterns that have occurred in the last couple of months.”
Vilkauls says that, as a result of this, “cash preservation has become the most important aspect to a non-essential retailer”. “Orders are being revised downwards as retailers plan to shutter shops for good in favour of online trading.”
This has had a profound impact on fashion retailers’ suppliers.
In Bangladesh alone, British retailers have cancelled an estimated £2.5bn in clothing orders, with fashion giants including Arcadia, Frasers Group, Asda, Debenhams, New Look and Peacocks among those that have pulled the plug.
Bangladesh’s commerce minister Tipu Munshi has warned that this will result in many suppliers falling out of business permanently, and has called on the UK government to intervene.
So what is the true impact of cancelled orders on fashion’s suppliers?
‘Not a single cent of income’
Mostafiz Uddin is chief executive of the Bangladesh Apparel Exchange and managing director of Denim Expert, a clothing company that supplies international brands including Arcadia and Peacocks.
His business has been crippled by both retailers cancelling orders, he says.
Uddin’s company, which employs 2,000 people, has not received “a single cent of income” over the last month – including payment for clothes that have already been manufactured and, in some cases, transported to the UK.
Uddin says he and other local suppliers are keenly aware of the situation in the UK and are not expecting retailers to place significant future orders until the pandemic is under control.
“Can I terminate my workers? Where will they go? These workers are 18- to 20-year-old girls, getting $100 a month, and they have six people in the home”
Mostafiz Uddin, Bangladesh Apparel Exchange and Denim Expert
For the time being, he will pay his workers by taking out personal loans and selling his own assets. He does not believe the $588m aid package from the Bangladeshi government will stretch far enough to support the millions of garment workers in the country and fears his employees will not be left with enough to survive on.
“Can I terminate my workers? Where will they go? These workers are 18- to 20-year-old girls, getting $100 a month, and they have six people in the home,” he says.
“I need to do something to feed them because I cannot let them go like this; they have no place to go. I don’t know how long I can do this, but as long as I can breathe I cannot leave them.”
By keeping on workers he is in the minority of business owners, he says, as many other suppliers in the region are laying off staff in a bid to cut down on costs.
Uddin says that, from Arcadia alone, the value of orders cancelled equates to approximately $2.5m (£2m), the majority of which were either ready to be shipped or had their fabric already acquired at the time of cancellation.
Peacocks has cumulatively cancelled orders of over 43,000 pairs of jeans with Uddin, which were in various stages of production.
He is adamant that retailers should pay for orders that were in progress, either through fabric having been acquired or garments produced.
“To cut off a supplier, not talk to them or work through what would be a reasonable share of the burden, is unacceptable and inhumane”
Peter McAllister, Ethical Trading Initiative
Ethical Trading Initiative executive director Peter McAllister concurs.
“To cut off a supplier, not talk to them or work through what would be a reasonable share of the burden, as well as not paying for orders, which equates to a supplier not being able to pay wages when work has been done, is unacceptable and inhumane,” he says.
“Sadly, it is an approach far too many retailers are taking.”
For Uddin, blanket cancellations with no further communication from retailers are both disrespectful and avoidable.
He explains that buyers from the Arcadia team visited his factory on March 1 – just six weeks before he received a missive from the business cancelling all orders, which was circulated to hundreds of other suppliers.
“The biggest hurt comes from the fact that they should have picked up the phone or emailed me personally to explain the situation and asked how we could co-operate together.
”There are things I could have offered – longer payment terms, held goods – I could have found a way to explain the situation to my fabric manufacturers. But now they are not communicating or replying to emails, so how can I communicate with my people?
“They should have treated us as a partner; there is no partnership approach here,” he says.
“We talk about Rana Plaza and industry development in the years since, but this crisis has proven that really things are still the same”
Mostafiz Uddin, Bangladesh Apparel Exchange and Denim Expert
The tactic that businesses like Asda have taken with their suppliers of paying for a percentage of the value of goods, rather than the amount originally agreed, is also of little comfort to suppliers, whose margins are too thin to pay their workers and partners without running into a loss, says Uddin.
“Everyone is trying to survive, but at the end of the day, it is not the retailers or the factory owner but the workers that are suffering because of these cancelled payments,” he says.
“We talk about Rana Plaza and industry development in the years since, but this crisis has proven that really things are still the same.
“The workers are the ones that suffer the most and there is no safety net for them. What has this industry done? I don’t see any changes.”
One supply chain expert offered an equally bleak view of the impact that non-payment by retailers could have on fashion suppliers, particularly in Bangladesh.
“Unless there is intervention to protect employers and workers in the supply chain, we see a scary situation in which 2 million people across Bangladesh become unemployed in the very near future, who will then have no choice but to go out and look for work in the midst of their own coronavirus pandemic,” he says.
“This has the potential to be highly destabilising and cause the development of that country to slide backwards potentially decades, particularly in terms of employment for women.”
Former Jack Wills boss Suzanne Harlow says that retailers owe it to their suppliers to support them through this crisis.
“This is a global crisis that is likely to impact textile workers in developing countries extremely hard. Government support packages may yet come, but retailers have a responsibility themselves to work out a fair deal with suppliers, particularly those with large financial backing,” she says.
“With a smaller supply base almost inevitable going forwards, those retailers that have invested in theirs will see the benefit in the future.”
Primark, which had previously threatened to withhold fees for unwanted stock, made a u-turn last month to relieve the pain on its supply base.
“With a smaller supply base almost inevitable going forwards, those retailers that have invested in theirs will see the benefit in the future”
Suzanne Harlow, formerly of Jack Wills
The fashion retailer, which does not trade online and has been forced to close all UK stores, has now agreed to pay £370m for stock that is either finished or in production.
Primark’s chief executive Paul Marchant says: “Transparency and clarity have been at the heart of our longstanding relationships with our supply base, and we were obviously disappointed that we were not initially able to commit to this stock.
“Our partnerships with our suppliers are invaluable and we want to continue to support them as we navigate our way through this global crisis.”
Marks & Spencer has taken a different approach and committed to pay for “large volumes” of fabric purchases by suppliers for future orders, which often amount to suppliers’ biggest cost. The retailer will also pay for all garments that were shipped or produced by March 24.
Chair of the UK Fashion and Textile Association (UKFT) Nigel Lugg welcomed Primark’s u-turn, but believes that Marks & Spencer’s offer is more comprehensive in light of the range of costs accrued by suppliers in the process of fulfilling orders.
Lugg explains that many local suppliers faced with insurmountable costs may choose to shut down operations entirely, rather than take a loan from the government, which come with high interest rates they know they may not be able to pay off.
He says that if retailers want key suppliers to emerge from this crisis, they need to support them now.
“I respect Primark more for going back on its word and recognising it has to do something and be honourable, but I don’t need to tell you there are plenty of others in the mix who are jumping on the bandwagon to sever support for their suppliers,” he says. “Can businesses like Asda really not find the money to honour their supply commitments?”
“If I look at India, Bangladesh, Myanmar, these people need to work to feed their families, and the bit we are all missing as the supposedly responsible Western world is what are we doing to try to support them? The answer at the moment is not a lot.”
The United Nations’ International Labour Organization launched a call to action last month, which called for “urgent collaboration” across the fashion industry to shield garment workers from the impact of Covid-19 on their health and livelihoods, and which retailers including Primark, H&M, Inditex and Marks & Spencer are supporting.
Meanwhile, Boohoo has set up its own support programme for suppliers, which includes an emergency fund for those struggling and introducing 14-day payment terms to help with cash flow.
Although these measures are positive, McAllister argues individual company support programmes are not subject to external scrutiny.
“I’d have a lot more questions for someone who was not signed up to an independent campaign to support garment workers, because it is much easier not be transparent about what they are actually doing for suppliers,” he says.
The post-corona supply chain
When this crisis subsides, fashion’s supply chain could look radically different.
Lugg says: “I don’t believe anyone will allow themselves to get caught with the forward commitment they had when they went into Covid-19.
“The fashion supply chain will operate with dramatically shorter lead times, either by moving their manufacturing bases closer to home or investing in robotics. Either way, there will be a shift in how much retailers forward-book inventory and we’ll have a much faster, leaner supply chain as a result.”
One supply chain expert also forecasts that there could be a shift in legislation to hold fashion retailers more accountable to honouring their commitments to suppliers, and says that there is “real discussion” among European governments and NGOs about “what the future supply chain should look like in the wake of this experience”.
“There will be a shift in how much retailers forward-book inventory and we’ll have a much faster, leaner supply chain as a result”
Nigel Lugg, UKFT
But McAllister worries that the power dynamics between suppliers and retailers mean that, despite the torment of recent months, very little will change – even after coronavirus has ravaged business relationships and cost bases.
“Places like Bangladesh and Cambodia have built their export prowess on the fashion industry, so when fashion businesses come back in three, six, 12 months to the suppliers they abandoned, they’ll most likely be desperate enough to make it work,” he says.
“The suppliers that do survive will be bruised and warier, but essentially the power structure doesn’t change – brands from the West largely will place orders and suppliers will find ways to fulfil them.”
Rather than exerting power, now is the time for retailers and suppliers to come together and work through the crisis that is engulfing the entire retail industry. A strong supply base will lead to a stronger retail industry in the long term.