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Gap Inc. Confirms Plans to Compensate Suppliers for Canceled Orders

As retail begins to reopen at various levels across Europe and the U.S., several global brands are taking steps to finally formalize their orders and payment terms with suppliers that were left in the lurch during the peak of the pandemic.

On Friday, Gap Inc., owner of the Old Navy, Athleta, Banana Republic and Gap brands, stated it will work collaboratively with its vendors to compensate them in full for finished goods and goods in production that were canceled or subject to pack and hold.

“While we have extended payment terms on certain orders, in the immediate term we are providing low cost financing to our vendor partners, and are working with our banking partners to increase the amount of funds available within the program as we move forward,” the company wrote in a statement.

The statement follows one made by the company in June that said it was in “close communications” with vendor and that it would meeting with each one individually to evaluate orders, operating restrictions and the health and wellness of their workers.

At the time, Gap Inc. reported it cancelled fewer than 3 percent of purchase orders by value for finished garments and garments in production, and was working with vendors to utilize uncut raw materials for future seasons.

“Given that the corporation has faced challenges during the crisis more severe than those confronting some of its competitors, and given the large volume of orders at stake, it is to Gap Inc.’s credit that it has made it a priority to honor its obligations to suppliers and workers related to past orders,” stated the Worker Rights Consortium (WRC).

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Earlier this year Gap Inc. landed on the wrong side of WRC’s COVID-19 tracker, which monitors corporations that have not made a commitment to pay in full for goods that were in production when the health crisis began.

WRC called out Gap for the cancellation of orders, “its imposition of sizable discounts on some orders, related to storage charges; and its extension of payment terms for some orders, without the provision of adequate low-cost financing to affected suppliers.”

Though the company is still extending payment terms for a portion of its supply base, WRC noted that the apparel giant’s supplier finance program “commands sufficient lending capital to address supplier needs that may arise as a result of the delayed payments.”

The announcement by Gap Inc. was the third made this week by a major brand.

Following months of back-and-forth with labor advocates, Danish-headquartered retailer Bestseller, owner of the Jack & Jones, Mamalicious and Vero Moda brands, said it is “immediately releasing” payments on current orders, as well as implementing early payments until October in a bid to “ensure suppliers’ cash flows.”

Paying in full for finished and in progress orders and using raw materials already received in future seasons has been Levi Strauss & Co.’s policy since the start of the pandemic. The company, however, released a statement this week about the additional financing support mechanisms that it has put in place to assist suppliers, including its program with the International Finance Corporation (IFC) that allows suppliers to get early payments at favorable market rates. The company is also providing assistance to suppliers not in locations served by IFC. As a result, Levi’s is now protecting the cash-flow of all suppliers.