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Can the Denim Industry Patch Up Partnerships Damaged in the Pandemic?

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No one was prepared for a pandemic. And in some ways, the fashion industry was particularly ill-equipped for contagion to sweep in, shutter stores, stop consumers from shopping and effectively freeze the daily happenings of the industry that outfits the world.

Without precedent for a calamity of this scale and without an existing culture of investing in risk reduction, companies folded under the pressure, many opting to pull out of previously placed orders with factories left to stanch the bleeding.

That move, while it perhaps served to soften the blow to their bottom lines, was detrimental to garment workers in developing countries where pay rarely rises above poverty level. It also revealed a gross lack of partnership across the garment supply chain. Some brands bailed entirely on orders for which factories in places like Bangladesh and India had already purchased raw materials and, in some cases, already put into work on the manufacturing floor. Brands and retailers invoked force majeure clauses, asserting their right to cancel because of unforeseen circumstances. Others sought discounts, presenting their willingness to still accept their orders as a favor to the factory. Some asked to defer payments for as much as upward of 90 days despite the fact that this left suppliers cash poor and often unable to pay workers who rely on these wages for survival.

“The factories have been hit hard because of the cancellation of orders during this pandemic. According to media reports, as the result of the order cancelation/suspension at least 100 garment factories of Bangladesh were already closed,” said Mostafiz Uddin, owner and managing director of Chittagong jeans manufacturer Denim Expert.

“Many more factories are struggling to survive, a good number of them will fail if the buyers do not come forward to rescue them by immediately taking delivery of the canceled goods and upholding true partnership. It is too early to make solid projections at this point in time, but surely a big number of factories are at the risk of going bust in a year from now. There is too much capacity in our industry and this was an issue before Covid,” he said.

In April, as more and more brands began to skip out on their orders, workers’ rights organizations and other advocacy groups began pressuring brands and retailers to pay up. The aptly named #PayUp petition organized by a community of millennial and Gen Z women called Remake, for one, set out to call on brands to pay for what they’d ordered and under the payment terms they committed to. The movement and other outside pressures did serve to encourage some companies to keep up their end of the bargain, though not in all cases.

In August, certain payments were still outstanding. A Clean Clothes Campaign report released at the start of August said the nonpayment of workers’ wages from March to April, brought on by the canceled orders, has cost workers across the global garment industry to lose between $3.2 billion and $5.8 billion worth of wages.

“Even though our estimates stay on the conservative side, they are quite shocking,” David Hachfeld, of Public Eye/Clean Clothes Campaign Switzerland, said in the report “Un(der)paid in the Pandemic.” “We deduce in Indonesia and Bangladesh workers were collectively withheld respectively over 400 million and 500 million USD in owed wages over three months.”

It’s a loss impossible to stomach in some cases. “As these workers were already living on poverty wages, they had not been able to save anything before the pandemic hit,” Khalid Mahmood, of Labour Education Foundation in Pakistan, said. “The wage gaps caused by the crisis mean that workers are not able to feed their families properly, they are not able to pay for school fees of their children, or pay for medical expenses and that many of them are in debt. Most migrant workers had to go back to their villages and now it is becoming even more difficult for them to get back to their jobs and survive in big cities.”

The tension between the downstream supply chain and its upstream counterpart has only served to further weaken an industry already in crisis amid a shifting consumer, calls for greater sustainability and retail brands and formats that are teetering on the brink of irrelevance. Emotions have run high but there’s still a business to rebuild—and it will take more than slapping a Band-Aid on the problem and pressing on.

“We are coming out of the biggest shock to the fashion ecosystem in living memory, so there are strong feelings everywhere,” said Roit Kathiala, a leading global fashion supply chain expert. “While every factory has been hurt one way or the other (some have been hurt quite badly), some feel supported and some truly feel that their brands partnered to find solutions. I think this will definitely not only impact long-term relationships, the choices of whom to partner [with], the mix of the brands they want to partner with, but also the cost that each brand will pay for their goods going forward. The perceived risk is always factored into the cost.”

What becomes of the brand-factory partnership?

Brands and retailers should be prepared to do some introspection. The “partnership” between brands and factories has often been imbalanced, with the latter getting the short end of the deal.

“We have always talked about our great relationships with factories, but has it truly been great for both parties?” Salli Deighton, denim development consultant, posed. “The brands and retailers are usually on the winning side of that relationship when there are problems. I hope that once all the chaos 2020 has created settles, brands sit down with the suppliers and agree [to] mutually beneficial improvements and ways of working.”

Going forward, it’s going to take a much greater level of trust and respect on both sides, plus a willingness to share both risk and reward. It’s going to take work to undo the presently tarnished relationship and evolve it into something much more sustainable over the long-term—because the brand-factory bond is one that can’t be broken despite suppliers’ current sentiments.

“I think many factories were genuinely surprised at the behavior of some brands. Factories are used to buyer behaviors and are prepared for tough negotiations in all situations but some of the discounts and terms requested were unprecedented,” Deighton said. “Some long-term relationships will be damaged, but unfortunately in this climate orders are needed. I think there are very few factories who would decline business at the moment.”

Adding to that, Uddin said, “There are some brands and retailers which have behaved really appallingly and they will struggle to win the trust of suppliers in [the] future. But mainly the dynamics will not change much—as we all know, this is a buyer’s market.”

What factories may do in the future, however, beyond baking costs in according to the brand they’re dealing with as Kathiala noted, is be more selective about the companies they agree to do engage.

“The brands and retailers who worked in partnership with their suppliers will be the sought-after customers for the future. Collaborative and forward-thinking behavior from factories and retailers will have built trust and helped future proof their supply chain,” Deighton said.

The state of affairs at factories

Whether brands will emerge on the right side of things in terms of their social responsibility and ethical capital remains to be seen, but the immediacy of excess inventory may be the first of many hurdles to overcome. Factories are sitting on piles of product, the garments that left suppliers’ hands are sitting in DCs or warehouses, and the pieces that made it to the to-be-sold pile are meeting difficulty getting consumers’ attention—and the scenario has contributed to glut all across the supply chain.

“The inventory overhang is not just in finished goods but goes upstream to even the basic raw materials,” Kathiala said. “It will take at least one to two years to clear, but a lot will depend on how strong the recovery is. This year and next, the biggest question for factories will be managing their cash flow and being able to free cash from their stuck inventory.”

In the interim, factories have been left figuring out how to generate cash to pay people and bills while demand begins its slow climb back up.

“I have had calls from several mills and factories asking me to connect them to new customers. It’s rough out there,” Deighton said. “Some factories switched to PPE and other products, which has helped keep lines running and workers paid. Volumes will not be back to the levels pre-Covid for some time, and factories will have to consider their minimums and being as flexible as they can.”

What may perhaps be an unexpected boon for badly off factories, she said, is sustainability. Eco-friendly products and practices may put suppliers that have invested in recent years in a stronger position to be more flexible, more agile and more in line with what the world now expects from fashion.

“Smart factories and brands will be rethinking the way the supply chain operates and I believe partnerships between long haul and near shore finishing facilities will be very important to reduce risk,” Deighton said.

Avoiding a round two

No one may be expecting a second pandemic of COVID-19’s scope, but fashion supply chains at the very least should be working to evolve in a way that prevents the level of detriment done in 2020.

“I am not sure if there is a ‘silver bullet’ for completely protecting against disruption of the scale that we have just seen,” Kathiala said. “However, having adequate protection built in contracts, paying attention to the mix of customers, getting adequate insurance and, of course, building closer and inseparable relationships with your customers is always helpful.”

For Deighton, rethinking the ordering and booking process, focusing collections and creating flexibility with better fabric planning, will be key in shoring up for a less risk-riddled future.

“Simple changes like shifting to laser dry processing templates allows for last-minute graphic changes…there are so many ways we can improve the process,” she said. “Ultimately, a better future comes down to three simple things: respect, trust and teamwork.”

For Uddin, reintroducing widespread use of Letters of Credit—a bank guarantee that a buyer’s payment to a seller will be received on time and for the correct amount—will be “vital” for the industry.

“Factories need to do due diligence on who they work with,” he said. “If a buyer has a history of non-payment, then a supplier might want 50 percent payment up front. Factories have had their fingers burnt but they need to learn lessons from this. But the unity among the manufacturers and suppliers will be the key here. United they will be able to do such type of advance payment negotiations with the buyers, divided they will fail.”