If difficult times put the ethics of business to the test, the furor of chaos stirred by the pandemic in 2020 may be the motherlode of all challenges that the denim industry will ever face.
Among the “destructive” behaviors that denim suppliers said their clients demonstrated, according to the first-ever report by Transformers Foundation, is confirming and then canceling orders, asking for discounts in excess of supplier margins, delaying payments and threatening to withdraw all business unless discounts are given.
Based on responses from 25 companies that represent a cross-section of the supply chain, “Ending Unethical Brand and Retailer Behavior: The Denim Supply Chain Speaks Up,” dives into the cracks of the global jeanswear sector and how the pandemic is deepening those fractures.
Though certain bad behaviors have been going on in the denim industry for a long time, Transformers Foundation founder Andrew Olah said Covid-19 highlighted “an abundance of these events.”
“Once everything started to transpire, we felt that it was our duty to actually report what happened and also to make suggestions to figure out how, as an industry, we can get together and avoid future situations like this,” he said.
Most suppliers reported that since the pandemic they experienced “unilateral decisions to cancel and delay orders, delay payment, and extend payment terms, with no possibility for negotiation or discussion” from brands, retailers or importers (BRI).
Several BRIs refused to pay for goods even after they were delivered and one brand persuaded a mill to accept 60-day payment terms only to file for bankruptcy two weeks later.
The industry, however, has been set up to favor BRI demands, according to report. Multinational conglomerates, the report states, sign “lopsided” contracts with a promise to pay for the order within a certain time period instead of putting down deposits, and few brands will take responsibility for the fabric if the jeans don’t end up being made, leaving suppliers on the hook for unused fabric.
“In short, there is no plan B specified in the order contract, because it’s assumed Plan B is the supplier’s responsibility,” the report points out.
The BRI’s negative actions are trickling down. More than half of the suppliers surveyed said they have had trouble paying their own suppliers. This was compounded by the fact that shipping costs increased during lockdown as well as staffing costs, “as many strived to pay workers even when nothing was being produced,” the report stated.
Suppliers mitigated some of the financial damage caused by cancellations and discounts by shrinking their workforce to reduce overcapacity, diversifying their clients and taking steps to cultivate long-term relationships with brands and retailers and co-creating collections with clients.
And in one worst-case scenario reported by Candiani Denim, the mill turned to recording BRI’s bad behavior to help end the bullying.
“In the early days, a bunch of them popped up quite aggressively, and then they cooled down because I was like, ‘If you want to talk about this, it has to be on Zoom, and I have to record it because I need to share with my team,’” said Alberto Candiani, owner of Candiani Denim. “And of course, nobody really wants to f*ck with you if they know they’re being recorded because we’re talking about borderline legality right now.”