Facebook Pinterest Search Icon SourcingJournal_horiz Tumbler Twitter Shape photo-camera graph-trend Shape latest-news icon / user

Sears Parent Settles $40M Lawsuit for Leading Bangladesh Suppliers Over ‘Financial Cliff’

The parent company of Sears Holdings has reportedly settled a $40 million lawsuit with its garment suppliers in Bangladesh after allegedly leaving them hanging with containers filled with finished garments and a trail of unpaid debts at the start of the coronavirus crisis last spring.

Business magazine Forbes reported Sunday that Transformco, a privately held company owned by American billionaire Eddie Lampert’s ESL Investments hedge fund, will receive between 10 percent and 15 percent of the money owed. Attorney Joseph E. Sarachek, whose firm represented the 21 Bangladeshi factory owners in a suit filed last June, said the suppliers “were obviously thrilled that we got them a significant return,” though at least one supplier framed the amount as somewhat of a pyrrhic victory.

While precise details of the settlement are under wraps, Md Iqbal Hossain, managing director of Patriot Group, one of the affected manufacturers, told Bangladeshi newspaper New Age that suppliers will get 50 percent of the selling prices of the products and Transformco will receive the remaining 50 percent.

“We have received $6.3 million so far and as per the calculation Bangladeshi suppliers would get $1.6 million more in the coming months,” Hossain said. Transformco did not immediately respond to a request for comment.

According to the lawyers representing the suppliers, more than $21 million of their clients’ products had already been shipped and were being stored by Transformco’s carriers in U.S. ports when the company unilaterally canceled orders, citing a “force majeure” clause in its contracts.

Transformco, the lawyers wrote in the suit, “led the suppliers over a financial cliff that has jeopardized their businesses and impacted the jobs of thousands of their employees” who face “severe hardship and even starvation” due to what they described as a “breach of contract.” As such, the company has “contributed to an evolving humanitarian disaster in Bangladesh and elsewhere in Asia,” they added.

Sears wasn’t alone in its actions. When the coronavirus outbreak turned into a full-fledged pandemic, panicked brands nixed more then $3 million in in-progress and finished orders, roiling the industry’s finances and jeopardizing millions of jobs, according to the Bangladesh Garment Manufacturers and Exporters Association, the country’s largest trade group of factory owners.

While a number of brands, including H&M, Zara owner Inditex and Levi Strauss later reversed course, committing to shell out in full for completed orders, plenty more such as Topshop owner Arcadia Group, Edinburgh Woollen Mill, JCPenney, Kohl’s and The Children’s Place have not, according to labor groups such as the Worker Rights Consortium. Some companies, such as Arcadia Group and Edinburgh Woollen Mill have collapsed into administration, leaving in doubt whether those losses will ever be recouped.

Sarachek told Forbes that he’s ploughing through complaints from more than 100 factory owners who have been shorted tens of millions of dollars by other large retailers, including Forever 21 and Global Brands Group, a subsidiary of Hong-Kong based Li & Fung that develops and markets clothing under the auspices of Sean Jean, Jones New York and Katy Perry.

In June, nonprofit group Remake said that canceled orders from P. Diddy’s Sean John collection were leaving garment workers “quite literally at risk of starving to death” despite his and Global Brands Group’s respective net worths. In a move Remake deemed “ironic,” P. Diddy launched a platform called Our Fair Share last April to help minority entrepreneurs and small businesses marshal funding during the “economic devastation” brought by the coronavirus outbreak.

Though brands and retailers are canceling fewer orders amid Covid-19’s second wave, perhaps due to the public outrage they know they’ll incur, labor advocates say workers are being squeezed in more insidious ways, including demands for deep discounts and extended payment terms of 120 days or more.

More from our brands