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Not a Good Look: Big Brands Named in Bangladeshi Supplier Underpayment Report

Some of Bangladesh’s garment suppliers have been forced to sell their wares at less than the cost of production, one of the largest sector assessments conducted to date has found.

Despite the rising cost of raw materials, the majority of the South Asian nation’s garment factories have had to maintain or reduce their prices to secure and retain buyers, according to the survey of 1,000 manufacturers, which the University of Aberdeen Business School and the fair-trade nonprofit Transform Trade published on Sunday.

In December 2021, 76 percent of respondents said they were selling at the same price as they did in March 2020, while 8 percent were churning out clothes for less than they cost to make, even for major—and profitable—retailers like C&A, H&M and Zara owner Inditex. As a result, nearly one in five said they struggled to pay the minimum wage of $2.80 a day.

In fact, purchasing practices as a whole took a grueling turn between March 2020 and December 2021, with more than half of those polled saying they experienced unfair commercial terms.

Of the almost 1,140 brands that respondents named, 37 percent were linked to abusive practices, including order cancellations (25 percent), refusals to pay for in-transit or production goods (10 percent), demands for discounts (19 percent) and delayed payments for dispatched goods by more than three months (24 percent).

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While every brand buying from 15 or more garment factories was reported to employ at least one of these practices, larger brands were more likely to undercut their suppliers more frequently than smaller ones, manufacturers said. The 78 brands that bought from four or more factories bore this out, with 90 percent engaged in practices deemed unfair, including order cancellations (86 percent), reduced prices (85 percent), refusals to pay for shipments that were in transit or production (50 percent) and drawn-out payments for delivered goods by more than 90 days (85 percent).

Large brands buying from 15 or more factories were also more inclined to offer the same prices in December 2021 as they did in March 2020, shell out below the cost of production and purchase from manufacturers that struggled with providing the minimum wage. Among the 26 companies identified as such, 72 percent gouged their suppliers by paying less than the manufacturing cost of their products, and another 96 percent bought from suppliers that had trouble keeping up with the legal wage, the study said.

“Two years on from the start of the pandemic, Bangladeshi garment workers were not being paid enough to live on…while many fashion brands which use Bangladeshi labor increased their profits,” said project lead Muhammad Azizul Islam, professor in sustainability accounting and transparency at the University of Aberdeen Business School. “Inflation rates soaring around the world are likely to have exacerbated this even further.”

In 2021, 11 percent of C&A’s 45 suppliers said they sold to the retailer below the cost of production, 73 percent received pre-pandemic prices and another 11 percent struggled with paying the minimum wage. The same year, 9 percent of H&M’s 96 suppliers said they were paid less than the manufacturing cost, 73 percent received March 2020 prices and 12 percent sweated over wages. Similarly, 11 percent of Inditex’s 112 factories fell into negative margins, 57 percent experienced no price change and 17 percent had issues with paying employees what they were owed.

C&A did not reply to a request for comment, while H&M declined to provide a response.

Inditex pointed to a statement in the report saying that it guaranteed payment for all orders already placed and in the process of production. It also worked with financial institutions to facilitate loans to suppliers on favorable terms. “Covid-19 has brought with it many social challenges and changes that have had a major impact on our supply chain workers,” the retailer said. “As a consequence, at Inditex, we devised a strategy for supporting those workers early on in the pandemic.”

In its response to the researchers, C&A said that it was not aware of any case where suppliers were paid under the cost of production. It also “contradicts the assertions” that its factories received pre-pandemic prices or struggled with paying the minimum wage. “It is our ambition to ensure fair pay ratios along our entire supply chain,” the retailer said.

Regardless, this research is a “wake-up call,” said Fiona Gooch, senior policy advisor at Transform Trade, previously known as Traidcraft. “When retailers treat suppliers badly by breaching previously arranged terms, it’s workers who suffer. If a retailer fails to pay the agreed amount or delays payments, the supplier has to cut costs some other way, and this is frequently passed on to their workers, who have the least power in the supply chain. Reports of being rehired on worse pay and conditions, bullying and unpaid overtime are the predictable result.”

Gooch echoed calls by a group of British Members of Parliament to appoint a “garment trade adjudicator” that can regulate the United Kingdom’s fashion industry the way the groceries code adjudicator oversees food.

“We need a fashion watchdog to stop unacceptable purchasing practices of the clothing retailers benefiting from large consumer markets, along the same lines as existing protections for food suppliers,” she said. “Only when suppliers are able to plan ahead, with confidence that they will earn as expected, can they deliver good working conditions for their workers.”

The survey also found that following the initial wave of Covid-19, apparel factories employed only 75 percent of the workers they did before, suggesting that up to 900,000 jobs could have disappeared. Bangladesh, the second-largest exporter of clothing after China, employs roughly 4 million people, more than half of whom are women. Altogether, its 4,000 garment makers account for 85 percent of the nation’s exports.

Even so, nearly two-thirds of the factories polled admitted to receiving some kind of financial aid from the Bangladesh government or banks in order to stay solvent. None of the suppliers that reported contract breaches in the survey resorted to legal action because of the “unequal power dynamic” between the suppliers and buyers, said Professor Pamela Abbott, director of the Centre for Global Development at the University of Aberdeen and the study’s co-investigator. “Multi-million fashion brands are extracting their wealth from some of the world’s poorest countries in a form of 21st-century neo-colonialism,” she added.

Still, poor purchasing practices can lead to noncompliance that could run afoul of tightening due diligence regulations, especially in Europe, Better Buying revealed in a report, based on a desktop review of existing research, that it published on Monday.

More than 4 percent of suppliers, for instance, reported excessive overtime as a result of monthly order variations in the second quarter of 2022, according to the organization, which allows suppliers to anonymously rate the purchasing practices of the companies that purchase their products. It also pointed to a 2020 study by the Center for Global Workers’ Rights at Penn State University, where 80.4 percent of suppliers who abruptly lost buyer in-process contracts with no compensation said they were unable to provide severance when order cancellations led to layoffs.

Apropos of the University of Aberdeen study, a 2016 International Labour Organization survey found that nearly one-third (29 percent) of suppliers would have wage and overtime payment difficulties if they were paid prices below the cost of production. Another 33 percent could be driven out of business altogether.

Better Buying said that purchasing practices have the most known impacts on working time, workers’ contracts and workers’ compensation, with some evidence of impacts on occupational health and safety and minimal evidence of impacts on child labor, forced labor, freedom of association and discrimination.

“These findings underscore the urgency for buyer companies’ human rights due diligence to examine how their own practices are creating risks for workers, both for preventing and addressing adverse impacts in their supply chains,” the report noted. “A buyer company can review its behavior in the relevant category of purchasing practices to ensure its practices contribute to the prevention of adverse human rights impacts.”

Conversely, if noncompliance persists in a brand’s supply chain in any of the three clusters, “thorough” due diligence should include a review of the buyer’s own purchasing practices, starting with the most relevant purchasing practices categories, to identify and then tackle the potential root causes behind the noncompliances, Better Buying said.

“It is understandable that companies working to improve their purchasing practices are most interested in direct evidence of whether their own practices led to a noncompliance. However, the available research confirms that purchasing practices place risks on workers in global supply chains,” it added. “These risks require that brands and retailers examine their own practices as part of human rights due diligence. Buyer companies can use the facts identified through this research to guide this due diligence work and take targeted steps toward improvement.”