The pileup of put-off or canceled garment orders may soon find its way out of garment factories in Bangladesh as more retailers are backpedaling on leaving their supplier factories in the lurch—in some cases, at least.
Inditex, Marks & Spencer, Kiabi, PVH Corp. and Target have reportedly agreed to take in already made and work-in-progress garments they had placed orders for after a reflex reaction prompted by the coronavirus calamity led many to issue cancellations and tell garment factories not to ship what they had purchased.
When reached for comment on the turnaround, Inditex told Sourcing Journal, “Inditex is committed to working with its suppliers through the impacts of COVID-19. As a priority, we are working closely with suppliers to ensure they are following official guidance to protect the health of workers in garment factories during the pandemic. We are fulfilling all our responsibilities to our suppliers by ensuring that all orders that have been produced or are currently in production are completely paid according to the original payment terms.”
Kiabi, PVH Corp. and Target could not be immediately reached for comment, but a Marks & Spencer spokesperson reiterated in a statement to Sourcing Journal, “In these unprecedented times, as a responsible retailer we will continue to do all we can to support our partners and suppliers. We are taking all possible steps to defer supply and a very large part of our core business is less seasonal year-round essential product which provides some scope for carrying forward stock.”
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The change of heart on order cancellations follows H&M’s move Monday to embrace its commitment to supplier countries that pump out the world’s fashion at a breakneck pace and a very low cost.
“We will stand by our commitments to our garment manufacturing suppliers by taking delivery of the already produced garments as well as goods in production,” H&M told Sourcing Journal Monday. “We will of course pay for these goods and we will do it under agreed payment terms. In addition, we will not negotiate prices on already placed orders. This is not only the case in Bangladesh, but for all production countries.”
A source with garment factories in Bangladesh and across South Asia told Sourcing Journal Wednesday that retailers have at least gone from doling out full-scale cancellations to a more “civilized” mode of discussing the matters at hand. The order acceptance situation, however, varies from one brand to the next as each navigates its own business challenges.
“Target, since they are open, they are being more liberal on accepting goods since they are not in a zero-revenue mode,” the source said. “The weeks of April 7 and 14 will actually see the restoration or revision of POs.”
With other retailers, the story has been different.
“Primark and C&A were the ones who behaved in a very unprofessional way by just using a force majeure clause,” he said, explaining the way some retailers have opted to get out of their product purchases, calling COVID-19 an unforeseeable circumstance that should liberate them from obligation.
“Companies like Kohl’s are hurting, too. Wholesalers who ordered goods for J.C. Penney are quietly canceling JCP buys—even though these wholesalers, like PVH, own legitimate brands,” he added. “This week, people who purchased inventory to be sold at Macy’s have [been] informed not to go ahead with special cuts for them.”
The situation is still evolving—or, in some cases, devolving—but what remains to be seen with the new brands agreeing to take in placed orders, is whether their payments will still align with agreed-upon terms, as some have tried to put off payments as they address their own cash-flow concerns with store revenues halted, and even e-commerce orders slowed, as much of the world waits indoors for the worst of the COVID-19 crisis to pass.
The president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), which represents these impacted factories, believes getting payments will be its own challenge for the sector.
“While a few brands have come forward and have committed to take the ready goods and WIP [work-in-progress], questions remain about the liability of raw materials,” Rubana Huq told Sourcing Journal Wednesday. “Many brands have also not committed the payment terms.”
Order cancellations or postponements impacting suppliers in Bangladesh have already reached more than $3 billion, Huq said, putting close to 1,000 garment factories on the line. Many struggle with liquidity as purchase orders are only paid for upon shipment, while raw materials and labor must be paid for up front. All this says little about future orders and their ability to help factories make up for losses, as most retailers have largely been mum about when any new placements could materialize.
A survey of Bangladesh suppliers over the past week found that most have faced these order cancellations with little concession from the brands and retailers they do business with, according to a newly released research report by the Center for Global Workers’ Rights at Penn State University, in association with the Worker Rights Consortium.
A total 23.4 percent of suppliers said “a lot” of their in-process orders had been cancelled, 22.3 percent said “most” had been, and for nearly 6 percent, all of their in-work orders had been cancelled.
When asked whether buyers have agreed to help with the costs of already purchased raw materials, a concern Huq raised, 72 percent said no. Ninety-one percent said retailers aren’t agreeing to pay for cut-make costs either.
“The impact of these abrupt cancellations of in-process orders has been severe; 53.4 percent of suppliers report shutting down most of their operations and 4.5 percent of suppliers report having already closed their facilities,” the report noted.
Close to two million workers in Bangladesh, which relied on ready-made garments for more than 80 percent of its exports in 2019, could face destitution. Already, many are earning the sub-living wage rate of 8,000 Bangladeshi taka ($94) a month.
And while some retailers are reinforcing their commitments to take in orders, the cancellations that are threatening the very existence of a viable supply chain to return to in Bangladesh post-COVID-19 continue to pile up.
“Even this morning we received cancellations,” Huq said. One of the U.K.’s largest high street chains “cancelled everything” Wednesday morning, she added. “Approximately $7 million worth of ready goods.”