H&M has taken one small step forward for its COVID-19-riddled business, and perhaps one giant leap for garment supply chains.
In the midst of the knee-jerk reaction that prompted retailers to pull their placed orders from suppliers in Bangladesh, in some cases cancelling shipments and payments needed to keep garment factories alive in this low to no-business period, H&M seems to be keeping good on its promise of partnership.
“H&M is taking all [orders] that are ready and WIP [work in progress],” Bangladesh Garment Manufacturers and Exporters Association (BGMEA) president Rubana Huq told Sourcing Journal Sunday night. “They didn’t cancel the existing ready goods, nor did they ever say that they wouldn’t take the ones which were work in progress. Initially, they asked us to put them on hold and then almost immediately said they would take them all.”
What did get halted—in light of H&M’s 3,441 shuttered retail stores that would have little to do with new product at present—were orders that had been slated for April, May and June, according to Huq.
“Those are not revived, but since they do short lead time-based orders, they have currently stopped placement but hope to resume in the next two-three weeks or so,” Huq said.
In the last week, fashion brands have gone even further than simply cancelling production orders. Several have backed out of payments for placements or tried to push payment terms as far out as six months, and some have even sought discounts for orders garment factories would have already purchased raw materials for and paid workers to produce. H&M says it’s doing none of the above.
“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 confirmed to 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.”
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The fast fashion purveyor confirmed to Sourcing Journal earlier in March that it would, in fact, be putting a pause on production, saying in light of the spreading coronavirus and its impacts, that it is “necessary to temporarily hold back on previously planned orders.” H&M did stress, however, that its long-term commitment to suppliers would “remain intact,” and that it would “start placing orders again as soon as the situation allows.”
For now, times are challenged for H&M, which has closed 60 percent of its stores globally because of the coronavirus pandemic, saying last week that those closures, coupled with “subdued demand in the markets that are still open, has had a significant negative impact on sales so far in March.” Currently, conversations about temporary layoffs that could impact “tens of thousands of employees in all part of the business,” are ongoing, H&M said.
“As a consequence of the substantial drop in global demand, we are now carefully scrutinizing and evaluating how to adjust and mitigate the negative effects when it comes to our supply chain,” H&M said. “In this extreme situation, it is at this point necessary to temporarily pause new orders as well as evaluate potential changes on recently placed orders. We will start placing orders again as soon as the situation allows.”
The move to take in ready orders—though it should have been a given as part of the contractual obligation a PO provides—marks a major step forward in saving supply chains and vendor relationships in key sourcing countries, that over the last week have starting slipping into dangerous territory as cancellations from retailers piled up to more than $2.58 billion worth of exports in Bangladesh alone, and garment factories considered how they’d be able to pay workers beyond more than a month out.
“We are well aware that the suppliers, and their employees, are extremely vulnerable in this situation. We are in a close dialogue with several partners and industry stakeholders to see how we can and should support in this difficult situation and we aim for finding a joint industry solution involving several stakeholders,” H&M said. “We are at this instance intensively investigating how we can support countries, societies and individuals from a health and financial perspective. We hope to be able to communicate more around these initiatives within shortly.”
It’s still set to be an uphill battle for the supply chain, as H&M seems to be one among few that has so far agreed to keep its commitments.
Zara, Mango, Primark, Macy’s and J.C. Penney, are among the retailers that have, for now, frozen production orders, leaving vendors in Bangladesh and beyond uncertain about next steps.