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H&M, Levi’s Criticized for Playing Fast and Loose With Supplier Payments

A “COVID-19 tracker” designed by labor advocates to hold retailers accountable for reneging on payments to garment suppliers in countries such as Cambodia and Bangladesh has placed a formerly “positive” brand on probation and entered another in its “negative” column.

The changes occurred late last week. Though H&M was one of the first companies to pump the apparel-production brakes in the early days of the COVID-19 pandemic, it also leapt to commit to paying for all finished and in-production orders under previously agreed-upon terms. “This is not only the case in Bangladesh, but for all production countries,” a spokesperson previously told Sourcing Journal.

But the Swedish retailer, though still ensconced on the “nice” side of the Workers Rights Consortium’s (WRC) naughty-or-nice list, now carries an asterisk next to its name—an indication that at least one supplier has raised concerns about H&M’s follow-through on its word. Scott Nova, executive director of the WRC, says the nonprofit is currently investigating the claim before it makes a decision about a possible change in designation. For now, H&M stands slightly apart from payment-committed firms such as Adidas, Asos, Zara owner Inditex, Marks & Spencer and Target.

“We’ll be talking to the suppliers in more detail, finding if any other suppliers are experiencing or claim to be experiencing the same thing and obviously communicating with H&M,” Nova told Sourcing Journal.

In a statement emailed to Sourcing Journal, spokeswoman Ulrika Isaksson said H&M is in “close contact” with “each and everyone of our suppliers to find solutions.”

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“The rapid spread of the COVID-19 around the world has caused an exceptional situation for people, communities and business around the world,” she said. “We are continuously working to support both suppliers and garment workers in this vital, but difficult, period of time.” With regards to the asterisk, Isaksson deferred to the WRC for answers.

An asterisk isn’t a permanent mark against brands. VF Corp., which owns The North Face, Timberland and Vans, acquired one last month when the WRC received word that the Denver-based apparel giant was delaying some orders and therefore deferring payment.

“When it comes to the tracker, our primary concern is supplier cash flow because that’s what enables suppliers to stay in business and pay workers,” Nova said of the monitoring tool, which the WRC developed in partnership with the Center for Global Workers’ Rights  at Penn State University. “We’re not interested or concerned with when goods are delivered. We’re concerned with when suppliers get paid.”

Ultimately, VF Corp. was able to provide “credible assurances” that it was paying suppliers, who later confirmed the same. “So we put up the asterisk when the concerns are raised, I had a long back and forth with VF, VF made adjustments that enabled them to follow through on their original commitments, suppliers confirmed those adjustments and we took off the asterisk,” Nova explained.

One new entry to the non-payment side? Levi Strauss, which joins brands such as Topshop owner Arcadia Group, C&A, Edinburgh Woollen Mills Group, Gap and Sears in failing to commit to paying in full for all completed and in-production orders from Bangladesh, whether by canceling orders outright, refusing to pay, demanding retroactive discounts or significantly extending payment terms.

“With Levi’s, the primary concern is about the timing of payments and whether suppliers are able to deliver goods and get paid on the originally agreed schedule,” Nova said. “We’ve asked Levi’s to confirm if that is the case. It has declined to give that confirmation and stated instead that it’s addressing these issues and communications with individual suppliers. And that’s not, from our perspective, sufficient because it does not constitute a commitment to ensure that suppliers are paid on time.”

A Levi’s spokesperson told Sourcing Journal that while “some timetables may need to be adjusted due the ongoing crisis,” the denim giant is “taking full responsibility for all finished, ready-to-ship orders and in progress orders.” It has also committed to using raw materials that suppliers have already received for product orders in later seasons, which it expects to return its focus to as stores and wholesale partners reopen and consumer demand revives.

Levi’s sourcing leads, the spokesperson said, are in “close conversation” with suppliers and are factoring their circumstances into the company’s decisions. The brand says it has been working with the International Finance Corporation, a sister organization of the World Bank, since 2014 on a program that allows suppliers to obtain early payments at favorable market rates.

“Several suppliers take advantage of this already and we are expanding that program to benefit more,” the spokesperson said. “We also continue to explore other possibilities around collective industry efforts to support suppliers and their workers.”

But Nova says that Levi’s has not offered assurances that all suppliers have access to low-cost financing that could mitigate their current cash-flow crunch. “On that basis, we can’t conclude that Levi’s is paying on time in full,” he said. “And that’s why they’re on the negative side of the tracker.”

Levi’s announced in April that it would grant an initial $1 million to organizations that support apparel supply-chain workers in its sourcing countries, with a focus on public-health responses, especially for women. (Between 64 percent and 90 percent of garment workers in Bangladesh are women, according to a 2016 International Labour Organization report.) Additional grants, the spokesperson noted, are planned for later in the year.

Nova says he thinks Levi’s could be doing more. “It’s important to know Levi’s has the resources to do this properly,” he said. “They’re a profitable company. They had a very successful IPO. They have a very valuable brand. Levi’s has the financial ability to fulfill its obligation in full and on time. And it should do so because if they fail to do so, workers will be the ones who suffer.”

(Levi’s reported a net revenue of nearly $395 million in 2019, up 38 percent from the year before. H&M Group’s global operating profit was roughly $1.8 billion the same year.)

Certainly the pandemic has thrown into sharp relief the imbalance of power between brands and suppliers. Suppliers, such as those in Bangladesh, are expected to carry the costs of labor and materials upfront even as their margins are continually squeezed by what some describe as “exploitative” buying practices.

To date, brands and retailers have canceled more than $3 billion in orders—the equivalent of 982 million garments, according to the Bangladesh Garment Manufacturers and Exporters Association, the country’s largest trade group of factory owners. Rubana Huq, its president, recently estimated $5 billion in “irrecoverable losses” for the sector—the second-largest exporter of clothing after China—due to diminished demand, imperiling the livelihoods of its 4 million workers. Many have cited force majeure clauses in contracts that release them from their obligations due to circumstances beyond their control.

When brands don’t honor the obligations by paying for the goods workers have already made, the consequence is massive job losses without compensation, Nova said.

“What makes this entire problem possible in the first place are the grossly inequitable payment terms defined by our supplier relations in this industry, where small suppliers, with a few million dollars a year in revenue, are required to subsidize the cash flow of companies like Walmart and Gap,” he added. “It makes no sense, except that Gap and Walmart have a lot more power than the suppliers, and brands and retailers in general require payment terms in which the suppliers have to bear all the cash-flow burden.”