All of us are aware of the spread of the virulent novel coronavirus and the impact it is having around the globe. Originating from Wuhan in the Hubei province of China, the virus is now wreaking havoc across the world.
This unprecedented state of affairs is obviously having an effect on apparel brands and retailers, as shops are forced to close, consumers avoid crowded shopping destinations and sales of apparel products sharply decline.
Against this backdrop, brands and retailers are postponing the delivery of ready goods that have already been produced by garment factories. Furthermore, while retailers are cancelling all new upcoming orders which were agreed upon earlier with their garment factories, they are telling the manufacturers not to cut already imported fabrics and process other raw materials. Moreover, some buyers are delaying payments to manufacturers for the apparel they already shipped, citing the COVID-19 outbreak.
The effects of the above on Bangladesh’s apparel industry can be far-reaching and devastating. The first, most profound effect is manufacturers’ inability to pay worker’s salaries. With postponed and cancelled orders piling up, manufacturers now face significant issues in paying their workers and employees. If the workers do not receive their salaries at the expected time, this will directly impact the livelihood of garment workers and their immediate dependents.
Another side effect: delaying workers’ salaries may breed discontent among the workforce, who become demotivated and, as is often the case, allow their productivity to suffer.
Second, if the payment is not received from a buyer within the time frame they agreed to, it has a direct effect on the manufacturers’ cash-flow and they, in turn, are forced to delay payments to their suppliers. This means delayed payments by brands and retailers are crippling manufacturers’ ability to pay their own suppliers. If the suppliers do not receive their payments on time it creates a lack of trust within business relationships that are built over long periods of time, and jeopardizes long-term trading partnerships.
The third impact is that as payments from customers are delayed, banks are blocking manufacturers from opening new letters of credit. If the manufacturers cannot open new letters of credit for fabrics and other raw materials, they will fail to generate new orders with other customers. Plus, they run the risk of delays to existing orders if fabrics are unavailable, meaning they face the risk of shipping production by air or even cancelling orders in the delivery pipeline.
Last, but by no means least, manufacturers are even struggling to pay their utility bills, causing embarrassment and deteriorating their relationships with the authorities.
Given the dramatic spread of the coronavirus, manufacturers were prepared for a downturn in production orders over the coming months. But they were not prepared for the above-mentioned precipitous downturn in trading conditions for production that has already been completed or the lack of payment for goods that have already been shipped. One would have hoped that any customer facing difficulties would have a strong enough relationship with their manufacturing partners to discuss the situation and agree on a payment program that can work for both parties.
Whilst my deepest sympathies lie with those affected by the COVID-19 virus and my thoughts go out to all of the countries that are suffering from the outbreak of the disease, I cannot countenance a change in purchasing practices that puts the livelihood of the apparel manufacturers as well as their workers and employees at risk.
Surely now, more than ever, this is a time for the strengthening of relationships and buyers need to realize that Bangladesh RMG manufacturers, as innocent bystanders to this global epidemic in a country that has undergone recent lockdown, should not be made to bear the full financial burden of a downturn in trading conditions.
Mostafiz Uddin is the managing director of Denim Expert Limited. He is also the founder and CEO of Bangladesh Denim Expo and Bangladesh Apparel Exchange (BAE). He can be reached at email@example.com.