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Covid’s Next Chapter: Bullish Buyers Put Factories at Risk

Fashion is at a crossroads: continue with cutting-edge strategies developed to persevere during Covid or slide back into familiar (yet unprofitable) habits? Get the experts' perspective at our in-person Sourcing Summit, Oct. 19 at New York’s Cipriani 42nd Street.

While some may have seen the turmoil from Covid coming earlier than others, and select companies were able to pivot early on, it’s safe to say that the pandemic was truly a force majeure, or in other words a complete Act of God.

It’s natural to reflect on life-alerting experiences like these. Do they change us as people and organizations, do we learn from them, or are we creatures of habit, quick to return to the old ways of operating? For the purpose of this article, I’d like to focus less on societal behaviors and more on how Covid impacted our soft goods supply chains and how we as an industry responded.

Let’s for a moment give everyone a free pass on how they behaved during the early months of the pandemic. No one knew how long it would last, sales for many quickly dried up, and the world was powerless and panicked. It’s understandable why many resorted to self-preservation. Fire, furlough, trim media spends, hoard cash, borrow on lines of credit and cancel everything and anything you can at the factory level. All this was done with little regard for how short-term thinking would have a long-term impact. I have written and spoken publicly about how I feel some brands and retailers could have managed their factory relationships better. The complete disregard for the financial distress of the suppliers and their thousands of workers was short sighted and not in line with the ESG mantra many preach. But again, for the purpose of this article, I am going to give everyone a pass. It was a situation that no one had lived through before, there was little preparation and few contingency plans, and base survival was top of mind for many.

But what about today? What did Covid teach us? Are we becoming better people and businesses because of the lessons learned? Or are we reverting to bad and dangerous habits?

I’ll be frank: I am worried. I have received too many phone calls from concerned factory owners and sourcing executives. For many, the last year was a catastrophe from a business standpoint, to say the least. As demand quickly rebounds, many of my contacts are concerned that the orders being placed are far too optimistic and in some cases actually reckless. How is it that some companies are booking at levels well above 2019? Should order levels really be 120, even 130 percent higher? What are factories to do? Do they hire 1,000 more workers to accommodate this demand?

After a debilitating 18 months for most factories, Sourcing Journal's Edward Hertzman says brands continue to put their own interests first.

Garment workers in Bangladesh.

In asking the brands for projections, factory owners are trying to be responsible with their workforce and ensure they don’t have to displace staff once again. Brands, however, are unwilling to give any concrete commitments. What if a new variant were to hit the States, or the manufacturing country? What happens to all that product? What will the landscape look like in six months or 12, when unemployment benefits dry up, massive inflation hits us harder than we can imagine, and possibly a recession enters the conversation? Will the factories once again be left holding the bag? Victims of bad planning and negligence on the brand side.

But some of the practices I’m seeing now are going beyond what many would even consider basic ethics. We all know the brand-manufacturer relationship is inherently one-sided in favor of those making the orders. Rules and regulations put into place in operations manuals for suppliers have always put the onus on the makers to meet sometimes nit-picking requirements. The smallest infraction would result in chargebacks, be it a delivery delayed by a day, a sticker on the wrong side of a box or a failed needle inspection. I sometimes think this attention to the minutiae is a ploy by retailers to generate a few extra dollars in revenue.

While these type of order agreements have always been in place, the language I’m seeing now, showing no quarter for even an ‘Act of God,’ borders on disturbing.

Given what we’ve been through the past 18 months and a lot of lip service about “rebuilding partnerships,” I was sadly not surprised when a factory owner provided me with some of the order conditions from a very well-known brand. I have reprinted them directly here:

  • The Seller bears sole responsibility for late shipments regardless of cause, including act of God or other circumstances beyond Seller’s control.
  • The Company may cancel this order in whole or in part in the event of lockout, strike, unavoidable accident, riot, war, act of God, fire, flood, earthquake or any casualty whatsoever, whether similar or different, affecting any of Seller’s or the Company’s premises.

Coming directly in the aftermath of a pandemic, reinforcing the power dynamic, while possibly the standard practice, comes across as less than empathetic from a business “partner.”

No protection for the factories means we are playing roulette with workers’ jobs and lives. If the bull market continues, everyone wins, but the buyers are the house, and if at some point the deck turns, the factories will be left the losers once again. Can factories survive this “second wave?”

I ask the factories, what’s wrong with being an opportunist? If there is pent-up demand, should companies not capitalize, should they not chase these goods? You want projections? How does that protect you? What stops someone from canceling or reneging on their word if business sours? We have seen this happen all too recently.

Unfortunately, while Covid taught us the dangers of aggressive inventory positions, too much reliance on China, and the strain of the working capital required to operate a supply chain six months out has on a company, what we are seeing now is that in many ways companies are acting even more cavalierly then they did pre-Covid.

It’s ironic for me to be having these conversations while at the forefront of most organizations are their ESG commitments, their 2025 sustainability goals and their investments in a more transparent organization. If we are going to build a better industry, one that is green, sustainable and circular, then we must change the dynamic between the buyers and the suppliers. I have been a buyer, I know the power we possess, what the pressure to fill those lines each month means to a factory, the responsibility to feed the thousands of workers each month, and how pennies and rupees can send your inquiry down the street to another factory.

This article isn’t trying to tell you what to do. But if Covid-19 forced you to batten down and only think about yourself, then what has changed in 2021? When you have time to think, reflect and act accordingly, are you acting in good faith and responsibly or is this an intentional abuse of the power you have over your so-called factory “partners”? Only you reading this know your intentions. Only you have the power to change the dynamic, overhaul the way this industry operates and rewrite the future of fashion.

Edward Hertzman is founder and president of Sourcing Journal and executive vice president of Fairchild Media Group. Hertzman earned a degree in economics from New York University and spent more than a decade working as a top executive for major sourcing companies all over the world, including Synergies Worldwide and Pearl Global.

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