The True Cost Of Brands Not Paying For Orders During The COVID-19 Crisis

A humanitarian crisis is unfolding in Bangladesh, with the fate of 4.1 million garment workers in the hands of western fashion brands, who have reportedly cancelled over $US2.8 billion in orders as the COVID-19 crisis escalates. The novel coronavirus pandemic has led to worldwide store closures and now many brands are refusing to accept completed garment orders, which they would no doubt struggle to sell during the current global lockdowns. According to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) President, Rubana Huq, many garment factories in Bangladesh have received impersonal corporate emails from brands cancelling garment orders, and have subsequently ceased communication with factories altogether.  

A survey conducted by the Center for Global Workers’ Rights between March 21 and 25, 2020 of 319 garment factory owners in Bangladesh revealed that when cancelling orders, over 72% of buyers refused to pay for raw materials (fabric, etc.) already purchased by the supplier. Over 91% of buyers refused to pay for the cut make-trim cost (production cost) of the supplier. “As a result of order cancellations and lack of payment, 58% of factories surveyed report having to shut down most or all of their operations.”  

The survey also revealed that “At least 1.2 million workers had already been impacted by the order cancellations. For suppliers who abruptly lost buyer contracts without compensation, “72.4% said they were unable to provide their workers with some income when furloughed (sent home temporarily), and 80.4% said they were unable to provide severance pay when order cancellations resulted in worker dismissals.” 

The Center for Global Workers’ Rights concluded that:

The responsible approach is for brands and retailers to find ways to access lines of credits or other forms of government support to cover their obligations to supplier factories so that they can cover their expenses and pay their workers, in order to avoid sending millions of workers home with no ability to put food on the table, let alone cover medical expenses.

Rubana Huq, a garment factory owner herself, has issued a formidable video and written appeal to fashion brands to honour their agreement with garment factories. Brands working with factories in Bangladesh include H&M, Bestseller, Adidas, C&A, Marks and Spencer, Target and PVH Corp (which owns Tommy Hilfiger and Calvin Klein), among others. PVH Corp’s 2019 factory list on their website includes 49 partners in Bangladesh, along with their supplier declaration: “At PVH, we believe corporate responsibility helps to strengthen our organization by managing risk, maximizing efficiency, and driving value in a rapidly changing world. This is especially clear in our relationships with suppliers. Building stable, long-term supplier relationships increases accountability and efficiency in our supply chain.” Just before this article was published, I received confirmation that PVH is committed to fulfilling their order obligations, under revised terms.

Huq is asking brands to accept the goods that are ready to be shipped and pay the full cost (under flexible terms) or at least compensate factories for sunk costs of any in-process manufacturing. Flexible storage and deferred payment options are fully negotiable, she explained. “We are not begging,” said Huq. She went on to say she is simply asking brands to pledge to uphold their agreements with factories. “Without the brands giving this pledge we cannot survive,” she said.  

We want (brands) to take what’s ready, what’s been promised and ensure that at least the salary payment for our workers for the next three months is there – in the absence of the export documents we can’t do anything.

Crucially, manufacturers are able to access lines of credit from banks to pay overheads and garment workers if they are in possession of either export documents (which many brands are refusing to agree to), or a pledge from the brands to make good on their payment commitments, with revised terms, and accept shipment at a later date of their choosing.

She went on to say that this crisis is temporary and urged all the brands to “be a little more responsible.” Citing the commonplace compliance and labour rights manifestos of global brands, this begs the question: How can brands so easily abandon the manufacturers and garment workers who produced the products upon which they have amassed great wealth?

The Bangladesh RMG industry is the backbone of its economy, accounting for over 80% of the country’s exports. It competes successfully on price, operating at large volumes with small margins per unit. It also has some of the world’s cheapest labour, with the legal minimum monthly salary for garment workers being TK8,000 (around $US96). This has left factories, garment workers and the country devastatingly exposed, with no indication of when they will receive future orders or payments. It is reasonable that brands would cancel future orders at such a volatile time, however, Huq is audibly devastated that the brands the RMG industry in Bangladesh has worked with for years, and in some cases decades, are “abandoning” them. 

Has there been any commitment declared from brands, I asked Huq? “A couple of people (buyers) at Primark have said they will take their goods and pay after 180 days. H&M has also reached out and declared their support.” On the subject of enforcing the terms of the agreements with brands who are cancelling orders already produced or in production, Huq explained that there is no actionable recourse for manufacturers.  

Of the brands I approached for comment on honouring their agreements, Bestseller, C&A, Target, Walmart and Marks and Spencer did not respond. H&M, whose factory list includes 723 manufacturers in Bangladesh (some of which they own), responded on March 27 via their Press Officer Katarina Hugo as follows:

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. We will pay for these goods and we will do it under currently agreed payment terms. In addition, we will not negotiate prices on already placed orders.

She went on to say: “We will continue to have a close and open dialogue with our suppliers about short-term and long-term plans.” 

With brands facing huge losses, is there potential for the government of Bangladesh to step in and lend support to factories, I asked Huq? She responded “the government may announce support, but that shouldn’t deter brands from fulfilling their obligations. This is a bilateral agreement (between brands and manufacturers) without government involvement.”  

The government has since announced a stimulus package worth TK500 billion ($US5.9 million) aimed at helping export-oriented industries to counter the economic impact of the coronavirus pandemic. Prime Minister Sheikh Hasina said the fund “could” be used for paying wages and allowances to the readymade garment workers and employees. With the RMG sector salaries amounting to TK4000Cr ($US471 million) per month, this package falls far short.

While some may question the resilience of a sector of over 4,000 factories that has been operating successfully for four decades and faces collapse within a timeframe of just three months, others are pointing at the profits brands are making and urging them to step in (as they are with their own staff) to ensure salaries are being paid. Calls for brand CEOs to take the lead have followed debates about the profits of some of the brands in question. Walmart, for example, had $US7.7 billion in cash on hand in 2019, while adidas and Target had $US2.6 billion and $US1.5 billion respectively, as reported by Statista.com.

Huq issued the reminder that business will go on once we emerge from this pandemic. “People won’t stop buying clothes. Business will turn around in 3 to 6 months (and) in these 3 months we need basic support.” She also warned brands that the abandonment of their manufacturing partners may lead to an economic and social crisis and reminded brands that they “do not want their reputation to be at stake.” She also appealed to the brand’s good sense, saying “it is not a huge amount of money for you” to pay what is owed. At the time of going to print, no additional brands had come forward to pledge to meet their order agreement obligations.