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EXISTENTIAL CRISIS

More than a million garment workers are out of work because of coronavirus

Bangladeshis work at a garment factory in Dhamrai, near Dhaka
AP Photo/A.M. Ahad
The effects of Covid-19 are rippling through fashion’s supply chain.
  • Marc Bain
By Marc Bain

Fashion reporter

For many of the 4.1 million workers in Bangladesh’s garment industry, their income from stitching clothes for customers, which include some of the world’s largest fashion companies, can be critical to survival.

But more than a million have already been fired or furloughed as global fashion companies have canceled or suspended orders in Bangladesh due to the coronavirus crisis, according to a report (pdf) by Penn State University’s Center for Global Workers’ Rights and the Worker Rights Consortium (WRC), an independent labor-rights monitor. The numbers only look set to rise, and don’t count workers in Cambodia, India, Myanmar, Vietnam, and other countries facing similar situations.

A number of suppliers in Bangladesh and elsewhere have said the companies they sew clothes and other products for effectively abandoned them and refuse to even cover the costs of work already done. Many factories expect to close unless something changes. “The immediate impact on workers and their families will be devastating,” said Mark Anner, director of the Center for Global Workers’ Rights, in an email. “Going forward, as no new orders are placed and the industry shuts down, workers will have trouble putting food on the table.”

A plea for Bangladesh’s garment industry

The dire situation has come about as Covid-19 has forced companies to shutter stores as part of social-distancing measures while demand for new clothes has simultaneously plunged as shoppers stay home and stop buying anything that isn’t essential. Retailers are doing all they can to avoid adding to their mountain of unsold inventory.

Fashion companies have already canceled or put on hold at least $3 billion in orders from Bangladesh’s garment factories, according to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA). That’s roughly equivalent to a full month of exports, based on previous BGMEA data. Another major industry body has reported similar figures. Without the orders, many factories are unable to pay workers.

The report by Penn State and the WRC found 58% of Bangladeshi clothing suppliers said they had to stop most or all of their operations because of order cancellations or lack of payment. It was based on responses from 316 suppliers—each of which may own multiple factories—who completed an online survey between March 21 and March 25. They reported that when buyers did cancel orders about 72% refused to cover the costs of raw materials the supplier had purchased, and 91% declined to pay the production costs.

Rubana Huq, president of the BGMEA, has been appealing to international companies to support the industry. “Brands who were partners last month have all turned into strangers, unable to fathom our exposure to an existential crisis of handling the wages of 4.1 million workers,” she wrote in a LinkedIn post. “For us it comes down to a level of bare minimum survival mode, while the western world still has the privilege of having bailouts from their privileged governments. On that consideration, we call upon the international community to surface with a renewed pledge to support the workers of Bangladesh, if not just the businesses.”

Using data from the BGMEA, the report estimated which companies had canceled or put on hold the greatest value of orders, including in-process and planned orders, as of March 29. The total among those companies alone amounted to more than $1 billion.

What fashion companies are doing

The figures excluded two of the largest buyers from Bangladesh, H&M and PVH Corp.—owner of Tommy Hilfiger and Calvin Klein—because they had previously said they would pay for merchandise already in production. H&M, for instance, explained it was pausing new orders and evaluating changes in recent orders but would take delivery of goods that were completed or in production. “We will of course pay for these goods and we will do it under agreed payment terms,” a company spokesperson said in a statement. “This is in accordance with our responsible purchasing practices and not only the case in Bangladesh, but in all production countries.”

Some companies listed have since said they will pay for orders already finished or in production, including Zara-owner Inditex, Target, Polish clothing company LPP, and others, though some say payments might be delayed.

Other companies explained they are acting out of necessity in an unprecedented crisis. Dublin-based Primark, the company with the largest estimated total of canceled or suspended orders, said it had no other choice but to cancel orders.

“Every store in every country in which we operate is now closed,” a Primark spokesperson said in an email. “We are losing sales of £650m a month as a result. We have therefore been left with no option. We have large quantities of existing stock in our stores, our depots and in transit, that is paid for. If we had not taken this action, we would be taking delivery of stock that we simply could not sell. This has been unprecedented action for unprecedented and frankly unimaginable times.”

In 2019, Primark did £7.8 billion (about $10.2 billion) in sales in 2019, earning £913 million in operating profit (pdf). Its owner is the UK food giant, Associated British Foods, which reported £15.8 billion in revenue and about £1.4 billion in profit last year.

Quartz reached out to every company named in the report as being among the largest buyers canceling or suspending orders. Responses from those that replied follow at the end of this story. Many companies did not reply. VF Corp., owner of brands including The North Face and Vans, declined to comment.

Force majeure

While fashion companies are generally expected (paywall) to pay for the work they’ve ordered from suppliers, their legal obligations might not be so straightforward in this case. Purchase orders commonly include force majeure clauses that release them from their contractual duties in exceptional circumstances.

“Everyone is running to attorneys now saying, ‘What does my force majeure clause say and what does it permit?'” said Alan Behr, a partner at law firm Phillips Nizer, which handles fashion law. “It depends on the clause. If you have anything in there on disease, pandemics, quarantines, then you have a specific force majeure clause that will probably be effective for you in negotiations. If it simply says ‘act of god,’ which nearly all of them say, well you’ve got a basis for discussion there.”

If a factory owner did try to sue for damages, they would first probably need to try to mitigate their losses, at least under law in much of the English-speaking world, according to Behr. That could mean if they had purchased materials already, they would need to try to sell those materials to recoup whatever costs they could.

But Behr said the best solution right now isn’t for everyone to go to court. The coronavirus crisis is hitting companies at every step in the fashion supply chain. A company’s first step, Behr said, shouldn’t be to send a legal letter but to call its suppliers and talk over the situation to see how they can reach an agreement. The outbreak will eventually pass, after all, and companies will want to maintain the relationships they’ve built (paywall).

In the meantime, workers are facing destitution. Bangladesh has announced a stimulus package worth about $588 million for export-oriented industries to help companies cover their workers’ wages, though the BGMEA said it’s not enough. The group has suggested factories lay off staff if necessary in accordance with the country’s labor laws, which at least entitles the laid-off workers to half their normal pay.

Below are responses from companies edited for length and clarity. We will update this story with any new reply:

Bestseller

Thomas Børglum, Bestseller CFO, said:

We will do our outmost to live up to our commitments and take delivery of garments already made and those in production. We are aware of our responsibility and we are in close dialogue with each of our suppliers on how to handle the current crisis…We want to support our suppliers and we are still placing orders for the coming seasons.

C&A

A company spokesperson said:

In order to help stem the spread of the COVID-19 pandemic, C&A has had to close all its 1,400 stores across Europe. This has resulted in a complete loss of store sales that has lasted several weeks already with no definite end in sight. As a traditional high-street retailer, we cannot compensate for the loss of revenue through our C&A online sales.

In these extraordinary circumstances, we are focusing on maintaining liquidity whilst living up to our responsibility to our employees and our suppliers.

We are working hard to minimize the impact on our suppliers and intend to accept all goods that have left the factory. We are in close contact with our suppliers to find flexible, individual arrangements also for garments currently in production…We are currently pausing the order of new products, as we do not know for certain when we will be allowed to re-open our stores. We regret the hardship this is causing in many parts of our supply chain.

Inditex (Zara)

A company spokesperson said:

Inditex is committed to working with its suppliers through the impacts of Covid-19…We are fulfilling all our responsibilities to our suppliers by ensuring that all orders that have been produced or are currently in production are completely paid according to the original payment terms.

LPP

A company spokesperson said:

In these difficult times, it is our priority to maintain as many jobs as possible. The foregoing pertains both to our employees and to those of our suppliers…First and foremost, all our obligations have been settled on an ongoing basis. In addition, we are going to pay for the orders in production and already produced; however, some of them are likely to be received with a delay. The delay also stems from the shutdown of factories in Bangladesh until at least 4 April 2020. Throughout this time, we have been cooperating with our suppliers and redistributing our orders and changing them in a way that will help our suppliers maintain their financial liquidity.

Marks & Spencer

A company spokesperson said:

In these unprecedented times, as a responsible retailer we will continue to do all we can to support our partners and suppliers. We are taking all possible steps to defer supply and a very large part of our core business is less seasonal year-round essential product which provides some scope for carrying forward stock.

NEXT

A company spokesperson said:

Currently all of NEXT’s Retail Stores in the UK  and its Online business both in the UK and Internationally (and its associated UK Warehousing and Distribution Operations) are all closed…As a result, like virtually all other retailers, NEXT is therefore cancelling some orders because of the virus (to minimise overstocking from currently making NO sales at all, whilst closed). NEXT will, however, honour supplier orders in full that have an ex-factory date up to and including 10 April 2020…Everything that has an ex-factory date after 10 April 2020 will either be taken in by NEXT on normal terms (but later than originally planned) OR cancelled with compensation from NEXT on a case by case basis.

Primark

A company spokesperson said:

Every store in every country in which we operate is now closed. We are losing sales of £650m a month as a result. We have therefore been left with no option. We have large quantities of existing stock in our stores, our depots and in transit, that is paid for. If we had not taken this action, we would be taking delivery of stock that we simply could not sell…We recognise and are deeply saddened that this will clearly have an effect throughout our entire supply chain. We are in close and regular contact with our suppliers and very much hope that our normal trading relationships can resume as soon as possible.

Target

A company spokesperson said:

As always, Target is committed to our suppliers across the globe and will pay for orders already produced or in production. With the surge in food & beverage and essentials, we’re working hard to supply the increased demand in close partnership with our trusted vendors. Additionally, in the short term, we are making adjustments to our orders in categories where we are seeing demand slow, like apparel and accessories.

Tesco

A company spokesperson said:

These figures are simply not true. The majority of our orders will carry on as normal and we will continue to source from our suppliers on their current payment terms. We are committed to ensuring workers are treated fairly during this unprecedented time.

VF Corp.

Declined to comment.

Walmart

A company spokesperson said:

Customers are stocking up on essentials. We remain focused on helping them find what they need during this unprecedented time. Walmart is taking a comprehensive look at how this affects the suppliers of goods that are considered non-essential so that we can help minimize the impact to their business and workers. We are working with suppliers on a case-by-case basis as we monitor the changing sales patterns.

This story has been updated with comments from Tesco and C&A.

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