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Wherefore art thou, ethical sourcing?

  • Published at 08:34 pm April 6th, 2020
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 The hypocrisy of international brands knows no bounds

The second highest export earner of Bangladesh, which is the footwear and leather goods sector, is reeling from the economic impact of Covid-19 at major export markets in Germany, Italy, France, and Western Europe -- along with the US and Japan, of course.

As most retailers and shops remain closed in these markets, demand for footwear and leather goods has almost dwindled to zero. We have seen brand after brand and retailer after retailer – from Adidas to Nike, and Clarks to Macy’s -- close almost all their stores in their major markets in Europe and North America. 

Faced with such a situation, we have seen most retailers and brands resort to almost identical knee-jerk reactions:

1. Cancel all open orders, even where materials have been purchased by the factories and some goods are already in production or even packed for shipment

2. Refuse to pay for all open invoices as was agreed upon and either try to obtain a discount or ask for longer payment terms -- we have seen famous brands ask for 20% discount on goods already shipped and change of payment terms from 21 days to 200 days

3. Put on hold and ask not to ship orders confirmed for production in March, and up to September or even longer, for some factories. No clear information about if or when factories can ship these confirmed order so factories risk incurring further losses of proceeding with these orders without confirmation by the buyers that they will accept, but most customers still unresponsive

All three of these actions jeopardize the lifeline of the factories, which is export sales/revenue. Sales means liquidity, which means desperately needed cash for the factories so they can pay their workers, overheads, and suppliers.

Unlike RMG factories, there is almost no back-to-back LC buying of required trims in our sector; we often buy with sight LC, cash, or advance payment from suppliers mainly in China, and so our import liabilities will need to be met on time. The government’s initiative to extend the payment terms for our import liabilities will be of great help here.

A certain shoe brand has allegedly announced that they can make no further payments for the balance of 2020. So not only will they not pay for what they have taken already but, for future orders that remain, factories have to finance their business. Another UK brand has cancelled more than 50% of their orders already placed to Bangladeshi factories.

For smaller factories working entirely with such shoe brands/retailers, they are literally helpless as they have no bargaining power or leverage. It’s very easy for the brands/retailers to throw them under the bus and move on to the next factory when they need. For larger factories, the problems are equally terrifying -- as they tend to work by season with longer order programs from April to September, all new sample development and orders discussions are on hold or cancelled.

This means no pipeline of orders from April to September. One of the most important shoe trade fairs, the Expo Shoe Riva held twice a year in Italy, has already cancelled its June 2020 event. The June 2020 Garda show would have generated orders for SS2021 and production from September 2020 to March 2021 for hundreds of the most important shoe factories worldwide. 

We must appreciate that the Bangladesh footwear and leather goods sector does not yet have the scale to bargain from a position of strength with its buyers. No export sector in Bangladesh does, in fact -- other than apparel. The second largest apparel producer and exporter in the world, the apparel industry in Bangladesh is the only industry which is of globally significant scale, and even they are being sacrificed at the altar of profits.

One can only imagine how the other non-RMG exporters are faring.

As of end of March, according to information submitted by the 160 active export factories of footwear and leather goods to the industry association, $190.20 million worth of current orders have been cancelled by foreign buyers. The probable loss of jobs because of this will be around 18,200 workers.

For Apex footwear, we have seen a 51% drop already in the export sales for March 2020, and so far a 40% drop in order volume (pairs) from 2.347 million pairs to 1.413 million pairs and a 46% drop in future export revenues from Tk443.73cr to Tk238.62cr -- a decrease of Tk205.11cr ($24.4m).

Our Taiwanese JV export factory suffered a 35% drop in business already in March and order cancellation of $8.09m till September. What is even more worrisome is a potential loss of confirmed orders of $19.6m from October to December.

In yet another JV export factory, we have seen a 50% drop in business in March due to order cancellation and they have received cancellation of 200,000 pairs of confirmed orders from the US and a 40-60% drop in April to July orders from one of the biggest footwear retailers in Japan.

This loss of business is estimated at $4.35m. 

There are few exceptions, of course -- there are reports that Deichmann, Coach, and Michael Kors have assured the factories manufacturing for them in Bangladesh that they would not cancel any orders nor will they renegotiate prices that were already agreed upon. Decathlon has encouraged factories to shut down early in the crisis and offered to share some of the losses incurred by factories. They will possibly reschedule shipment dates or adjust some quantities, but this is the true spirit of partnership, these are the true heroes in our industry.

Sadly, there are not enough of them. 

We have seen that only after naming and shaming some of the biggest -- and may I say most profitable -- brands and retailers in the world have they backtracked on their reneging of confirmed orders. The amount of money they freed up by cancelling orders that they had confirmed is in the billions of dollars, and some of that is money owed to our factories, our suppliers, and most of all to our workers and employees.

We read about furloughs in the US, in the retail sector, of 600,000 workers but they get health insurance benefits and unemployment benefits. The displaced Bangladeshi worker does not have such safety nets to count on. 

Here we must recognize the leadership of Prime Minister Sheikh Hasina, who announced immediately on March 25 a Tk5,000cr fund to be used to pay only wages and salaries for all export factories for three months onward. On April 5, the PM once again came forward with a Tk72,750cr package, this time designed for the entire economy, but with specific allocations for the SMEs and the less advantaged, and has designed it to provide much-needed liquidity. 

We appreciate her support and I’m sure that her government will continue to stand by the entire business community of Bangladesh, including all exporters, so that we can get back on our feet in the shortest possible time. But the PM also rightly stated that it is too early to assess the extent of the damage, which can only be accurately done once the possible contagion is fully contained.

This is the kind of compassion and leadership we expect from the very brands and retailers who, for years, have lectured us ad nauseam on responsible sourcing, human rights, living wages, and social good. But as we have seen, most of them do not walk the talk. They are not willing to put their money where their mouths are when it really counts.

We have heard so much about sustainable brands, responsible sourcing, partnerships, etc. Where are they now? Ironically, we are hearing anecdotally that the first teams being fired in these big buyers are the sustainability teams. 

How all these brands and retailers treat their suppliers of all products made in Bangladesh and around the world will be the true litmus test of their brands. If these brands are to have any equity intact after this crisis, they must behave equitably now.

Will their priority be only to save themselves, their shareholders and share prices, and -- to a lesser extent -- their own employees? Or will they actually do the right thing and stand by those very factories in Bangladesh and around the world who have served them so well for so long? 

We are watching, and indeed the world is watching, as history always remembers.

Syed Nasim Manzur is Managing Director/Co-Founder, Apex Footwear Ltd.

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