The coronavirus pandemic has caused a rift in the relationship between apparel manufacturers and retailers, resulting in lost profits and canceled payments as the economy slogs through the mud, according to The Wall Street Journal.
In Bangladesh, jeans maker Denim Expert Ltd. sent out a shipment of clothing weeks ago and has not received the payment as expected.
The pandemic’s turmoil upon markets, with closed stores and plummeting demand for retail goods like clothing, only compound on the existing problems manufacturers in countries like Bangladesh face. Garment contracts have shifted to accommodate importers, and many factories don’t seem to have much recourse in cases of missing payments.
That causes losses for the manufacturers, which are putting in labor and costs of their own, usually out of their own pockets, and getting nothing back.
The contracts for factories have shifted in the last 10 years from letters of credit, the old system, to a newer system of open accounts, which work as an honor system where payments are sent after shipment. In Bangladesh, factory owners went along because they wanted to get ahead of competitors in India or Latin America who might have taken the deal instead.
Sheng Lu, a professor of apparel studies at the University of Delaware, said the shift in contract terms is proof of the increasing influence of fashion brands and retailers in the industry — at the expense of the factories.
During the pandemic, retailers have faced closing stores because of the virus, less customer demand and dwindling workers, and as such, less need for clothing.
Global Brands Group Holding, which designs, develops, markets and sells apparel products, decided to cancel orders for spring and summer without liability, and Arcadia Group, which owns brands like Topman and Burton, has canceled orders from Denim Expert. Kohl’s has also canceled orders, according to Kihak Sung, chairman of the trade group Korea Federation of Textile Industries.
Others have extended olive branches to manufacturers, such as Inditex, which owns Zara, which will pay for orders in production. And European retailer Primark said it planned to establish a fund to pay the wage component of companies from India and Bangladesh to make up the difference lost from the economic turmoil.