Buyers stand exposed today as their true face comes to light. Ask any exporter and he is only hearing either of the three things from the buyers – 1) we have to cancel orders, 2) we have to defer payments, or 3) we have gone bankrupt, so no payment at all. It would not be wrong to say that the buyers have abandoned the suppliers like never before!
In my over 25 years of industry exposure, I have never seen this happen. Even post 9/11 or post the 2008 depression, buyers did not cancel orders or refuse to pay. I guess in the past 3 to 5 years, retail has been bleeding and things have changed a lot. What is happening now is unprecedented.
Indeed, the situation today has no parallel and has left the export community totally directionless. Companies that have been working with factories for years have pulled the plug. Sharing his experience, an affected exporter narrated how even a reliable retailer like Debenhams has stopped payment on the pretext of poor financial standing. Debenhams has sent letters to the factories saying in clear words, “We are going into administration, so no payments.” What is even more shocking is that the company has sounded their renters in England that they cannot pay for the next 5 months, which technically means that they intend to open the stores after 5 months.
The question the exporters are asking is – why is the buyer not coming out clean, where has the concept of ‘transparency’ gone? Would it not be greatly appreciated if they honestly say that “we don’t have the resources, so we are holding payments for 5 months… you support us today and we will get through this together?” This is where the question of intention comes in, in the buyer using the administration/bankruptcy term as an excuse to shrug off responsibility for payment.
This is the story of JC Penney too. The department store has informed its supply chain that it is going under chapter 11, which means that they have the right to stop payments to everyone and even salaries of their employees. We have seen many such cases where the payments are stopped and after a period of time, the retailer announces that they have either been bought over by a healthier company or they have arranged funds. In both the situations, the suppliers take the hit. Many believe that at the moment, companies are using bankruptcy as a gimmick to buy time to restructure and block fund outflow.
Several major players of the global apparel chain including C&A, Gap, Mothercare and Uniqlo continue to stand by their decision not to pay for work already in process or completed, or have turned to insufficient alternatives. Reports suggest that the ETI has issued notice to C&A to explain its stand.
The good news is that there are some positive developments, which indicate that the voice of the suppliers is being heard. A case in point is the recent announcement by Primark, which after a lot of criticism for cancelling millions of pounds worth of orders, has finally agreed to make payment to its suppliers worth £370 million for orders up to 17 April; having previously said, it would only commit to orders which were in transit or shipped by 18 March. Announcing the decision, Primark’s CEO, Paul Merchant, said that “transparency and clarity” were at the centre of the negotiations with suppliers in recent weeks.
By and large, the reality is that retailers who are in a mess and do not wish to let off money from their reserves are restoring to various gimmicks, putting huge financial burden on the suppliers, who have to pay their workers and keep the companies afloat.
Top buyers who have cancelled orders in Bangladesh (India has not compiled such a list):
- Arcadia Group, which owns brands including Topshop, Dorothy Perkins and Miss Selfridge, is estimated to have cancelled in excess of £100 million of existing clothing orders worldwide; £9 million are from Bangladesh
- C&A – US $ 166 million
- Mothercare – US $ 62 million
- Bestseller – US $ 59 million
- Tesco – US $ 50 million
- Kohls – US $ 39 million
- Walmart – US $ 38 million
- LPP – US $ 37 million
- JCPenney – US $ 23 million
Those that have agreed to pay:
- VF Corp