As the pandemic broke out across the globe and an economic fallout ensued last year, the apparel industry in Bangladesh was hit by a barrage of order cancellation and non-payment of delivered products.
A major portion of these cancellations came from the US and British brands. Among the British brands were Peacocks, Jaeger, Austin Reed, Jacque Vert, Country Casuals, Windsmoor, Bäulmer, Bonmarché and Ponden Home, and other brands of Edinburgh Woollen Mills Limited (EWM) owned by the British billionaire businessman Philip Day.
The order cancellations took place in the first week of April 2020. They also asked for a discount, as high as 70%, for already delivered products.
A TBS report quoting RMG Sustainability Council (RSC) Chairman Nafis Ud Doula revealed that from the first week of May 2020, these brands began looking for new suppliers, sending random emails to the manufacturers, meaning they sought to dump the existing suppliers. They also refrained from responding to suppliers’ queries about payments.
Then a spat broke out between Bangladesh Garments Manufacturing and Exporters Association (BGMEA) and the EWM.
On May 21, 2020, the then BGMEA President Rubana Huq wrote a letter to Philip Day, asking him to settle his bills by May 29, and threatened to blacklist his brands in case of non-compliance.
EWM responded by saying the letter left it “with a bitter taste in the mouth.” It also said that the BGMEA approach was “unproductive and uncollaborative.”
At a stage, EWM and its subsidiary brands owed about $30 million to about 50 Bangladeshi apparel companies, according to the report citing BGMEA sources.
Administration
The empire of EWM fashion retail crumbled in November 2020, and it filed a notice with the high court to appoint administrators, so that the group can sort out its options in the meantime.
Not every brand of the group came out with the same result.
In January 2021, a consortium of international investors came forward to provide fresh funds for the business, a deal that covered Edinburgh Woollen Mill, Ponden Home and Bonmarché chains. The terms said it would continue to be led by the existing management team.
In the same month, Marks & Spencer bought the Jaeger. In late March, Bäulmer was closed permanently.
In early April, Peacocks was bought out of administration by EWM’s chief operating officer Steve Simpson.
Back to business, promises unkept
Now that Peacocks is back to business with fresh investments, its suppliers in Bangladesh expected to get paid for the shipped goods and to be able to clear the undelivered stock from the factory floors.
Seeking anonymity, one supplier alleged that Peacocks is now refusing to receive $2 million worth of goods from his company, which was manufactured for them.
“Peacocks is taken over by the chief operating officer of the same company, who is a close associate of the previous owner, Philip Day. They are actually playing this game to shed off liabilities,” the supplier told The Business Standard.
Another supplier from Dhaka alleged that Peacocks did not pay for about a half a million USD worth of goods delivered in June last year.
“Peacock is not giving proper reply to any of the suppliers. It’s a big problem for all of us,” said the supplier.
Despite the losses, suppliers are now afraid of speaking out publicly against the retailer fearing consequences.
Trust is key
The garments industry operates on trust. Depending on the type of the product, apparel makers spend up to 75% of the total order value, often on loans, just based on a letter from the retailer.
Only once the product is delivered, and accepted by the retailer, the payment procedure begins. Oftentimes the RMG makers work on a very tight schedule, and the payment takes longer than the production time.
If a supplier fails to deliver in time, even if it is delayed by a day or two, buyers refuse to receive the goods or ask for a discount.
RMG makers accepted this asymmetrical relationship and have been operating within these conditions for decades now. But what has been happening for the last one year is not what they were prepared for.
“It is disastrous for us, it is totally unfair,” one of the aforementioned suppliers said, referring to the blanket order cancellations, non-reception of goods from destination ports, and non-payment for delivered goods.
The act has shattered trust between the parties.
What’s next
Although the suppliers are afraid of speaking out against the betrayal of the fashion brands, they are now desperate to recover the payments, and also to prevent recurrence of similar events.
But how to do that?
The solution lies in putting pressure on British government, so that it forces Peacocks and other retailers to pay their dues, one supplier opined.
Others are at a loss and feel that there is no legal remedy to this dispute.
The “open account transaction” in international trade, which refers to delivery of goods before payment is always a risky business for an exporter. This “Honour System” relies on honesty, and the globally renowned fashion brands have seemingly run out of honour lately.
In this context, can going back to the letter of credit system, which guarantees payment by banks, be the solution?
One supplier reminded that even banks will not make the payment until the retailer releases the goods from the port and accepts it.
Despite being at a loss, instead of sitting idle, apparel suppliers are looking at several other options.
The Sustainable Textile of Asian Region (Star), a network of Asian apparel exporters that includes Bangladesh, last year called upon the global brands, retailers and traders to follow responsible purchasing practices amid the Covid-19 pandemic and ensuing economic fallout.
Earlier this year, Star members have agreed to come together with a view to having a stronger voice to be able to push brands for better payment and delivery terms. The underlying tactic seems to be exposing defaulters and holding them accountable for their unethical trade practices.
In other news, BGMEA is looking forward to creating a digital platform like Amazon, eBay and Alibaba, to be able to sell clothes of local brands to the international market in a more direct fashion. The association asked for a Tk100 crore fund from the government for the project.
Now, this strange demand for funding from the taxpayers’ money may slow down the move, and one might also think that the RMG owners are not confident about the project, so they are hesitant to invest the money from their own pockets.
Ashraful Haque
But the bottom line is, RMG manufacturers are searching for a way out of exploitation and betrayal from its customers, and the status quo may change in future. Business is typically not a zero-sum game; all the parties involved can be winners. But if the existing rules of the game change, there will be new winners and new losers.
The current winning parties should be worried about it, and get their heads around the complex situation and think about the consequences of shattering long-held trust between the suppliers and customers.
