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Bangladesh RMG suppliers lagging in Western fashion brand dealings

Recent news of Online fashion brand Boohoo had purchased the Debenhams brand for 55 million pounds, Asos had signed a deal to buy the brands of Arcadia, including Top Man and Top Shop, for 295 million pounds are making headlines in the fashion industry.

Such deals are snapping successful business owners that are facing loss due to the global pandemic. And these deals are necessary to keep brands alive and prevent them from disappearing completely. Boohoo and Asos have been appeared as extremely nimble operators during the COVID-19 crisis and from a business perspective; they need huge credit for countering an incredibly challenging 12 months.

Figure 1: Suppliers always remain behind queue in receiving owing money when brands go bankrupt.

Attempts are made in the West because thousands of jobs being lost on the high streets due to the closure of stores, as high-street brands move online and retail outlets close for throwing acquisitions.

On the other side, these developments are causing worry for apparel suppliers.

As this situation is causing great harm to the apparel supply chain in Bangladesh and its readymade garment (RMG) industry. Suppliers in Bangladesh have been supplying clothing to brands which in recent months have gone into administration—indeed, up the time until these brands have gone bankrupt.

The potential bankruptcy of the stores in the West in recent months has caused closures and in consequence hit major RMG Bangladeshi suppliers. Administration proceedings of major brands are panicking manufacturers in Bangladesh. As suppliers face financial threats for they recognize that, whenever there is an administration, suppliers remain behind the queue in terms of receiving the owing money.

Western method of payment is after getting the shipment. For instance, as various retailers have gone into administration, many suppliers from Bangladesh have collectively been left undue millions of pounds. Some questions arise here-

  • Will they see that money again?
  • Will they ever be able to recoup their labor costs or the money they spent on raw materials producing apparel?
  • What will be the impact on garment workers?
  • Who is looking out for them?

When the liquidators come to pay creditors, suppliers will be way down the list. Many will be lucky to receive anything at all and will take a massive financial hit. Sometimes the ending situation is suppliers have tens or hundreds of thousands of pounds’ worth of branded apparel sitting in their factories. This is deadly for them in most cases.

But in some cases, suppliers may receive some owed money between 10 and 20 percent of the value of the order, in case it falls into bankruptcies. This amount does not even cover the cost of fulfilling the order for industries that work on tight margins. Suppliers are supposed to do business in such conditions. But how?

Regulatory problem is present in businesses in the West. It is allowed to do deals to purchase bankrupt businesses with little or no thought for the liabilities of that business. Right of manufacturers is absent here. Mostly the debt is pretty much written off and there is nothing to do about it.

On another side, the problem arises with administrations. Various organizations involved—accountants, administrators, etc.—have raked over the carcass and paid their fees, here also suppliers are bottom of the pile. Salaries and rents are paid and other liabilities such as loans are accounted for. But when comes to the name of the suppliers, it appears “out of sight, out of mind.”

Some thinkers are suggesting new laws as a solution: not only that but also better ways of doing business. There have been opting for some kind of fund or pot which brands would pay into as a part of doing business with garment factories in Asia.

This fund would be used to ensure payment for legally owed wages in the case of insolvency. It’s injustice for our customers (brands) to go down and new owners come along and write off all the debt that makes the victim the suppliers in Asia. This is not just a Bangladesh concern; it is a global fact that needs to solve globally.

In the time of dealings of purchasing one business which has gone into administration, suppliers need to be part of the administration. Big liabilities need to be factored in. For such cases, some “deals” might not look so attractive, but so be it.

Accordingly, these new laws in West around bankruptcy is to ensure that when new owners take on a business, they also take on its debt, or at least a significant proportion of it.

Figure 2: Barriers of apparel suppliers when it comes to getting owed money from brands.

Ultimately this law is not going to be passed anytime or soon. “Turkeys do not vote for Christmas”. The real thing is- all want business.

But business surely has to be a two-way street, built on mutual respect, shared goals and cooperation. Business scales are almost completely in the hand of buyers from the West. This helpless situation are affecting manufacturers and even the buyers themselves, as having suppliers permanently being left out of pocket creates disruption and uncertainty in the supply chains.

The COVID-19 pandemic has once again brought these difficult issues to the focus. It’s high time, we tackled them once and for all, or we will all be having these conversations again the next time another industry crisis or recession happen again and again.

It sounds extreme but already brands simply cannot be trusted to protect the workers in their supply chains through voluntary codes of conduct. Many brands and retailers are also pioneers in global business in responsibility and practicing ethics in taking care of every member. But many do not care—some of the more glaring examples we have seen during this Covid-19 pandemic.

As suppliers do not depend only on the goodwill of brands, it has become clear now that our industry needs binding legislation and supply chain regulation to hold brands to account for respecting human rights in their supply chain.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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