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JC Penney bankruptcy left Bangladeshi apparel suppliers in uncertainty

American retail giant JCPenney filed for bankruptcy recently. The brand is latest to fall among the Coronavirus crisis victims. The pandemic was the final blow to the 118-year-old company burdened to overcome a decade of bad decisions, executive instability and negative market trends. The company accused the COVID-19 pandemic of the need to file bankruptcy.

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Figure: This new turn of events has put Bangladeshi apparel suppliers of JC Penney in uncertainty as their payment for finished goods has now become uncertain.

This new turn of events has put Bangladeshi apparel suppliers of JC Penney in uncertainty as their payment for finished goods has now become uncertain. Annually, $800 million worth of garment items are supplied by 100 garment manufacturers from Bangladesh to JC Penney.

Generally, when a company files bankruptcy, it pays the debts to the employees and house rents in precedence basis. The company also gives priority in payment to the directors. But the payments to suppliers is not its priority.

“We have no idea how this will go now. With bankruptcies, we are often left to the courts to settle our cases and it drags on for months and years,” said Rubana Huq, President of Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

A Bangladeshi supplier who supplied $1.3 million worth of woven garment to JC Penney, said payments to suppliers will be delayed significantly from the JC Penney. Also, the fabric suppliers of the brand did not receive any payment.

“We have no idea how this will go now. With bankruptcies, we are often left to the courts to settle our cases and it drags on for months and years.”

Rubana Huq, President, BGMEA

“I am in trouble now. Fabrics buyers from my mill have not been paying me in an excuse of deferred payment offers from JC Penney,” said an owner of a weaving mill at Madhabdi.

A lot of other mill owners are in worry as JC Penney either canceled work orders or asking the unusual delayed payment of 180 days instead of the 90 days written in the contracts, said the mill owner seeking anonymity.

“I hope JC Penney will pay me timely, as I am a long-time supplier for the retailer,” said AK Azad, Managing Director of Ha-Meem, a leading garment exporter and usually supplies readymade garment (RMG) items worth US$25 million to JC Penney a year. Azad is one of the significant suppliers of garment items to the JC Penney.

“Sometimes, the situation turns so bad that the buyer does not reply to our emails. This is a terrible time for us,” said Abdus Salam Murshedy, Managing Director of Envoy Group.

“Who will provide us the cushion to mirror western bankruptcies and approach our banks where forced loans will be created against all these shipments that were ready, which got ultimately canceled and held up and now totally uncertain,” Huq said.

Earlier, JC Penney said it reached an agreement with existing lenders for US$900 million of debtor-in-possession financing to aid operations while it navigates bankruptcy proceedings in federal court in Corpus Christi, Texas. The retailer will include closing an as-yet-unannounced number of its 846 stores.

As part of the reversal process, JCPenney decided to borrow an additional $450 million from those lenders to pay for operations during the reorganization.

JCPenney has been struggling below a mountain of debt and red ink for a decade. But the last 10 years have been full with one mistake after another, in between the executive leadership brought four different CEOs. Radical changes meant to revive the company — including ending coupons and clearance sales in an attempt to capture more upscale shoppers, and introducing household appliances — proved to be huge failures that were quickly undone.

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