Bangladesh Apparel sector orders under severe uncertainty for COVID-19
Syed Fardeen Hashemy
Executive
Director, Radisson Casual Wear Ltd.
Kalampur,
Dhamrai, Dhaka, Bangladesh
Email: fardeenhashemy@gmail.com
Cell: +880-1676824624
Many of the giant brands initially were in a dilemma on how to manage this situation, as on the one hand most of their stores became shut off, if not all, and the sales experienced a rock-bottom fall, on the other hand, the complete goods or work-in-process goods needed to be shipped from suppliers to keep them economically healthy. Accepting the iterated appeal from the president of BGMEA, Dr. Rubana Huq, some six brands namely H&M, Inditex (owner of Zara, Bershka, Pull&Bear, etc.), Marks and Spencer, and Kiabi from the European Union, and PVH Corp. (owner of Calvin Klein and Tommy Hilfiger) and Target from the US market confirmed 'No cancellation on already produced and WIP goods' on last Tuesday, 31st March.
But, the biggest question to be answered at this moment is, how large is the business volume of these customers in the Bangladesh market? And how many of the mediocre capacity vendors do they have in their list? The reality is H&M has a total of 261 suppliers in the whole country, which includes all types of garments, producers, washing units, accessories factories, and even footwear industries. The total value of the apparel item sourced from Bangladesh by this Swedish retailer does not exceed $5bn a year. The other significant customers, such as Inditex, M&S, KIABI, who already agreed or expected to decide shortly to take ready goods with existing payment terms, contribute to roughly another $5bn-$7bn of the entire business. What about the rest 65% business with a cluster of more than 80% of producers taking orders from 'Not-so-big' named buyers?
Another persistent and relevant crisis emerges as few of the brands have their regional or liaison office in Dhaka to operate the business, whereas most of the brands place orders through some agents, and the producers have very little access to reach directly to customers. Sometimes the tiers are two or more where an agent further appoints a sub-agent to execute the order through the manufacturer.
During the last few weeks, many of the brands from both Europe and the US, compelled the producers, whom they call partners, to revise the shipping document by discounting on the total order value after the goods reached the port to get boarded. Unfortunately, there was no way but agreeing to the proposals because declining that opportunity might result in permanent cancellation of those goods. These are not reported boldly in any mainstream media due to perceivable reasons. The cancellation and holding production are also getting very 'easy to say' matter for the buyers nowadays. The sector well anticipates that the retailers, the liaison offices, and the agents, are in extreme pressure due to the unexpected sales loss in their respective countries, but the factories who revolves and capitalizes the bank's money to run the business will be in deep trouble with this decision of these brands. According to CEOs of a majority of the factories who have taken orders through agents are now facing the biggest problem because they cannot even express their feeling to the brand who ultimately sell their products at the outlets. They can only wait for any decision from the retailer, which the agents are supposed to communicate to them.
A light of hope is emerging as some German brands announce to be by the side of the suppliers to overcome this trying period. Mathias Diestelmann, Managing Director and CEO of BRANDS Fashion GmbH, Europe's market leader for sustainable workwear circulates through social media, "Difficult times around the globe — but for some of our Partners and their Employees, it has even become more than difficult. Our suppliers are the weakest chain in the loop — let's stick together and do not cancel orders!!" Another customer from Germany, Social Fashion Company GmbH (ARMEDANGELS), puts it very simple by the tagline, "We're in this together." These brands have a firm commitment towards their suppliers, and it gets proven with their support to overcome this situation. The producers' expectation from all the brands is the same as of these German companies.
Suppliers' forums plea buyers to declare from a common platform regarding the goods which are ready to ship and on the brink of shipment. Common platforms like ACCORD and ALLIANCE might be used by the member brands and retailers for bringing the factories under the same umbrella. Yes, some countries have been more affected, and some case-to-case handling can occur for some portions of those orders which have been placed to factories and haven't been in the production line. As most of the factories don't produce for all those renowned brands, the ideal platforms might be created country- or region-wise in Europe or the USA to resolve these issues.
Almost all the factories of the country have been laid off till 4th April responding to the urge from BGMEA on 27th March, and the owners are in sheer fear how to pay the salary by 7th working day of the next month under this utmost crisis. The prime minister has announced a bailout of BDT 50bn (Approx. US$600 m) to support the export-oriented businesses, the disbursement terms of which have been drafted through a notification issued by the ministry of finance to the central bank governor on 31st March. This fund is allocated for the whole export industry, so approximately BDT40bn is expected to be disbursed to the apparel sector, which will directly go to workers' accounts as the salaries (through bank accounts or MFS). The communique issued by ministry mentions the central bank will lend this interest-free money to manufacturers through respective commercial banks, which needs to be paid back with 2% service charge by 24 months with a grace period of 6 months, and the employees' salaries will be paid with this fund for three months starting from April. The irony is that the other units related to the apparel industry (fabric mills, washing plants, embroidery units, and trims and accessories producers) might also be considered in this laundry list as they also contribute to export. So, practically speaking, the cut to finish units will get barely half of the total fund allocated for this sector, whereas a rough estimate from BGMEA shows almost BDT40bn is required to fulfill the salary of a single month for the whole industry. Facility owners, under this circumstance, are in severe anxiety about how to cope up with this support. If the buyers come forward, then only it is possible to bolster their confidence.
An acid test for buyers has already started, and their attitude towards their counterparts, who supported them for years, will mark that. It's time for retailers to prove that they're caring about economic sustainability toward their business partners. The suppliers from thousands of miles away are waiting for one responsible move from them. The suppliers and the buyers are partners for years, which they proved in all past events by supporting their counterparts. This time, all this sourcing hub need is the support from them to avoid any unexpected chaos. For western retailers, it is a challenge to survive their business and revive that to a regular pace, but for Bangladesh, it's a question of 4.1 million families, and 83% of our export economy. Despite a chunk of hard times ahead, the factory owners' forum firmly believes that the brands, including the ones who have minimal business volume in this country, will be considerate enough to keep hands on hands with the manufacturers to combat this calamity.