How COVID-19 is Affecting the Global Fashion Industry
As COVID-19 has spread, stores across the world have shut their doors. The fashion industry has felt the effect in their revenue and stocks. It is estimated that the canceled orders amount to just under USD $40 billion dollar. In addition, fashion brands have started to suspend share repurchases in 2020.
Stores that decided to close their stores for several weeks in March 2020 included Nike Inc., Urban Outfitters Inc, Abercrombie & Fitch and a few other major US retailers. This will cause further market uncertainty, material impact on the performance of stocks and mitigation to reduce worker related health risks. Retailers that have canceled orders include the following brands and their equivalent asset worth: Target with $2.6 billion, Inditex with $6.8 billion, Costco with $9.4 billion, Walmart with $9.5 billion and H&M with $11.6 billion. Few avenues of revenue that remain in place for fashion brands which include e-commerce and subscription services.
However, the closure of stores has also resulted in brands cancelling orders from garment factories. Other requests include delaying shipments and pushing payments back. Primark explained that they canceled orders because they didn't want to receive delivery of stock since there was enough in their stores, depots and within transit.This has forced factories to shut down and for factory workers to no longer have jobs.
Brands are able to get away with withholding payment because the global supply chain is designed to limit their obligations to suppliers. Brands don't have to pay until 60 or 90 days after the clothing is produced. However, suppliers need to pay for utilities in the production of the garments, which includes buying fabric and worker wages. This allows brands the “freedom” to push costs to its suppliers and cancel orders throughout the production network. Since these orders are already paid for, factories have fronted the devastating financial impact.
Brands have gone as far as justifying their actions by claiming force majeure. However, the pandemic, a global health crisis, is not part of the contract that allows for cancellations. Unfortunately for the suppliers, they cannot afford to sue the brands because they already run on on low profit margins. The fashion industry has always been an extremely competitive market because of the race for cheap labor and fabric. Since brands hold all the power, they could easily claim that they were following responsible exit policies if the factories sued. This means, in theory, the brand could pull orders without no notice and without regard to established contracts. Bear in mind that brands being socially responsible is something they do voluntarily and cannot be enforced externally. In the case of the pandemic, the well- being of garment workers in factories that have been in long-standing partnerships with brands has gone disregarded in the name of profit.
It is critically important that brands resume providing their normal payments for the goods under production. The few options factories have to survive in the face of order cancellations is to fire workers, pay them as little as possible and/or keep the workers needed to finish orders. Although the supply chain process is a global affair, the system for social support is not as it’s not included in the economic rescue packages. President of the Bangladesh Garment Manufacturers and Exporters Association, Rubana Huq, explained that failure of payment would cause serious social unrest.
All the while, some brands have transitioned into the production of protective equipment, which include face masks. Bangladesh government have allowed factories making previous orders or protective equipment to remain open if they have adequate worker safety measures. This came after the factory owner association called to close factories. Areas of concern are maintaining safe working conditions during this pandemic and paying them minimum wage.
To stay informed and to take action of the effects of COV-19 consider the following options:
Clean Clothes Campaign Live- blog: How the Coronavirus influences garment workers in the supply chain.
Read Worker Rights Consortium’s paper titled Who Will Bail Out The Workers That Make Our Clothes
Join Remake, Worker Rights Consortium and Clean Clothes Campaign Emergency COVID-19 Fund to request fashion brands to help garment makers during this pandemic.
Donate to COVID-19 Emergency Relief Fund for LA Garment Workers to give back to those that have made your clothes.
Support laid off, part time customer service workers which made up Everlane’s Union via their The Go Fund Me Page, which will help workers living paycheck to paycheck.
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