Reduced prices, delayed payments, late shipment fees for suppliers in global apparel supply chains
Anna Triponel
October 19, 2020
At the outset of the COVID-19 pandemic, a number of workers’ rights organisations pressured apparel brands to pay for canceled orders. A number of buyers have since paid for these orders, but a new survey by the Center for Global Workers’ Rights at Pennsylvania State University shows that brands’ pandemic purchasing practices on new orders (e.g. price reductions, delayed payments, late shipment fees) are continuing to squeeze suppliers and their workers. This trend is starting to lead to workers losing their jobs and suppliers going out of business.
The Center for Global Workers’ Rights at Pennsylvania State University published Leveraging Desperation: Apparel Brands’ Purchasing Practices during Covid-19 (authored by the Center’s Director Mark Anner) based on the results of a July/August 2020 survey of apparel suppliers as well as recent trade data, interviews with stakeholders, quarterly financial reports, and other sources. The report paints a picture of a sector that has continued to struggle throughout the COVID-19 pandemic, enduring after the initial economic shocks that caused retailers to cancel orders early on.
Key takeaways
Below are a few of the findings from the study:
“65% of suppliers reported that buyers have demanded price cuts on new orders that are bigger than the year-over-year reductions buyers usually ask for.”
“On average, buyers have told suppliers they must cut prices by 12%, relative to last year’s price for the same product.”
“As a result, 56% of suppliers have been forced to accept some orders below cost, and the majority anticipate having to continue to do so.”
“Pre-pandemic, only 34% of buyers took 60 days or longer, after shipment, to pay suppliers. Now, 66% are imposing 60-day or longer payment terms. Before the pandemic, payment terms of 120 days or longer were extremely rare. Now, one in four buyers has imposed such terms.”
“As a result of lost volume and more onerous prices and payment terms, 57% of suppliers reported that, if current patterns continue, it is extremely likely or somewhat likely that they will be forced out of business.”
“75% of suppliers reported that they have had to cut workers’ hours as a result of buyer purchasing practices during the pandemic, with approximately one quarter of suppliers cutting working time by over 25%.”
“On average, suppliers have dismissed 10% of their workers. They anticipate dismissing another 35% of their workers if current trends (order volume and price reductions; delayed payments) continue. With an estimated 35 million workers in the global garment export sector at the start of the year, the potential implication of this finding could be enormous.”
“Brands that have not paid for their orders that were in production at the outset of the pandemic must make their suppliers whole without further delay.”
“Brands should not use suppliers’ financial stress in the pandemic as bargaining leverage to further squeeze them on price. This will force some suppliers out of business and many more workers out of their jobs.”
“Timely payment by brands for completed orders is paramount for the health of the industry and the wellbeing of workers who rely on the timely payment of their wages. Brands must cease using their supply chain power to further delay payment terms.”
“While speed-to-market has long been a mantra of global garment supply chains, currently many suppliers need extra time to meet shipment deadlines as they make adjustments for social distancing and other pandemic-related workplace changes. The Covid-19 pandemic is not the time to strictly apply late shipment fees on suppliers. Worker health must be given priority over speed-to-market considerations.”
“Brands have long boasted that outsourcing to developing countries creates jobs for low-income workers, especially young women. Many of these workers are now facing the prospect of economic destitution. Brands should ensure that all workers who were making goods in their supply chains at the outset of the pandemic receive their full regular income throughout the pandemic and that workers losing their jobs receive their full legally-mandated severance.”
For another perspective on the challenges facing the garment sector—and exacerbating the negative impacts of the COVID-19 crisis on workers—you can also read Clean Clothes Campaign’s Position Paper on Transparency (October 2020).
