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The coronavirus pandemic has hit businesses of all sizes and guises hard, all around the world. But it seems not everyone is responding to the crisis in the same way, with some conducting themselves more ethically than others.
Specifically, those at the top of the supply ‘food chain’, namely the well-known international brands and retailers, in particular across the fashion and footwear sectors, seem to be resorting to decisions which are leaving those further downstream facing a fight for survival. As sales collapse and retail outlets remain closed on a mass scale, brands have been quick to cite force majeure clauses in their contracts, cancel orders, suspend payments (even on those goods already produced and where raw materials have already been ordered or purchased by supplier factories), ask for price reductions and renegotiate contract terms, and even refuse to accept deliveries of goods already cleared for shipment. As many of the affected factories and raw materials/components suppliers are in developing countries, particularly in Asia, these practices have a devastating effect on their liquidity and future existence. Cancelled orders lead to job losses, and especially in countries with no social welfare framework or financial safety-net for its people, it is a direct route to poverty and misery for many workers.
The current status quo once again exposes how fragile our supply chains really are and how a system that has been built on brands and retailers squeezing down prices and margins of their suppliers for decades has now left many of those facing unimaginable hardship. And it is often the biggest and most financially resilient brands that are the worst culprits.
In Bangladesh, for instance, the second highest export earner is the footwear and leather goods sector, and according to Syed Nasim Manzur, Managing Director and Co-Founder of Apex Footwear, it is “reeling from the economic impact of Covid-19”, as he wrote in a recent open letter in the Dhaka Times. He says that demand for footwear and leather goods from big international brands has almost dwindled to zero. “For smaller factories working entirely with such shoe brands/retailers, they are literally helpless as they have no bargaining power or leverage. It’s very easy for the brands/retailers to throw them under the bus”, he writes and goes on to cite that as of end of March, according to information submitted by the 160 active export factories of footwear and leather goods to the industry association, US$190.20 million worth of current orders have been cancelled by foreign buyers. The probable loss of jobs because of this will be around 18,200 workers, he says. Apex footwear itself, Manzur reveals in the article, has seen a 51% drop already in the export sales for March 2020, and so far a 40% drop in order volume (pairs) from 2.347 million pairs to 1.413 million pairs and a 46% drop in future export revenues from Tk443.73cr to Tk238.62cr - a decrease of Tk205.11cr (US$24.4m). This will no doubt have a ripple effect and affect the company’s own suppliers of raw materials at some point.
There are more examples of this kind. As reported by ILM last week, tanneries in the Indian state of Tamil Nadu, which are now closed on government orders due to the COVID-19 spread, are said to have recorded a 55% drop in international orders since February. Chile has recorded a 6.5% drop in exports in March. Meanwhile, according to the Brazilian Association of Footwear Industries, Abicalçados, a total of 32 million pairs of shoes were exported from Brazil in the first quarter of 2020, generating US$240.9 million; down 8.5% in volume and 9.4% in value compared with the same period in 2019. In the month of March, 8.9 million pairs were shipped for US$74.2 million; a 2% decline in volume and 11.2% in value year-on-year.
As the economic standstill continues for the duration of the crisis, these figures are only going to get worse as a whole buying season is wiped out.
This is not the time for selfish actions
Times of crisis call for strong leadership and I am not for a minute implying that in these unprecedented times it is easy for brands to navigate these unchartered waters and take decisive and adequate action. But I am certain that history will judge businesses on whether they have done so responsibly and with compassion for their supply chain partners, especially the most vulnerable ones, or whether they have cruelly culled all relations and left them to it.
After all, many of the brands who are now axing orders or refusing to make payments in order to preserve their own profits are the very same who have been publicising their CSR policies and commitment to ethical sourcing, not least to boost their own public image.
Thankfully, there are some examples of companies who are trying to find viable solutions for all and alternatives that safeguard operations on both sides, working closely with suppliers to come up with solutions, sharing the financial strain or redistributing government-funded aid which many have been eligible for, most notably U.S. brands such as Michael Kors and Tapestry or German footwear chain Deichmann, who reportedly have vowed not to cancel orders or retract on agreed prices.
This is not the time for selfish thinking, especially not in a globalised supply chain system. Never was the sentiment truer than now that indeed we are all in this together. And if brands and retailers can manage the crisis in a compassionate way, I believe their chances of rebounding from it are higher, and, perhaps most importantly, with their reputations and business relationships unscathed.
Isabella Griffiths, Editor