Impact of Coronavirus on Supply Chain & Factory Workers

In recent weeks several major apparel retailers, including Gap, H&M, Arcadia Group, Macy’s and J.C. Penney, have canceled factory orders or delayed payments to suppliers to mitigate the impact of COVID-19 on their business. With stores closed and global consumer demand suppressed, they can’t sell the clothes they’ve already produced or have committed to producing. Some brands are claiming that they will still pay for goods already produced but are asking factories not to ship Summer and to cancel production for Fall 2020, assuming that stores traffic will be low or non-existent, depending on how quickly countries are able to reopen businesses.

In the US, we are confronted with the overwhelming impact COVID-19 is having close to home: millions losing their jobs, entire industries at risk of dying as demand drops for all non-essential items, and a fashion retail industry - still heavily weighted to brick & mortar sales - that will emerge fundamentally changed. The lesser known reality is the impact the pandemic is having on global supply chains and factory workers.

Factories, particularly in low-cost sourcing hubs like Bangladesh, are nervous. And rightfully so. The Bangladesh Garment Manufacturers and Exporters Association estimates that more than $3 billion worth of orders have now been cancelled or suspended, affecting more than 2 million workers in Bangladesh alone. The impact of workers globally is too hard to predict at this stage. Our sources in China tell us that, despite being back up and running, garment factories are operating at less than 50% capacity due to the weak export market and delayed payments from brands. Their best bet to survival is to lay off as many workers as possible, and quickly.
 

"Their best bet to survival is to lay off as many workers as possible, and quickly."

Inefficiencies of a long supply chain

So how did we get here?

The reality is that the traditional business model for fashion retail is fundamentally flawed and risky. Brands start designing for a season up to 18 months in advance, start planning for raw materials and production planning up to a year in advance and have already finished production for a season several months before customers see it.

In an unpredictable world, this advanced planning and guessing – however smart predictive AI may be – is dangerous for businesses, suppliers and the planet (from textile waste caused by overproduction and bad guesses). At Public Habit, we are flipping the supply chain so that demand drives supply. Our customers have to wait a little longer to receive their order (up to 4 weeks) but we only make it once we sell it. This has protected us and our suppliers during this time. Our overhead is low, we own minimal inventory and we can react quickly to market demands. Moreover, we prioritize long-term partnerships with our suppliers. They are an extension of our team. If we do well, they do well and we need to protect them as much as we’d protect our own staff.

Impact on workers

The coronavirus crisis has resulted in millions of factory workers, mostly women from rural areas, being sent home without the wages or severance pay they are owed. McKinsey’s recent report on the State of Fashion, Coronavirus update cited that extended periods of unemployment will mean hunger and disease for workers in low-cost manufacturing hubs, such as Bangladesh, Cambodia, Ethiopia, Honduras, and India.
“Our buyers are suspending orders, the workers are confused, the owners are confused, this is really a very bad time,” factory owner, S.M. Khaled told Fortune last month.

According to Mark Anner, director of Pennsylvania State University's Center for Global Workers' Rights, the virus outbreak "is showing us just how extreme that power imbalance is between brand and manufacturer. It's just an absolute disaster." Nearly 60% of the 316 factories that responded to the survey by the Center for Global Workers' Rights and the Worker Rights Consortium said they had already closed down most of their production.

If factories are up and running, workers are often at risk of COVID-19 infection from working in close quarters with poor ventilation. “In one workplace there are a few thousand working together, using the toilet together, taking food together, or using the bus or truck or transport by car together,” said Ath Thorn, president of the Cambodian Labor Confederation. Many will feel they have no choice but to work, despite the risks.

Outbreak "is showing us just how extreme that power imbalance is between brand and manufacturer. It's just an absolute disaster."

The path forward

This crisis is highlighting the need for agility across the board, regardless of your business type. Some factories – particularly in China – have had success staying nimble and adjusting to produce what’s needed, namely Personal Protection Equipment (PPE), hand sanitizer and other necessities. For most factories, however, switching gears quickly and fundamentally changing business models is very costly and not an overnight option.

Governments that can have provided some financial relief to manufacturers but it’s not enough to stave off what could rapidly become a humanitarian crisis. Brands need to view their vendors as part of their team. Without them, they can’t operate. If they can’t pay in full at this time, they should pay what they can to help offset what will already be significant devastation in manufacturing regions. Retailers’ and brands’ disregard for the financial welfare of suppliers and their workforce will hit the industry in much more macro ways than simply their immediate bottom line today.

Bright Spot: Growing Awareness

It never ceases to amaze how creative brands, businesses and individuals can be in times of need. While some manufacturers have been pivoting to produce masks and PPE where possible – such as On Point Manufacturing in Alabama – loud voices are coming together to raise awareness for and drive action in response to garment workers’ dire situation in countries like Bangladesh. The recent #payup campaign with over 14,000 signatures delivers a strong message demanding that companies pay up for their canceled orders. The movement, initiated by Remake, The New Fashion Initiative, Elizabeth Cline, and others, has already incited action by brands such as Primark, H&M, and Zara confirming full payment to suppliers on completed orders.

Now is the time. Consumers are more aware than ever before of the human element of the fashion supply chain. Campaigns such as #payup and websites such as SupportGarmentWorkers.org are capitalizing on this interest and providing the much needed information and call to action for those interested to participate and encourage brands to do the right thing and #payup.
 

---
If you have any comments or feedback please drop a note in the comments below or email us at hello@publichabit.com. We’d love to hear from you!