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The global apparel industry has been left reeling from the impact of the Coronavirus pandemic as supply chains have been disrupted, trade has dwindled to near-stagnancy, and sentiments have flared, claiming this may be the fulcrum for a new anti-consumerism culture.
In McKinsey & Company’s State of Fashion 2020, it was estimated from a survey that in Europe and the US, more than 65% of consumers expect to decrease their spending on apparel, while only 40% expect to decrease total household spending. [1] This essentially also means that apparel industries worldwide will see a significant inventory glut that is caused by a drop in sales.
The same report suggested that discounts have taken a significantly high proportion of the buying decision for consumers (56%). This would mean that a drop in prices globally for apparel will prevail.
This figure is not encouraging for non-essential industries in general, but it may spell disastrous consequences for Bangladesh, as its Apparel/Ready-Made Garments (RMG) industry has been a major pillar of the country’s rapid growth in the past few years
The Bangladesh RMG sector constitutes approximately 84% of total exports and is a key component of GDP. [2] In terms of employment, The Center for Policy Dialogue (CPD) reported that the sector employs approximately 3.5 million people, of which, approximately 60.8% are women. [3]
The industry has had a plethora of problems to handle even before the COVID-19 crisis, with its market competitiveness declining gradually in comparison with other major apparel exporters such as China and Vietnam.
In fact, the industry reported a 5.71% downturn in RMG exports for July-January of FY 2019-2020. [4] Some of these reasons included:
(Read: ‘The Bangladesh RMG Sector: The Path to Revitalization’ [5] )
The pandemic has brought about perhaps an unprecedented problem for the sector – one that has materialized in the form of a large string of canceled and/or unpaid orders for garments from Bangladesh.
A major number of these cancellations and abandonments have come from US and UK brands and have cost the Bangladesh RMG sector dearly.
Transform Holdco LLC, a newly-formed concern of US-based Sears Holdings Management Corporation, is estimated to have an unpaid amount of over USD 50 million in orders which yet remain unpaid.
Lawyers of 19 Bangladeshi readymade garment (RMG) factory owners have already threatened to take legal action against the company for what can be judged as a breach of contract, as over USD 20 million of products have been stated to have already been shipped and delivered to the UK and have yet to be collected.
Lawyers of the clients have stated that if there is no correspondence that yields remuneration for the goods with Sears, they may sue for involuntary bankruptcy of the company on grounds of failure to repay its debts. [6][7]
Debenhams of the United Kingdom (UK) has closed down its Bangladesh office, leaving a number of workers unemployed; it has also left about 35 Bangladeshi suppliers in hot water by filing for bankruptcy, making it extremely difficult to negotiate repayment of outstanding debts which are approximately USD 69 million. [7]
Other reputed brands such as H&M, GAP, JCPenney, Primark, Arcadia Group, Peacock, Topshop, Dorothy Perkins, and Miss Selfridge have also canceled orders of varying amounts, leaving suppliers at their mercy. Cancellations from H&M came particularly as a surprise as they had previously agreed to not cancel any orders from Bangladesh.
Such non-compliance brings a matter of ethics into play – should only suppliers be held accountable for the transaction process?
The question of blacklisting brings with it a chance of opening a whole new can of worms –
Cancellation of orders has been devastating for the Bangladesh RMG sector as BGMEA reports an estimated loss of over USD 3.15 billion worth of pending work orders. Out of this amount, recent negotiations have managed to recapture only 26 percent. [8]
268 factories out of 348 registered with BGMEA had temporarily closed in April to prevent the spread of the Coronavirus, while the remaining had closed permanently. [9]
The industry recorded a 14% decline in growth in the first 10 months of the current financial year (July 2019-April 2020) which is the largest negative growth figure in the last 5 years.
To better reflect the misfortune of the industry, in the period of May 1 to May 20, the Bangladesh RMG industry recorded a staggering negative 55.7% growth. According to BGMEA, factories since the lifting of the lockdown have only been able to come back to 55% capacity and there is a possible surge in unemployment to be expected if conditions are not ameliorated. [10]
McKinsey & Company data suggests that the global garments sector will see a 30% decline in sales revenue in 2020 due to Covid-19. [10]
| Time period/Category | Earnings in July-May FY18-19 (Billion USD) | Earnings in July-May FY19-20 (Billion USD) | Growth (%) | Shortfall from Govt Target (%) |
| Earnings from Woven Garments | 16.04 | 12.96 | -19.22 | — |
| Earnings from Knitwear | 15.68 | 12.74 | -18.74 | — |
| Total | 31.73 | 25.70 | -18.99 | 26.31 |
The stimulus package by the government aimed towards export-oriented industries has helped the sector so far to pay salaries for its workers through April and May, though it is difficult to tell whether this disbursement is entirely widespread across all factories yet.
Sartaz Zahir, Content Writer at LightCastle Partners, has prepared the write-up. For further clarifications, contact here: [email protected].
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