Apparel makers face further hardships as buyers demand discount

While apparel manufacturers in Bangladesh are in despair because many brands and retailers have already cancelled production orders amid the coronavirus pandemic, some buyers are asking for discounts on previously placed orders.

In what can be termed the most jarring of demands, some brands are pressuring the already under-pressure apparel makers to provide them with discounts up to 30 percent.

What is more, most of the brands have told their Bangladeshi suppliers that they will take 30-40 days more than they usually take to pay for the products which have already been shipped.

Brands usually take 45 to 75 days to pay manufacturers.

Against such a backdrop, garment manufacturers who have already paid to purchase the raw material for the now cancelled or postponed goods are now facing tremendous difficulty in paying wages to their workers.

Seeking anonymity a garment owner told The Business Standard, "We don't understand why buyers are asking for discounts."

"They don't have the right to impose such financial burdens on suppliers during their hard times since they have never offered any profit-sharing plans for the best-selling products," he argued.

Pointing out that both suppliers and retailers are facing the same problem for the same reason, he said pressuring the manufacturers for discounts is an expression of crooked business mentality of the buyers. 

"Compared to the buyers, our losses will be much greater as we produce goods with a minimal margin. So, this is not at all acceptable," the apparel maker added. 

In the wake of the global coronavirus pandemic that has resulted in shrinking demand and closure of stores, the western brands and retailers are not willing to receive their products which have already been manufactured as per brands preview orders. 

Some of them have cancelled or put their shipments on hold, making the manufacturers face uncertainty about those products.

The Business Standard has talked to a number of garment owners who alleged that European fast-fashion retailer C&A, Pennsylvania-based US  fashion brand Urban Outfitters, Turkish fashion brand Koton, and British multinational retailer Debenhams have cancelled all their orders without any discussion with their suppliers. 

They also mailed their suppliers saying they would not pay for the previously shipped products on time saying that they need another 40 to 45 days to make the payment.

The US fashion brand Urban Outfitters has reportedly told suppliers it would cancel all undelivered orders in a bid to protect the business during the coronavirus outbreak.

Business magazine Drapers reported that the fashion retailer also told creditors that any products with freight forwarders will be discounted by 30 per cent.

In an exception, only Swedish fashion brand H&M has announced that it is not going to cancel any order it placed to Bangladeshi apparel makers earlier. The brand is ready to receive the products of all its earlier orders without any discount. 

An apparel maker said he has received a letter from a buyer saying that a 10 percent discount shall be applied to all sailings between April 1 and May 31 this year.

The exporter was notified about this on Saturday, but, according to him, this will be applicable on all shipments made by all other suppliers during this time frame.

Mentioning that a buyer had demanded a 10 percent discount on his production order, Fazlee Shamim Ehsan, CEO of Fatullah Apparels said he has refused to accept the request, and that he threatened the buyer saying he will not sail those goods. 

RS Knit Fashion Ltd and Royal Group Managing Director Rayhan Ahmed Ridoy said in a social media post that an Italian customer had claimed a 20 percent discount and air freight even though his company prepared the goods on time. He said he did no argue with the buyer fearing cancellation of the order and accepted the buyer's request.

He, however, said apparel makers need to work together and blacklist such buyers. 

"We need to develop our own "rating system" and maintain a database to list buyers who have such negative intentions," said the Royal Group managing director. 

"We need to make sure we will not work with them in the future or will not respond to any of their queries. Such moves might bring them back on the right track," he said, adding that the Bangladesh Bank needs to make sure that these types of transactions are updated in the Buyer's Credit Rating Report.

Echoing the sentiment, former vice president of BGMEA Md Shahidullah Azim said, "We understand that everybody is suffering globally, but the real trustworthy partners can't behave like this as we are on the same boat and need to go together a long way." 

He said BGMEA needs to keep a record of the customers and buyers who are taking advantage of the exporters' helplessness amid the pandemic, and should share details of such customers with all of its members. 

Bangladesh Garment Manufacturers and Exporters Association (BGMEA) President Rubana Huq said, "Almost all brands except a handful wanted the payment terms."

"If any buyer wants a 30 percent discount, they are totally out of sync with the current reality," she added. 

Bangladesh Apparel Exchange founder and CEO Mostafizuddin said the effects of the above mentioned issues on Bangladesh's apparel industry can be far-reaching and devastating. 

The foremost and most profound effect is that manufacturers will not be able to pay workers' salaries. 

"If workers do not receive their salaries on time, their livelihood will be badly affected," he added.

This is the time for brands and manufacturers to strengthen their mutual relationship, said Mostafiz who is also the managing director of Denim Expert Ltd.

According to the BGMEA, 1,048 factories have reported cancellations or withdrawal of orders of 907.14 million pieces worth $2.87 billion, which is likely to affect 2.09 million workers.