fashion essay

5/5/2020 Retailers Canceling Apparel Orders Amid Coronavirus Torments Clothes Makers - WSJ

https://www.wsj.com/articles/retailers-canceling-apparel-orders-amid-coronavirus-torments-clothes-makers-11588683151 1/4

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https://www.wsj.com/articles/retailers-canceling-apparel-orders-amid-coronavirus-torments-clothes-makers-11588683151

ASIA

Retailers Canceling Apparel Orders Amid Coronavirus Torments Clothes Makers Factories in Asia find few options in battling fashion companies making last-minute purchase changes because of falling sales

Women work at Bangaldeshi jeans manufacturer Denim Expert, where fashion companies have canceled orders worth hundreds of thousands of dollars. PHOTO: ISMAIL FERDOUS FOR THE WALL STREET JOURNAL

By J on Emont May 5, 2020 8 52 am ET

A Bangladeshi manufacturer expected to be paid shortly after it shipped in February more than $400,000 of jeans to Los Angeles to fulfil an order by a western apparel company.

Nearly three months later, the clothes maker still hasn’t received its money and doesn’t know where the jeans are. The company’s owner expected payment shortly after shipping, in line with what he said was the companies’ usual arrangement.

Buying agent Li & Fung Ltd., which arranges clothing purchases for companies that own major fashion brands, declined to comment on the deal and its relationship with specific suppliers. A

5/5/2020 Retailers Canceling Apparel Orders Amid Coronavirus Torments Clothes Makers - WSJ

https://www.wsj.com/articles/retailers-canceling-apparel-orders-amid-coronavirus-torments-clothes-makers-11588683151 2/4

Li & Fung spokeswoman said decisions on payments and cancellations are made by its customers.

Disputes like these have exploded across the garment industry as payments are delayed and orders are canceled by retailers dealing with closed stores and plunging sales. Factories in Asia that have paid raw-material, labor and other costs are reeling, and many of them are realizing they have little recourse as apparel contracts have shifted to give importers more flexibility.

“You may have thousand problems [sic], I do also have millions of problems too!” wrote Mostafiz Uddin, owner of the jeans maker, Denim Expert Ltd., in an April email to Li & Fung that he shared with The Wall Street Journal.

‘Today, I am losing hope,’ said Mostafiz Uddin, owner of Denim Expert, inspecting a pair of jeans at his factory. PHOTO: MOSTAFIZ UDDIN

Letters of credit, a once-common backstop guaranteeing payment through banks, have faded away in the past decade. Under that payment system, the buyer’s bank committed to pay the supplier once the goods were shipped, ensuring factories were paid without delay or last- minute haggling.

Even in cases of force majeure—when retailers say they can’t pay owing to circumstances beyond their control—banks would generally still be obligated to pay suppliers if the goods had shipped, said Sonja Chapman, a professor of international trade at the Fashion Institute of Technology and longtime apparel-industry executive.

Retailers have moved away from letters of credit, opting instead for an open-account system— essentially an honor system—where factories trust retailers to pay after shipment. Factory owners in Bangladesh said they accepted the shift because they worried that if they didn’t go along, a competitor from India or Latin America would. They also are reluctant to speak up or take legal action because they don’t want to alienate buyers.

5/5/2020 Retailers Canceling Apparel Orders Amid Coronavirus Torments Clothes Makers - WSJ

https://www.wsj.com/articles/retailers-canceling-apparel-orders-amid-coronavirus-torments-clothes-makers-11588683151 3/4

The shift in terms reflects “the increasing leverage of fashion brands and retailers over garment factories, as the fashion business is becoming more buyer-driven,” said Sheng Lu, a professor of apparel studies at the University of Delaware.

The current plummet in apparel demand, caused by the coronavirus pandemic, is ricocheting across the supply chain. Apparel factories often pay for labor and material costs out of pocket or with debt. “Big companies don’t pay upfront,” said Florian Schneider, who works in sourcing and merchandising for major apparel companies, and was speaking about the industry in general.

Global Brands Group Holding Ltd., which designs, develops, markets and sells products under owned and licensed brands including Jones New York, sent a note to a supplier in March that it had decided to cancel spring and summer orders without liability, according to a letter shown to The Wall Street Journal by Mr. Uddin.

Global Brands Chief Executive Rick Darling said in an email to the Journal that a dramatic decline in demand had led his company to significantly reduce the flow of merchandise ordered for the rest of the year. The company “is in communication with all our suppliers in an attempt to mitigate the resultant financial stress this disruption has caused,” he said.

Suppliers said other companies also have aborted orders. Mr. Uddin said Arcadia Group Ltd.— which owns brands like Topman and Burton—has canceled orders from his company, and Kihak Sung, chairman of the trade group Korea Federation of Textile Industries, said Kohl’s Corp. has canceled orders.

Arcadia and Kohl’s didn’t respond to requests for comment.

Many retailers are struggling. They have furloughed hundreds of thousands of workers and are offering massive discounts on online purchases to entice customers. J.Crew Group Inc. has filed for bankruptcy protection, and other retailers could follow.

Some retail brands have promised to stick to their commitments. Inditex, the Spanish company that owns Zara, and Hennes & Mauritz AB said they will pay for orders in production. Primark, a European retailer, said it is establishing a fund to pay the wage component of its canceled orders from countries like India and Bangladesh so that laborers are paid.

But business relationships, made over many years, are fraying. In late February and early March, representatives of one fashion brand visited Mr. Uddin’s Bangladesh factory, where they were greeted with bouquets of pink flowers and ordered tens of thousands of jeans. Now, Mr.Uddin says $386,000 of jeans are ready for shipment, but the company won’t accept them. Bills are piling up. “Today, I am losing hope,” Mr. Uddin said.