By Jon Emont
As Western consumers hole themselves up at home and stores are
shuttered, retailers are suspending and canceling clothing orders,
threatening millions of factory jobs in Asia just as China shows
signs of recovering from the worst of the coronavirus outbreak.
Among the first to be hit by the consumer shutdown in the West
are suppliers to the world's "fast-fashion" giants, like H&M
owner Hennes & Mauritz AB. Their business models depend on
being able to get orders from factory floors to retail outlets in a
matter of weeks. They are now pausing or canceling factory orders,
boding ill for Asian manufacturers of other, slower-moving consumer
goods like cosmetics, smartphones and cars.
Associated British Foods PLC, which owns Primark, a retailer
with stores across Europe, and Peacocks Stores Ltd., a U.K.
retailer owned by EWM Group, have suspended or canceled orders,
according to public statements and notices to suppliers viewed by
The Wall Street Journal.
Mostafiz Uddin, who owns a Bangladeshi jeans manufacturer, said
his factory made around 14,500 jeans for Peacocks only to receive a
letter saying that the store wouldn't accept the order.
"If they don't take the goods, it's a big loss for me," he said.
"What will I do with this?"
Mr. Uddin said he is negotiating with the retailer to receive
payment for the jeans. Factory owners are usually very reluctant to
take legal action because they don't want to alienate buyers.
In a March 17 email to Mr. Uddin, Peacock described its move as
an "extreme measure," but said "no stock will be allowed to be
delivered into this business." He responded that this "should be a
time of support and not turning backs on partnerships." Peacocks
didn't respond to requests for comment about the status of its
clothing orders.
Primark and H&M say they, too, are pausing new orders.
H&M said it is also evaluating "potential changes on recently
placed orders." The company buys from around 1,400 factories
globally, with clothing production concentrated in China and
Bangladesh.
Ulrika Isaksson, an H&M spokeswoman, said "our long-term
commitment to suppliers will remain intact, but in this extreme
situation we need to respond fast."
An ABF spokesperson said that "no company could be expected to
shoulder financial losses of the scale that would arise without
ending these garment orders." The spokesperson said the company is
paying for inventory that is already at sea in transit, and is in
talks with suppliers to explore other forms of mitigation.
In an emotional video address to clothing brands, Rubana Huq,
president of the Bangladesh Garment Manufacturers and Exporters
Association, a trade group, called on retailers to pay for goods
they had already ordered.
She said that if retailers don't support Bangladeshi factories,
4.1 million Bangladeshi workers could lose their jobs. "This is a
social chaos we cannot afford," she said.
Retail experts say the slowdown looks to be significantly worse
than the financial crisis of 2008, when brands suffered from
reduced consumer spending but could offer cut-rate sales and other
deals to entice frugal customers. Then many factories were kept
busy with orders, though overall demand was dented.
Times are different now, said Sheng Lu, a professor of fashion
and apparel at the University of Delaware, because shops and malls
are closed in much of the U.S. and Europe. "This time is a business
lockdown, " he said. "The trade impact will be much larger."
Mr. Lu said a 10% decline in exports for a country like
Bangladesh could lead to a 4% to 9% drop in employment there, based
on an analysis he conducted that correlates export growth with
employment, using historical data from the International Labour
Organization and the World Trade Organization.
"All of this is bad news for factories in Asia," said Achim
Berg, global leader of the apparel, fashion and luxury group at
McKinsey. "Many of the big players are focused on surviving," he
said of retailers.
Aung Myo Hein, the head of a Myanmar garment industry
association, says the industry has already shed 10,000 jobs. He has
cut workers' hours at his own factories but has avoided layoffs for
now, he said.
In Malaysia, factory owners were optimistic in February when
they began receiving diverted orders from China amid that country's
nationwide shutdown. Now Western buyers are sending emails to
cancel. "Most of us will be forced to close shop soon," said Tan
Thian Poh, president of the Federation of Malaysian Fashion,
Textiles & Apparels, a trade group.
Ramiz Khalid-Islam, a young Bangladeshi factory owner who
manufactures Hanesbrands Inc.'s Wonderbra, said he's working
through his last order and plans to shut down his factory on April
1 for five weeks after European retailers canceled orders.
Two weeks ago, he was profiled in The Wall Street Journal for a
different problem. His factory was struggling to maintain
production because its Chinese employees were quarantined, and it
couldn't access raw materials from China.
According to Bangladeshi law, he will have to pay his workers
around half their standard salary along with housing and medical
benefits when the factory is shut down. Mr. Khalid-Islam says he
plans to forgo his own salary for a couple of months.
"We don't know how we're going to afford this," he said.
--Refayet Ullah Mirdha and Myo Myo contributed to this
article.
Write to Jon Emont at jonathan.emont@wsj.com
(END) Dow Jones Newswires
March 25, 2020 07:27 ET (11:27 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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