Blog: Leonie BarrieFinancing problems gum up the supply chain

Leonie Barrie | 8 June 2020

The global garment sector has been hardest hit by the Covid-19 pandemic, according to a survey across multiple industries, with supply chain disruption the top challenge. Factories have been struggling to stay afloat, with closures and reduced work having knock-on impacts on jobs and income for the majority of workers.

When a crisis such as the coronavirus hits a supply chain as complex as that of clothing, financing problems can gum up commercial relationships – meaning governments, regional and international organisations all need to step in.

The European Union is taking action, after pledging EUR334m (US$371m) to help the government of Bangladesh fight the Covid-19 pandemic, including cash assistance to export workers. While those in Myanmar have received the first MMK1.04bn (US$753,512) in payments through the EU’s 'Rapid Response' support fund.

But apparel suppliers themselves also have a key role to play in redefining the future – and are being urged to take the lead in setting up a group to shape new payment and terms practices.

US clothing brands and retailers are also likely exploring ways to make their supply chains faster and more nimble as they emerge from the coronavirus crisis – which could involve shifting parts of their production to the US, Central America and Mexico.

Egypt's garment and textile manufacturing sector has been hit hard, but executives say they are well-placed for a shift away from Chinese manufacturing once economies open up again.

Worldwide Responsible Accredited Production (WRAP) has issued a call for a new approach to social compliance, saying past attempts at harmonisation across the supply chain have repeatedly failed.

Retailer Edinburgh Woollen Mill has clashed with the Bangladesh Garment Manufacturing and Exporters Association over its threats to blacklist the company over unpaid invoices.

And reports of a Covid-19 outbreak in a Guatemalan garment factory have sent shockwaves across the region, fuelling calls for tougher action to ensure workers are provided with sufficient personal protective equipment (PPE).

US specialty apparel retailer Gap Inc says it is using the pandemic to right-size the business and build it for the future – acknowledging there is plenty of work needed at the eponymous Gap brand.

While Adidas and Target Corp were among a number of retailers in the US forced to close stores or postpone reopenings in response to protests across the country over the death of George Floyd.

And the UK arms of lingerie retailer Victoria's Secret and footwear retailer Aldo both fell into administration last week.

Bankrupt US retail giant JCPenney is to shutter 154 stores as it proceeds with plans to emerge as a smaller department store chain, with additional closures expected in the coming weeks.

And fashion retailers including Esprit, Gap Inc and H&M Group are said to have cut ties with a leading alpaca farmer and fibre exporter in Peru following an undercover investigation by animal rights group PETA US.

Meanwhile, Chinese manufacturing output expanded in May but demand remained subdued; China is also expected to overtake the US as the largest apparel market by 2023; and first-quarter filings have continued to come in from US apparel and footwear retailers.

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