Shuttered shops in London and New York translate into closed factories in Bangladesh and stockpiles of cotton in India.

"As I am sure you are aware," read the email, "the impact on retail will be vast." It was only then, says Mostafiz Uddin, boss of Bangladeshi clothes manufacturer Denim Expert, that it fully dawned on him just how "vast" coronavirus was going to be for his business and his 2,000 employees, who stitch jeans for European high-street brands.

The note, from the UK fast-fashion retailer Peacocks, landed in Uddin's inbox on March 17 as several European countries and US states were entering lockdown. It explained that Peacocks would no longer be paying Denim Expert for any of the clothes it had ordered, including "stock already handed over".

With shoppers forced to stay indoors, demand for new clothes has collapsed. Although some retailers are still operating online, revenue streams for many of the world's largest companies have been wiped out, with rent and wages eating into cash supplies and stock piling up in warehouses.

McKinsey estimates that up to a third of global fashion players, such as brands and department stores, will not survive the crisis. And the impact is being felt all along the US$2.5 trillion ($4.2 trillion) industry's complex supply chains, hitting places where companies and employees cannot always access government-funded emergency support. Shuttered stores on London's Oxford Street very quickly transmit to closed factories in Bangladesh and Vietnam and stockpiles at the cotton farms of Central India.

The damage caused by the lockdowns in markets such as the UK raises the question of whether those supply chains can be stitched back together again — even in the unlikely event of a quick rebound in demand from consumers able to freely visit shops.

So at a time when retailers would normally be placing orders for their Spring 2021 collections, they are instead trying to unpick existing contracts. Peacocks has refused to pay for over 43,000 pairs of jeans that Uddin's employees in Chittagong have already sourced, sewn or shipped. Topshop owner Arcadia has told Denim Expert — whose clients include Zara-owner Inditex and Canadian YM Inc — it will not pay for orders worth US$2.5m ($4.3m).

Uddin says his employees tried to contact both Peacocks and Arcadia, proposing compromises for clothes still in production that would have enabled him to mothball his factory, but that neither retailer replied.

Arcadia, which has put roughly 90 per cent of its 16,000 employees in the UK on the government-funded furlough scheme, declined to comment. Peacocks initially said it considered its bill with Denim Expert to have been settled, explaining it was not aware of an issue, and called the cancellations "an essential step as, otherwise, we would be taking delivery of stock that we simply could not sell". It did, however, later acknowledge that it had missed Denim Expert's repeated demands for payment. Uddin says he has still not received any money.

Bangladesh is the second-largest exporter of garments in the world. And its clothing manufacturers have, since the crisis began, lost out on more than US$3b ($5b) in payments for T-shirts, shoes and designer dresses already produced or sourced — a pipeline of months' worth of clothes — according to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

The industry makes up the lion's share of the country's export revenues and employs more than 4m people, the majority women. Bangladesh industry groups estimate that over half of the workforce has already been laid off. In April, workers demanding that employers continue to pay wages clashed with police, prompting the government to step in and cover 65 per cent of wages — a loan that manufacturers are expected to repay. Some factories have reopened, raising concerns that workers are being put at risk to help the country reboot its economy.

Labourers wearing face masks as a preventive measure work at a garment factory in Dhaka, Bangladesh during the lockdown. Photo / Getty Images

Mark Cotter, chief executive of Baird Group, says the company behind menswear brands such as Ben Sherman has taken longer than usual to pay its suppliers "as money coming in to us has slowed down, but we have every intention to pay them".

He does not understand the "legalities" of retailers refusing to pay for orders, but suspects that manufacturers do not have the power to object. "Behind the scenes, they might be saying 'we're not going to pay you, and you need to accept otherwise we won't do business with you again'," Cotter says.

Elizabeth L Cline, an author on labour rights and environmental practices in the fashion industry, argues that outsourcing has enabled retailers to distance themselves from risks in the supply chain.

"Even though brands control everything about the supply chain, they've set it up so that workers cannot ask for what they need," she says. The system is designed to operate similarly to the business model of gig economy companies such as Uber: "Let's pretend our essential workers are not our employees and leave risk with people least equipped to deal with it."

Fast-fashion demands

Bangladesh, Vietnam and Sri Lanka are among the countries that have, in recent decades, become global production hubs for much of the rich world's clothing, accessories and footwear. Once concentrated in China, manufacturing has moved to south and south-east Asia as retailers tried to lower their wage bill.

This approach went hand-in-hand with fashion retailers encouraging more frequent consumption of cheaper goods — so-called fast fashion — to drive revenue, says Patsy Perry, senior lecturer in fashion business at the University of Manchester. Many fast-fashion brands take in new stock every week.

Retailers, she says, have always had the upper hand in their relationships with Asian manufacturers, with demands of retroactive discounts commonplace in the industry. "We hear a lot of talk about partnerships but if a supplier says it cannot agree to certain terms, then the retailer can always go somewhere else," Perry says.

A Peacocks store in the UK. The fast-fashion retailer is one of several to have told suppliers that it would no longer pay for orders. Photo / Getty Images

Uddin says he will not take legal action against clients that have left him with hefty bills. "If I sue, I will forever be known as the supplier that sued its client. I would likely be finished as a business," he says.

In Vietnam, south-east Asia's fastest-growing big economy before the pandemic, companies in the garment industry have already started "disappearing", says Hoang Ngoc Anh, acting general secretary of the Vietnam Textile & Apparel Association.

The organisation estimated last month that if the lockdown lasted until June, the country's textile and garment companies could lose more than US$500m ($842m) in revenues. However, the real figure will probably be much higher as official data do not capture the small suppliers likely to be severely affected by the collapse in demand.

"Until now, about 400,000 to 600,000 workers have lost their jobs", Anh says, out of the total 2.8m workers in the sector. "This is an estimate, and we may be missing some smaller companies and micro enterprises."

Cotton crunch

Further along the supply chain from the retailers and manufacturers, Ganesh Nanote, an Indian cotton farmer in Maharashtra state's traditional cotton-growing area Akola, is bracing for the impact of coronavirus. "Already our income is low and we cannot cope with more losses," he says.

The cancellation of orders initially shaved almost a third off benchmark cotton prices since the start of the year and although they have rebounded slightly the International Cotton Advisory Committee, a global trade body, is forecasting that the average price for the upcoming 2020-21 crop year will fall to a 15-year low of 57 cents a pound.

A leading producer and exporter of raw cotton as well as textiles, the impact on the Indian cotton supply chain is expected to be severe. Smriti Irani, the country's textiles minister, appealed in April for international buyers not to cancel their orders. "Delivery schedules can be reworked. Payment plans can be extended. If we decide to work together, I reiterate my appeal — do not cancel orders," she pleaded.

The plea went unheeded. A survey in April of 60 Indian garment factories by consultancy Rajesh Bheda showed that almost 40 per cent of orders were either partially or wholly axed.

Industry shakeout

Despite the torrid experience of bricks-and-mortar retailers in recent times, McKinsey last year labelled the global fashion industry one of the "rare economic success stories" of the past decade.

But behind that headline is a story of extreme consolidation. In 2019, 97 per cent of profits in the industry were generated by just 20 companies, including Inditex, the world's largest clothing retailer, and sportswear retailer Nike — a dominance that is only likely to be tightened in a recession, says Achim Berg, who leads McKinsey's consulting work on fashion.

He says that both fashion retailers and suppliers need to brace themselves for a "Darwinian shakeout".

Stores locked along Broadway in New York City. Photo / Getty Images

H&M was one of the first global retailers to promise it would support manufacturers and the workers who make its clothes by paying for all ordered goods, including those still in production. "We want to ensure the future viability of the industry once the crisis has passed," H&M said in a statement. Others such as Inditex, Marks and Spencer and Tommy Hilfiger-owner Phillips-Van Heusen have since pledged support for their supply chains.

But some retailers have been accused of acting too slowly. Primark, the UK high street retailer, said in early April that it would pay garment workers affected by cancelled orders. But wages account for only about 15 per cent of the £256m ($521m) worth of orders that Primark cancelled with Bangladeshi manufacturers, according to the BGMEA. The company, which before the crisis had weekly sales worth about £650m ($1.3m), has subsequently announced that it will pay for clothes received by mid-April — worth £370m ($753m) to its global suppliers.

Nazma Akter, a trade unionist and founder of Bangladeshi labour rights group Awaj Foundation, says "charity" such as the Primark fund will do little to help affected workers. "They are protecting themselves, saying 'we are taking responsibility'," Akter says. "But our people are being beaten [by police] for protesting on the roads, asking for their money, and no one is with them."

Berg defends retailers, arguing that some are simply not in a position to pay suppliers.
"It's the biggest crisis for the fashion industry in over 100 years [ . . .] the first reaction has been to not pay anybody, not suppliers nor landlords," he says. Primark's owner Associated British Foods, which has furloughed 68,000 workers across Europe, is one of several UK businesses that has refused to pay quarterly rent to landlords.

Supply chains will be different in the future, Berg believes. His clients are already trying to shorten the time it takes for an ordered shirt to arrive in shops, boosting their flexibility in the face of demand shocks. "The last couple of weeks have shown the vulnerability of the supply chain . . . and accelerated the realisation that you need to be closer to the source," he says.

This chimes with those who have urged retailers to return production closer to home but, says Carry Somers, a designer and founder of the industry campaign group Fashion Revolution, "the garment industry is a lifeline for millions of people and a way of raising people, women in particular, out of poverty".

Paul Lister, head of ethical trade at Primark, does not expect the pandemic to have an impact on where the retailer manufactures its clothes in the future. "I think the system is very flexible," he says, explaining the retailer works with more than 700 suppliers from Turkey to Cambodia. Adding that the long supply chains into Asia are important, allowing the company to "keep costs to a minimum".

Back in Chittagong — a seven-hour drive from the capital, Dhaka — Uddin's factory has been operating at about 30 per cent capacity since the first week of May. But his warehouse is overflowing with jeans that he fears he will never be able to sell. And although he has received a few small orders, Uddin says his fabric suppliers are refusing to deal with him until they receive payment for denim that he never managed to ship.

Unless retailers pay for clothes already in production, he says, he will have no business to save. "[And those payments] will not happen," he adds, "unless people understand the [scale of this] disaster."

Vietnamese producers switch to PPE

Vietnam's largest apparel producer, Garment 10 Joint Stock Company, is still negotiating payment of clothes contracted before Covid-19 struck. In pre-pandemic times, its regular customers included Marks and Spencer, C&A, Debenhams and Primark.

Faced with plummeting demand, the company, which employs 12,000 workers in 18 factories across Vietnam, like some other producers in the country has pivoted to manufacturing something else: face masks and other highly sought-after personal protective equipment. It recently signed a long-term agreement, says Than Duc Viet, the company's deputy director-general, to deliver 400m face masks to a global medical company based in Europe in the second half of this year.

Hanoi-based Mian Apparel, which has six garment factories and two washing plants in northern Vietnam, has also shifted to a medical footing. With foreign buyers' demand falling for its shirts, jackets, and denim trousers, it is making masks and protective suits to guard against coronavirus transmission.

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"There is huge demand from the US, where some people are short of masks," says James Jung, Mian's senior sales director. He, however, makes clear that masks will not be a profit centre. "We are pursuing a reasonable price to be supportive for customers and workers, not pursuing profit."

Mian had to cut working hours during the worst of the crisis by 20 per cent as some customers cancelled or postponed shipments of already produced goods. However, Walmart and Target were supportive during the crisis, the company says, and there are glimmers of hope as lockdowns end.

"Women's fashion brands plan to open stores in the US in the next few weeks, and we will see if the production we have been holding can be released soon," Jung says. Mian is back to working regular hours.

- John Reed

- Additional reporting by John Reed in Bangkok and Andrea Rodrigues in Mumbai

Written by: Patricia Nilsson and Emiko Terazono
© Financial Times