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Pin to quick picksMarks & Spencer Share News (MKS)

Share Price Information for Marks & Spencer (MKS)

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INSIGHT-Global garment makers unite to demand better terms from retailers

Thu, 1st Apr 2021 07:00

By Victoria Waldersee and Ruma Paul

DHAKA/LISBON, April 1(Reuters) - Garment makers in nine
countries spanning Asia, the Middle East and North Africa have
banded together to demand better contract terms from global
clothing retailers, according to a draft document seen by
Reuters.

The suppliers hope their united front will prevent retailers
from playing them off against each other in search of more
lenient terms after suffering from widespread cancellations and
payment delays at the start of the coronavirus pandemic.

Global retailers including Arcadia, Gap, Kohl's
, and Primark cancelled or paused orders with
garment-making factories in Bangladesh worth almost $3.7 billion
in March and April last year, the results of a local survey of
factories seen by Reuters showed.

While some, including Primark, H&M, Inditex
and Gap, later committed to paying the cancelled orders
in full, campaigning coalition PayUp estimates $18 billion out
of $40 billion worth of payments are still outstanding globally.

Arcadia and Kohl's did not respond to a Reuters request for
comment.

Thirteen associations representing garment suppliers in
China, Bangladesh, Myanmar, Cambodia, Vietnam, Pakistan, Turkey,
Morocco and Indonesia have drafted minimum terms they hope to
present to clients, including a maximum 90-day payment term and
an end to discounts after orders are placed.

The draft document, due to be finalised and released in late
April, is a joint initiative of the Star Network, funded by
Germany's international development agency GIZ, and the
International Apparel Federation.

"It has become very clear to manufacturers that their
vulnerability has increased and that they must play a stronger
role in setting standards for purchasing practices," a statement
announcing the initiative published on Thursday said.

Though the document will not be legally enforceable, the aim
is to foster purchasing practices which "do not cross the
boundary of misuse of buying power to the obvious and avoidable
detriment of the manufacturer," according to the release.

A later phase of the initiative would also aim to build ways
of enforcing the terms, including an international arbitration
mechanism for manufacturers to raise grievances with buyers.

"We tended to blindly trust our customers," said Miran Ali,
spokesman for the Star Network. "If they said they want to buy
100,000 yards of fabric from us and they'll send the purchase
order in three weeks, we'd just go ahead and do it. That faith
has been lost."

Global retailers lost $1.2 trillion in sales in 2020, a 3.9%
drop, according to research firm Forrester, as global lockdowns
decimated demand and shut stores for months on end. Though some
sales were recuperated online, many clothing retailers were
forced to impose steep discounts in an attempt to get rid of
unsold stock.

The Penn State Center for Global Workers' Rights said in a
report that U.S. and European Union trade data showed a $16.2
billion drop in apparel imports in April through June 2020.

While clothing sales are beginning to recover from last
year's record losses, orders are still far smaller than before
the pandemic, with shorter lead times and longer payment
windows, factory owners, sourcing agents and retailers
themselves say.

'NOT A HAPPY MESSAGE'

The draft document says retailers must pay suppliers within
90 days, with deferred payments attracting an additional fee to
cover interest and loss of profit, while discounts could not be
requested after a purchase order is issued.

A letter from Marks & Spencer to its suppliers on
April 7, 2020 stated orders shipped after March 24 would be paid
up to 120 days from invoice receipt date, up from 75 days
previously and nearly three times the pre-pandemic industry
average of 43 days. These terms remain in place, a Marks &
Spencer spokesperson said, declining to comment further.

In anticipation of lower sales, other retailers imposed
discounts on orders already in production.

A letter sent by Hong Kong-based sourcing agent Li & Fung to
some suppliers of American Eagle Outfitters in April
last year and seen by Reuters said that a 20% discount would be
applied to orders affected by the coronavirus.

"We know it is not a happy message...but...it is the crucial
fact we're facing now because we all know chicken dies, no
eggs," the letter said. "A PIECE OF CAKE IS NOT ABLE TO FEED
ALL."

Li & Fung did not respond to a request for comment. American
Eagle Outfitters referred Reuters to its statement made last
July when it said it had to make "immediate and difficult
business decisions" and had "negotiated a one-time discount on a
small amount of unshipped orders last April".

'FORCE MAJEURE'

The draft also includes limitations on the use of the 'force
majeure' clause which exempts retailers from costs and liability
for events outside their control.

A cancellation clause in a purchasing order used by Kohl's
gives it the right to cancel an order in the event of natural
disasters, disease outbreaks and government restrictions, among
other events beyond its control, without being subject to "any
liability, cost or charge whatsoever".

A letter Arcadia sent to its suppliers informing them of its
cancellation of orders due to the impact of COVID-19 stated: "we
are able to cancel any order at any stage. This includes orders
in production and orders in transit... we are not responsible
for the cost of the Goods".

Extracts of the purchasing order used by Kohl's and the
Arcadia letter were published in a September 2020 report by the
European Centre for Constitutional and Human Rights. The
companies did not respond to a request for comment on their
communication with suppliers. Arcadia fell into administration
late last year. ?

The European Center for Constitutional and Human Rights and
the Workers Rights Consortium questioned retailers' use of force
majeure during the pandemic in the report, saying parties
invoking the clause should prove they made all possible attempts
to mitigate the effects of the unforeseen event.

According to U.S. and UK law, they must demonstrate that
taking delivery of orders would be "commercially impracticable"
- which may not be clear-cut for brands with sufficient cash
flow and solid e-commerce sales, the report said.

Garment suppliers hope to tip the balance of power in their
favour, more fairly distributing risk in the event of another
unforeseen disruption to sales.

"Buyers are asking for drastic cuts and delays in
payments...but if I refuse, they will go to another supplier," a
garment factory owner in Dhaka who preferred to remain anonymous
for fear of losing business, said.

"We need a fair policy, badly," he said. "Or the garment
industry will not survive."

(Reporting by Victoria Waldersee, Ruma Paul, Additional
reporting by Aishwarya Venugopal; Editing by Kirsten Donovan and
Carmel Crimmins)

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