The global apparel industry has been left reeling from the impact of the Coronavirus pandemic as supply chains have been disrupted, trade has dwindled to near-stagnancy, and sentiments have flared, claiming this may be the fulcrum for a new anti-consumerism culture.
In McKinsey & Company’s State of Fashion 2020, it was estimated from a survey that in Europe and the US, more than 65 percent of consumers expect to decrease their spending on apparel, while only 40 percent expect to decrease total household spending.  This essentially also means that apparel industries worldwide will see a significant inventory glut that is caused by a drop in sales. The same report suggested that discounts have taken a significantly high proportion of the buying decision for consumers (56%). This would mean that a drop in prices globally for apparel will prevail.
This figure is not encouraging for non-essential industries in general, but it may spell disastrous consequences for Bangladesh, as its Apparel/Ready-Made Garments (RMG) industry has been a major pillar of the country’s rapid growth in the past few years
The RMG sector in Bangladesh constitutes an approximate 84% of total Exports and is a key component of GDP.  In terms of employment, The Center for Policy Dialogue (CPD) reported that the sector employs approximately 3.5 million people, of which, approximately 60.8% are women. 
Symptomatic Even Before the Virus
The industry has had a plethora of problems to handle even before the COVID-19 crisis, with its market competitiveness declining gradually in comparison with other major apparel exporters such as China and Vietnam.
In fact, the industry reported a 5.71% downturn in RMG exports for July-January of FY 2019-2020.  Some of these reasons included:
- An overvalued exchange rate which kept export demand at bay despite the US-China Trade War; A higher exchange rate means that export destination countries find it more expensive to buy from Bangladesh.
- An over-dependence on a small basket of products which were being outdone by international competitors employing automation and venturing into fast fashion.
(Read: ‘The Bangladesh RMG Sector: The Path to Revitalization’  )
Rampant Order Cancellations Choke RMG
The Pandemic has brought about perhaps an unprecedented problem for the sector–one that has materialized in the form of a large string of cancelled and/or unpaid orders for garments from Bangladesh.
A major number of these cancellations and abandonments have come from US and UK brands and have cost the RMG sector dearly.
Transform Holdco LLC, a newly-formed concern of US-based Sears Holdings Management Corporation, is estimated to have an unpaid amount of over USD 50 million in orders which yet remain unpaid. Lawyers of 19 Bangladeshi readymade garment (RMG) factory owners have already threatened to take legal action against the company for what can be judged as a breach of contract, as over USD 20 million of products have been stated to have already been shipped and delivered to the UK and have yet to be collected. Lawyers of the clients have stated that if there is no correspondence that yields remuneration for the goods with Sears, they may sue for involuntary bankruptcy of the company on grounds of failure to repay its debts.  , 
Debenhams of the United Kingdom (UK) has closed down its Bangladesh office, leaving a number of workers unemployed; it has also left about 35 Bangladeshi suppliers in hot water by filing for bankruptcy, making it extremely difficult to negotiate repayment of outstanding debts which are approximately USD 69 million. 
Other reputed brands such as H&M, GAP, JCPenney, Primark, Arcadia Group, Peacock, Topshop, Dorothy Perkins and Miss Selfridge have also cancelled orders of varying amounts, leaving suppliers at their mercy. Cancellations from H&M came particularly as a surprise as they had previously agreed to not cancel any orders from Bangladesh.
Such non-compliance brings a matter of ethics into play–should only suppliers be held accountable for the transaction process? The question of blacklisting brings with it a chance of opening a whole new can of worms–
- Given the strong public gaze on Bangladesh RMG since the collapse of Rana Plaza and the fire at Tazreen Fashion, and the consequent regulation by Alliance and Accord, it may be difficult to overcome the strong hand that is held by importing brands and countries through boycotts, litigation, and blacklists.
- Importers may retaliate through shifting permanently to other cost-competitive countries such as Vietnam as sourcing destinations, or they may choose to near-shore supply instead. Both cases would lead to a loss in customer lifetime value for local suppliers.
The Damage in Numbers
Cancellation of orders has been devastating for the RMG sector as BGMEA reports an estimated loss of over USD 3.15 billion worth of pending work orders. Out of this amount, recent negotiations have managed to recapture only 26 percent. 
268 factories out of 348 registered with BGMEA had temporarily closed in April to prevent the spread of the Coronavirus, while the remaining had closed permanently. 
The industry recorded a 14% decline in growth in the first ten months of the current financial year (July 2019-April 2020) which is the largest negative growth figure in the last 5 years. To better reflect the misfortune of the industry, in the period of May 1 to May 20, the RMG industry recorded a staggering negative 55.7% growth. According to BGMEA, factories since the lifting of lockdown have only been able to come back to 55% capacity and there is a possible surge in unemployment to be expected if conditions are not ameliorated. 
McKinsey & Company data suggests that the global garments sector will see a 30% decline in sales revenue in 2020 due to Covid-19. 
|Time period/Category||Earnings in July-May FY18-19 (Billion USD)||Earnings in July-May FY19-20 (Billion USD)||Growth (%)||Shortfall from Govt Target (%)|
|Earnings from Woven Garments||16.04||12.96||-19.22||—|
|Earnings from Knitwear||15.68||12.74||-18.74||—|
Mitigating the Impact and The Way Forward
The stimulus package by the government aimed towards export oriented industries have helped the sector so far to pay salaries for its workers through April and May, though it is difficult to tell whether this disbursement is entirely widespread across all factories yet.
- The European Union (EU), the largest export destination for the country’s apparel goods, have agreed to provide Bangladesh with a EUR 113 million grant. EUR 93 million is to help cover 3 months of wages to one million workers laid off by ailing factories amid the Covid-19 crisis. The remaining would go to the general safety net. Under the grant, a worker will get BDT 3,000 a month for the months of June, July, and August. However, disbursement of this amount must be mobilized quickly and it is expected to start in July. 
- Foreign Minister Dr. AK Abdul Momen, in conversation with US Deputy National Security Adviser Matthew Pottinger, has made the request of a two-year duty-free access for its readymade garment products to the US market and has requested some assurance of no further work order cancellation. Bangladesh has also requested cooperation from the EU parliament to attempt to alleviate the situation of order cancellation. The Ministry of Commerce (MoC) made the request formally in a letter to the EU parliament in order to encourage European brands to clear their debts to the Bangladeshi RMG suppliers. 
- Technology might be able to alleviate some of the difficulties faced by the sector. BGMEA has recently pushed for the creation of an online platform for facilitating RMG trade. This may be an effective way to stimulate demand for the industry.
A British shopping app named Mallzee sells boxes of clothes(unwanted stock) with brand labels removed, at a price of 5 pounds. 37% of the retail price is donated to a charity supplying food and other goods to clothing workers in Bangladesh hit by layoffs and unpaid wages.  This sparks the idea of collaboration between local thriving industries in the pandemic crisis and RMG to serve as a support system for the laid-off workers.
- Finally, with the world warier than ever about Public Health and the global populace taking precautionary measures actively to prevent the growth of the infection rate, items of clothing such as masks, personal protective equipment, hospital bed sheets and isolation fabric have become in demand. There may exist a significant value for these products and Bangladesh may be able to secure orders if they can diversify into the production of these items.
Sartaz Zahir, Content Writer at LightCastle Partners, has prepared the write-up. For further clarifications, contact here: [email protected]
- 1. The State of Fashion 2020 Coronavirus Update -McKinsey & Company
- 2. EPB Trade Data – EPB
- 3. Press reports on Ongoing Upgradation in RMG Enterprises | CPD -Center for policy Dialogue
- 4. (BGMEA) Trade Information -BGMEA
- 5. The Bangladesh RMG Sector: The Path to Revitalization -LightCastle Partners
- 6. Sears to face legal action from Bangladeshi RMG suppliers – Dhaka Tribune
- 7. Buyers tend to undo existing contracts with RMG producers – The Financial Express
- 8. Apparel sector to see massive job cut this month, BGMEA warns – The Business Standard
- 9. Many RMG units remain shut for lack of work orders -The Financial Express
- 10. BGMEA: No ‘announcement’ made on layoffs – Dhaka Tribune
- 11. EU to provide €113m as wages for 1m RMG workers in Bangladesh – Dhaka Tribune
- 12. Restoring RMG orders: Dhaka seeks EU lawmakers’ help – The Financial Express
- 13. Fashion app sells off unwanted stock to aid Bangladeshi workers – BDNews24