Fashion brands paying suppliers 'below the cost of production'

Fashion company H&M has topped a list of brands that generated the most reports of “unacceptable purchasing practices” following the Covid pandemic, according to a survey.

A report, by Transform Trade, a UK-based Fairtrade organisation, and the University of Aberdeen, surveyed 1,000 garment suppliers in Bangladesh and found brands were paying them “below the cost of production”.

H&M, Inditex (owner of Zara) and Polish clothes retailer LPP topped the list of worst offenders. These brands had the highest rates of order cancellations after completion or shipping, refusal to pay for work in progress, demand for lower prices on newer orders, or delayed invoice payment.

Larger brands, sourcing clothes from four or more supplier factories, were more likely to engage in unfair buying practices, the report found. All surveyed factories said larger brands were paying their suppliers the same price in December 2021 as in March 2020, and 72% were said to be purchasing clothes below the cost of production. 

Almost all of these larger brands (96%) were purchasing from factories struggling to pay the minimum wage. This was despite being involved in voluntary supplier fairness agreements such as the International Accord or the Ethical Trading Initiative, which aim to promote respect for workers' rights around the globe.

Transform Trade said the report demonstrated the need for a fashion watchdog in the UK to “deter the unacceptable purchasing practices of powerful high street brands in the same way as the supermarket watchdog has protected food suppliers”.

The report said: “While workers’ vulnerabilities during the Covid pandemic were arguably fuelled by unethical/unfair global clothing and fashion retailers (buyers) practices, these practices have not been adequately investigated.”

By March 2020, Bangladesh’s clothing industry had lost almost £1.6bn to deferrals and cancellations of export orders. Three months later, that number reached almost £3bn.

These unfair buying practices meant 18.4% of surveyed factories were struggling to pay their workers the minimum wage, which was not enough to live on, the report said.

Around four in 10 (38%) suppliers reported a reduction in demand following the onset of the pandemic, and 24.1% said they had been forced to reduce prices to secure buyers.

In December 2021, 76% of factories reported they were selling at the same price as in March 2020, despite 70% saying they had faced an increase in the cost of raw materials.  

A spokesperson for LPP told Supply Management: “We regret to say that the data published in the survey are far from the truth and create an unreliable image of our company. The pandemic has been one of the most difficult times we have ever experienced in our history.

“It was challenging not only for us, yet the consequences of the economic changes it triggered were also very acutely felt by our suppliers and other companies based in developing countries, such as Bangladesh. That is why, after outbreak of the pandemic, we took action to support the suppliers. We were settling our liabilities to the factories in a timely manner. We were forced to limit some of our orders. We considered the situation of each supplier on a case by case basis in order to help the manufacturers maintain accounting liquidity.

“In the spring, when the restrictions hit the economy hard, we were in constant contact with the suppliers, looking for solutions together. We also monitored the payment of wages to workers of the factories. In April 2020, 99% of the Bangladeshi sewing plants collaborating with us paid the March wages and settled their liabilities over the subsequent months when production was on hold.”

“We guaranteed payment for all orders already placed and in process of production and worked with financial institutions to facilitate the provision of loans to suppliers on favourable terms. It is worth highlighting the joint statement with IndustriALL in support of the recovery of the global garment industry through the Covid-19 crisis.”

The top 10 brands reported as engaging in unfair practices, by number of factories affected:

1. H&M (96) 

2. Inditex/ZARA (90)

3. LPP Polish/EU (76)

4. Asda/Walmart (58)

5. C&A (53) 

6. KIK (53)

7. Next (44)

8. LIDL (40)

9. Aldi (38)

10. Primark (35)

H&M and Next have been contacted for comment. 

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