The Covid Impact on Global Fashion Brands and Supply Chains
Updated: Jun 19
At the end, every prayer is “that which will be”, “Please God! may it not be so.”
As the whole world struggles with the effects of the Covid pandemic, and while healthcare experts debate about the virus, its cure, and whether to develop Herd Immunity or to Flatten The Curve, economists struggle to find answers to its macro-economic effects, the impact on global trade and currencies et al; we the common people are caught in the middle of this maelstrom and have to live with it every day! We find ourselves bang in the centre of these chaotic unpredictable times and can only brace ourselves for what comes ahead..
Fashion Brands and their Supply Chains are obviously not immune to this Global epidemic and have already been hit hard. Thousands of buyers have cancelled orders, many even for goods already produced or in process, leaving their supply chain partners in the lurch without even paying for the raw material or cost of labour. Hundreds of brands including Nike, H&M, Gap, Next plc, Primark etc have also been reported to have closed stores temporarily in order to stop the spread of the Coronavirus. Several groups including the Center for Global Workers’ Rights (CGWR) have looked extensively through their reports, at the plight of the manufacturers and their workers who have been destabilised because of this unforeseen chain of events. Intellectuals across the world and in India, have been wringing their hands at the woes of the workers who helped these factories to function, including the migrant labour walking back hundreds of kilometres to their home towns in India with no social security or sick leaves. Will they become the sacrifice at the altar of this Maha-epidemic? Will flattening the curve first crush hundreds of people who die because of their economic conditions, far before the virus even gets close to them? Many buyers and brands are bound to find a force-majeure clause in their agreements, to extricate themselves of their obligations with no concern for the people whom they called their partners till now!
So le me clarify that this article is not about pontification and preaching of good vs bad. In my opinion what makes economic sense will usually happen irrespective of whether we think it is good or bad. Global brands and buyers who are the customer facing side of the garment / accessory supply chain, usually rake in the moolah, as they can sell products at far higher profits than the slim margins that the manufacturer makes. However, the manufacturer has lesser risk than the brand, and the factory will make a steadier, more reliable ROI than the wild fluctuations & volatility that a brand may see. It also comes with its own risk and reward equation and there is no way to say which is better or worse. However logic dictates that brands will be the more powerful party in this equation if there is a large enough supply side, competing for their business and giving them constantly reducing prices and better deals. Countries will compete against each other to create more lucrative conditions to get this business and help generate local employment and industrial infrastructure. This is obviously logical economics. But it is times like this which let the monsters in the room and force us to ask several uncomfortable questions like:
1. Is the brand / buyer resilient enough to crises such as these? That is a tough question in these times because nobody has any idea how long this will last, what will the exit look like or when it will be? Who will survive and who won’t. We are bound to see a lot of uncertainty. Many giants shall bite the dust and new ones emerge. But the question that is usually pointed at the factory I.e. do they have the capitalisation and capability to manage the order size, is now going to be equally valid for a factory to ask the buyer about their liquidity and ability to pay for the order. Moreover contracts in future are bound to take into account inherent risks and to make sure that the negative impact of a situation like this is not entirely passed on to the factory.
2. Is the supply chain working in integration or is it always straining at the edge, with each party looking for the better deal and always ready to jump ship? If you retain the right to do that as a buyer, can you blame the seller for doing so, in times when demand outstrips supply? In my opinion, this crisis is already unraveling entire supply chains across Vietnam to Bangladesh, Myanmar, India and every where else. Things will of course come back to normal some day but it increasingly looks unlikely in the near future. Whenever the world comes out of this crisis, there will be a huge pent up demand and the factories of the world may simply not have adequate manpower to keep pace with that demand. We haven’t seen such a situation in a long long time but it is more than likely to happen soon.
3. Are we putting all our eggs in the same basket? Equally applicable to the brand as well as the factory. Risk mitigation is a time taking process and sometimes seems redundant because the buyer as well as the supplier sometimes look too big, invincible and having infinite resources. Moreover in times like these, none of that would help anyway as the core demand itself becomes zero! However it would be in our self interest to ensure that we are not entirely dependent - over 20% of our business, coming from a single client. Similarly if we are a brand, we should plan and diversify our sourcing channels, which many brands already do.
4. Are we in this for the long term? In any imagined exit from the Corona Virus tragedy, we will undoubtedly see a disrupted manufacturing base, rampant shortages, long lead times, empty shelves and lost sales. It is debatable that demand itself may recover very slow and therefore supply side may still not hurt as bad as the demand outlook. But my practical side, still stands down to the hopeless optimistic romantic that I am, and it is my belief that the demand is going to boom and a stressed tired humanity will find respite in shopping with a vengeance. In times like this, brands like H&M who are supporting their supply chain partners by accepting in production orders even now, where most other brands are cancelling all orders, will have a better chance to survive, get preferential treatment, faster order processing and maybe higher profits, whenever this damn thing goes away!!
There is undoubtedly a lot of pain and difficult times ahead. But let’s brace up, cut all costs as far as possible and keep looking at the future with optimism and hope. And while the whole world is screaming at us that the end is imminent, I have a quiet prayer on my lips.. “Please God! may it not be so. Amen”