Call to Action for Denim Suppliers, Brands and Consumers

Nov 11, 2020

Covid has been a stress test for brands, evaluating how they perform when faced with a global disruption.

According to a new report from the Transformers Foundation, a number of denim brands, retailers and importers shirked their responsibilities to suppliers when times got tough. The study is shedding light on the supplier experience during Covid by compiling feedback from 25 mills, laundries and cut-and-sew factories, who are frequently too afraid to speak out for fear of retaliation.

Even before Covid, there was a power imbalance. Suppliers are often asked to take on much of the financial risk of orders, since buyers typically only provide payment once goods are shipped. This became an even riskier setup during the pandemic as payments, shipments and even production were delayed. This left manufacturers holding on to finished goods or materials without any payment from the buyers.

Compounding the issue, only a small portion of the suppliers interviewed say they have access to financing such as factoring, letters of credit or credit insurance, which would guarantee they get paid. With thin margins of 5 to 10 percent, even a small discount is a problem. Delayed payments and canceled orders also have a ripple effect, with 14 of the 25 respondents saying that they had trouble paying their own suppliers.

Some brands, including Diesel, Nudie, Armani, Zara and Uniqlo, were mentioned by suppliers as customers who honored contracts and paid on time. Others like Asos chose to change up orders rather than canceling on their partners. As orders were put on hold, Levis offered financing solutions to its suppliers to help with cash flow amid stalled production. However, during the creative problem solving, brands largely did not do anything to protect the workers’ livelihoods, leading suppliers to figure out salaries on their own.

There were no blanket types of companies—in terms of size, region or price point—that either did or did not honor arrangements with suppliers. One thing that stood out, however, was that public companies had more of a tendency to yield to shareholder pressure. Even some companies with corporate social responsibility commitments seemed to act more with a financial mindset.

Broadly, suppliers do not fault brands for their actions or consider them unethical. Vendors did not believe that retailers were delaying payments or canceling orders to take advantage of the situation, but rather to compensate for challenges the entire industry was facing.

“To me, certain behavior patterns are not so much unethical as they are unwise,” said Avedis Seferian, CEO of WRAP, in the report. “How can a major retailer, on the one hand, tell its factories it doesn’t have the money to pay for these orders, and on the other hand, issue a dividend to its shareholders? The finance people were looking only at a certain set of information, making a decision based on that information, and not seeing the bigger picture. Organizations and buyers who have done a better job over the past few years of integrating social compliance directly into their sourcing decision process are making much wiser choices.”

Suppliers can also take actions to protect themselves. One move is right sizing capacity so that there is not pressure to take orders from risky partners. Transformers Foundation also suggests working with a diverse range of brands and cultivating long-term partnerships. To make negotiations smoother and more respectful, suppliers can record conversations and hire staff who are tuned in to the local culture norms where buyers are located. Finally, being vertically integrated can also help to prevent disruptions.

For the industry as a whole, Transformers Foundation has laid out an action plan to change how the supplier-buyer relationship works.

First, the report calls for the creation of a strict ethical code of conduct for brands, retailers and importers. To give suppliers more of a voice, the foundation is creating a short-term working group that will relay their needs. For the long-term, Transformers Foundation is establishing the Ethical Denim Council, which will help suppliers pursue legal action against brands, retailers and importers that won’t honor contracts.

Finally, the foundation will work to educate its stakeholders on best practices surrounding topics ranging from sustainability to financing.

“If suppliers come together in ways that provide some anonymity for particular suppliers, a coalition or group message, I think that can be really useful in terms of making it clear to the media what suppliers need in terms of reforms on payment practices and purchasing practices from the brand,” said Liana Foxvog from the Worker Rights Consortium.

Transformers Foundation also lays out action plans for brands, consumers, policy makers and NGOs. Read the full report here.

Join a discussion on November 17^th at 8 PST/ 11 EST / 17 CET

Transformers Foundation: The Denim Supply Chain Speaks Up