After fashion brands urged the European Union (EU) to postpone the partial withdrawal of tariff preferences granted to Cambodia under the EU’s Everything but Arms (EBA) trade scheme because of the impact of the COVID-19 pandemic, some buyers are resorting to other forms of blackmail not to cancel orders.
Cambodia is due to lose about 20 per cent of the rights it enjoys under the EBA scheme – the equivalent of €1 billion ($1.1 billion) in exports – when zero duties on goods including apparel revert to a standard 12 per cent in August.
However, in a letter to European Commission President Ursula von der Leyen, EBCA president Ignacio Sierra Armas said the COVID-19 pandemic had “created challenges unprecedented in our globalised world”.
The Garment Manufacturers Association in Cambodia says about 60 per cent of its factories have been severely affected by cancelled orders because of the COVID-19 pandemic, affecting about half a million workers and their families.
An international garment factory has shared a letter from fashion giant Arcadia in which the company threatens to cancel completed orders which have already been shipped – unless suppliers agree to a 30 per cent discount.
Ian Grabiner, CEO of Arcadia which operates brands Topshop, Topman, Miss Selfridge, Burton and Evans, said that with stores closed because of the COVID-19 pandemic the company had stores full of clothes it could not sell.
In his ‘private and confidential’ letter to suppliers, including Mostafiz Uddin, owner and managing director of Denim Expert Ltd, Grabiner explained that Arcadia had reserved the right to cancel orders without compensation if it was unable to use the goods because of reasons beyond its control.
Grabiner wrote: “You will note that we are able to cancel any order at any stage, this includes orders in production and orders in transit.
“When we cancel an order, we are not responsible for the cost of the goods, the cost of any fabric, or any other cost at all, including the cost of any trim or component.”
Explaining that the company would be cancelling orders in transit, he added: “We appreciate that you may have difficulty in arranging recovery of the goods in the current circumstances.
“In recognition of this, our relationship and despite the challenges we will face in dealing with these Goods, we have worked hard to find, and now have an alternative solution.
“For any order that is in transit or was in transit on 17th March 2020, we are prepared to bring in the order at a 30 per cent discount. Our teams will be reaching out to you over the next week to see if you want to accept this proposal instead of us cancelling the order. If you do not wish to accept the proposal, the order will be cancelled.”
Grabiner said that, even when stores finally reopened, the company would still not be able to take most orders as its shops and distribution centres were already full of stock.
And he said that, for the orders the company was willing to accept, Arcadia was extending its payment terms by 30 days, meaning suppliers would have to wait 90 days for payment.
However, Grabiner said he wanted to “maintain an open dialogue” with suppliers in his letter, which begins: “We hope that you and your family are staying safe and healthy at this unsettling time.”
Brands and retailers have been criticised for cancelling or postponing orders in supply chain countries, such as Cambodia and Bangladesh among others where hundreds of thousands or even millions are at risk of losing their jobs.
Uddin, who shared the contents of the letter on LinkedIn, said: “All manufacturers work with very tight and sharp cost price where around 80-85 per cent is the cost of raw material and balance is for worker wages and salaries, all operation overhead.
“Under such scenario, a 30 per cent discount will just remove the wages and all operational expenses out of the cost sheet plus a significant shortage for paying raw material cost…”
Uddin said the pandemic had put the entire apparel industry in a “huge crisis” with both buyers and manufacturers affected.
“So, in this critical time collaboration between brands and manufacturers is needed more than any time before… Imposing such arbitrary discount not at all expected is putting the very existence of the manufacturers into jeopardy.”
Arcadia is a specialty retailers whose stores have built up popularity in clothing and fashions and that include the EU stores (H&M, Zara, Mango, New Look, and Benetton among others.