Leveraging Desperation

WRC-Header
To:WRC Affiliate Universities and Colleges
From:Scott Nova and Liana Foxvog
Date:October 20, 2020
Re:Global Supplier Survey Finds New Price Squeeze for Apparel Factories

A new report by the Center for Global Workers’ Rights at Penn State and the WRC, based on a survey of apparel suppliers in 15 countries, finds brands are imposing a debilitating new price squeeze as they place fall and winter orders—increasing the risk of mass job loss and of labor rights abuses.

Many factories are in dire financial straits already, due to retroactive order cancellations by some brands and sharp reductions in the volume of new orders.

According to the survey, many brands are taking advantage of suppliers’ desperation to extract large price discounts. While excessive price pressure is a long-standing industry problem, suppliers say the price cuts they are now being forced to accept are much bigger than they have faced in past years.

Key survey results…

  • On average, buyers have told suppliers they must cut prices by 12%, relative to last year.
  •  As a result, 56% of suppliers have been forced to accept orders below cost.
  • On average, suppliers will now have to wait 77 days after they ship customers’ orders to get paid; before the pandemic, the average was 43 days. 
  • A majority of suppliers said they have less than half of last year’s order volume.
  • As a result of lost volume and price pressure, suppliers have dismissed 10% of their workers; they anticipate dismissing another 35% if present trends continue.
  • 57% of suppliers say that if their customers keep demanding large discounts even as they reduce the size of orders, it is extremely or somewhat likely they will have to close.

With an estimated 35 million workers in the garment supply chain—including more than a million at collegiate factories—the harm is potentially enormous.

It is vital for brands and retailers to act responsibly and employ restraint during this crisis. As tough as things are for the big players, the predicament of small suppliers, and of workers, is worse.

We do not have sufficient data to determine which brands are, and are not, demanding unsustainable price cuts. We are sharing this report with all major licensees, as well as other brands, and advising that predatory pricing practices will produce not only more job loss but more abuse of workers. Pushing desperate suppliers to the precipice of bankruptcy is a formula for labor rights violations.

As always, please let us know if you have any questions or would like to discuss.