How Lockdown 2.0 Is Hitting the Supply Chain #106

2020/24/11

The first wave of the pandemic devastated fashion’s supply chain. Fresh restrictions in Europe this month have already led to more cancellations and price pressure, and more pain is on the horizon as cases worsen in North America.

It didn’t take long for the order cancellations to start.

After a brief reprieve over the summer, much of Europe has spent the last month in lockdown. And even as some of the toughest restrictions begin to lift, the situation in North America is worsening; Covid-19 cases in the US are currently close to 200,000 a day. Panicked brands are scrambling to scale down inventory. And once again, fashion’s supply chain is facing the consequences.

“I think that our customers are feeling uncertain about the future with this looming second wave of lockdowns,” said Hilmond Hui, vice president of Hong Kong-based silk supplier and textile manufacturer Bombyx, projecting a difficult and choppy winter across markets. Cancellations are less frequent than they were in March, but they’re coming faster. “It’s possible that [our brand partners] are choosing to act earlier now,” said Hui, who supplies brands including Everlane, Club Monaco and Madewell.

The first wave of the pandemic devastated fashion’s supply chain as brands cancelled billions of dollars of orders, in some cases even refusing to take delivery of goods already on the water. Those actions were compounded by localised outbreaks that forced factories in many manufacturing hubs to close. At least 3.5 million garment workers have already lost their jobs, missed months of pay or had their salaries cut, according to a report by the Centre for Global Workers’ Rights (CGWR) and Worker Rights Consortium.

While the crisis has ratcheted up scrutiny on the relationship between brands and their suppliers, the latest wave of lockdowns threatens to deepen the economic and humanitarian crisis already punishing fashion’s manufacturing base. How the industry handles the mounting crisis could define the shape of the supply chain in the coming years.

“Covid-19 has exposed to a much greater degree just how fragile these supply chains were,” said Professor Mark Anner, director of the School of Labour and Employment Relations at Penn State University and director of the CGWR. “It has made the problems that much clearer to a lot of observers.”

Many of the challenges currently facing fashion’s supply base are structural, but the second wave of lockdowns have turned pre-existing pressure points into an existential crisis for many manufacturers.

For instance, payment times have ballooned from between 30 to 60 days after shipment to an average of 77 days, according to CGWR and Worker Rights Consortium’s research. Some payments have been pushed to 90 and even 120 days out. Because manufacturers typically pay out of pocket for the fabrics required to produce orders, such delays leave them particularly financially exposed and with little cushion to navigate the fallout from further lockdowns.

“This wreaks havoc on the cash flow in the industry and dramatically increases the likelihood that supplier factories will go out of business,” said Anner. “This is how workers become unemployed.”

The pandemic has also exacerbated price pressure within the industry, as brands pulled back in response to slumping consumer demand that left many retailers facing bankruptcy. Many brands that are still placing orders are doing so at the last minute to decrease the risk of getting stuck with inventory they cannot shift. The result is that suppliers are left battling over fewer orders with faster turnaround speeds for less money and more uncertain payment terms.

Business of fashion