Polish apparel giant suspends Bangladesh sourcing amid $40m payment disputes

Polish apparel brand LPP has suspended new orders from Bangladesh amid disputes with local garment exporters and buying houses over payment of $40 million in unpaid goods linked to Russian buyer FES Retail.

In a letter sent to Bangladeshi suppliers on 30 July, LPP said, "LPP is suspending the placement of new orders and the submission of new developments to suppliers in Bangladesh while we conduct a comprehensive review of our future sourcing strategy." 

It added, "During this period, we will also be evaluating sourcing opportunities and production capabilities in other countries."  

The decision follows legal proceedings initiated by local exporters over non-payment, which LPP requested suppliers withdraw as a precondition for negotiations, according to exporters.

The payment dispute involves roughly 40 Bangladeshi garment manufacturers and buying houses that supplied goods intended for FES Retail in Russia via sales contracts guaranteed by LPP. 

Following the outbreak of the Russia-Ukraine war, LPP redirected its ordering and payment arrangements through FES Retail due to operational hurdles in Russia, initially settling invoices before halting payments over the past 18 months.

According to the exporters, LPP used to source more than $700 million worth of garments annually from Bangladesh.

Industry sources said the Bangladesh Garment Manufacturers and Exporters Association held a meeting yesterday with affected exporters to discuss possible solutions.

The Bangladesh Knitwear Manufacturers and Exporters Association has also taken a firm stance. Its President, Mohammad Hatem, said the organisation had received the suspension letter.

"Whether they continue sourcing from Bangladesh is their business," he said. "But if they fail to take steps to settle the outstanding payments owed to Bangladeshi exporters, we will move to have them blacklisted in Bangladesh."

He added that the association would also raise the issue of LPP's alleged non-compliance with the European Union, buyers' forums and other relevant stakeholders.

Hatem said the industry would be better off without buyers who failed to honour payment obligations, adding that several factories had already suffered as a result of the dispute.

Abdul Hamid, president of the Bangladesh Garment Buying House Association, however, said they do not want to lose a buyer sourcing more than $700 million worth of garments annually from the country. At the same time, he stressed that factories affected by the payment dispute also needed protection.

Hamid added that LPP had at one stage offered to settle the dues at a 50% discount, but questioned whether any exporter could survive after accepting such a steep reduction.

Exporters describe payment dispute

According to exporters and buying house representatives, LPP faced difficulties exporting goods to Russia under its own name after the Russia-Ukraine war began. They said the company subsequently started placing orders and handling payments through FES Retail for exports from Bangladesh.

Exporters said garments were shipped to the Russian buyer under sales contracts and that LPP initially settled the payments.

However, they alleged that payments stopped around 18 months ago despite continued shipments. Earlier this year, exporters said LPP informed them that it had no relationship with FES Retail, leading to a dispute over payment for previously supplied goods.

Abdul Hamid said exporters had shipped goods to the Russian buyer on the basis of LPP's guarantee.

"Our members have spent the past one and a half years sending letters and emails seeking payment," he said. "They repeatedly assured us that the issue would be resolved, but nothing has happened."

He said exporters had since taken legal action. "LPP has indicated it is willing to hold discussions if the lawsuits are withdrawn, but exporters remain unconvinced because no settlement has been reached so far."

The Business Standard said it emailed LPP yesterday seeking comment on the allegations but had not received a response at the time of publication.

Exporters count losses

Alamgir Hossain, managing director of Hejaz Sweaters Limited, said his company manufactured garments worth $49,000 for the Russian buyer before being informed by its buying house that payment had become uncertain.

"For the past year, those goods have remained in our warehouse," he said. "We have already paid for raw materials and wages, but I do not know how we will absorb the losses."

Another exporter, Shraboni Knitwear, said it had already shipped goods worth about $70,000 and still had another $30,000 worth of products in its warehouse. The company said it had not received any payment.

Several exporters believe LPP's decision to suspend new orders is intended to pressure Bangladeshi suppliers amid the payment dispute.

Alamgir said he believes that the announcement was meant to intimidate suppliers. He, however, argued that Bangladesh remained a more stable sourcing destination than several competing countries.