Fear, uncertainty grip RMG sector as buyers cancel orders

As thing started to look bright with supply resuming from China, the apparel sector has been hit with huge order cancellation and hold-off notices.

As Europe turned into the epicenter of the outbreak and the virus spread in the US, buyers from these countries are canceling and holding off their orders as retail shops close down amid lockdowns, and global demand plummets.

Swedish retailer H&M, one of the biggest buyers of Bangladeshi apparels, and Zara, have halted their production. They have also limited their activities in the local office in Bangladesh.

Ninety-three Bangladeshi factories have so far reported $104million loss till March 17, informed Bangladesh Garment Manufacturers and Exporters Association (BGMEA) President Dr Rubana Huq.

"Compared to last week, this week we are receiving more cancelation and hold-off notices from the buyers on orders. Their retail sales have dropped due to the lockdown in Europe," said Shayaan Seraj, director of Elite Garments.

A supply-chain is not associated with buyer and manufacturer only. A lot of other parties are involved in the process - wages of the workers, shipment cost, credit period from nominated suppliers, banks and other financial institutions.

"If the apparel makers cannot ship their products and receive payment – how will they run their businesses? We can manage the wages, credit period and other costs for a month but when this crisis will end is uncertain. How we will run the business after a month is a big challenge for us for now," said Syed M Sajjad, chief operating officer, Majumder Garments.

"The buyers have signed contracts and the manufacturers have already invested in the production. If they cancel the order now it will plunge the whole sector into a critical situation. It may also lead to job cuts of workers," Sajjad added.

When asked about the closure of factories, the BGMEA president confirmed that they have no plan to close the factories yet. But they are negotiating with the buyers over the halt on orders.

 "Buyers are cancelling orders without offering any compensation. They are asking the manufacturers to hold stocks, which our manufacturers cannot sell before next year as these are seasonal. We are asking brands to exercise their conscience. The workers should not be penalized for no fault of theirs. Without work, how will the factories survive – that is the biggest question now," said BGMEA president.

The major concern now is what happens if the outbreak in Bangladesh turns into an epidemic?

 "If the situation gets out of control in Bangladesh - not just apparel sector but overall all the businesses and financial institutions will be disrupted and affected badly. We need government's support in it. Otherwise, survival would be difficult," Sajjad points out.

Meanwhile Shayaan said, "We do not expect Bangladesh to bear all the expenses like the Canadian government. But they can help the apparel sector by talking to the banks and telling them to extend the payment period and rescheduling the loans."

He went on to say the brands that make strong profit margins of 10+ percent should support the manufacturers with 2-3 percent profit margins during this difficult time by continuing with orders and taking the products in their inventory.

Bangladesh is heavily dependent on garment as 84 percent of its total exports worth $40 billion was from this sector in fiscal 2018-19.

The apparel sector has already witnessed a negative growth in the current fiscal year. The Bangladesh Bank on Thursday decided to introduce a six-month moratorium on loan repayments.

The Covid-19 finally hit Bangladesh officially on March 8 after causing havoc in China, Italy, Iran, Spain, Hong Kong, Singapore, Middle East and the US and South Asia. It has already affected 18 people in Bangladesh and 220,691 globally and killed one in Bangladesh and 9,012 worldwide, as per data till March 19.