Cornerstone Systems offers consultancy to businesses for enhancing their entrepreneurial, managerial, and leadership capabilities. In an interview with Fibre2fashion, Zillur Rehman, CEO of the company, shares his views about the impact of COVID-19 on the Bangladesh textile industry and the steps needed to cope up with the same.
Amidst COVID-19, factories have reported cancellation of orders from brands/retailers. How do you view the current situation?
We are indeed hit by the cancellation of orders by our buyers. Some of them have asked for deferred payments for up to 15-18 months. Some have asked for discounts up to 20 per cent on orders pending shipment. The situation is grim for manufacturers of Bangladesh for a whole lot of reasons.
Firstly, it is for what I call the 'Mexican Wave Effect'. The pandemic epicentre is moving like a wave. So, when China was down, we were hit by the supply chain side as we import many raw materials from China. When Europe and the US are down, which is happening now, we are hit by the buyer/order/sales side. And when the rest of the world would be coming down from the 'peak' and getting back to business, it is most likely that Bangladesh would be down as it would still be climbing up the 'peak'. Due to this lagging effect of the global supply chain ripples, woes for Bangladesh are likely to prolong than most would anticipate.
Secondly, as the global fashion industry is part of the global economy, we are not yet sure how worse the situation will be at the end. I was watching an interview on BBC of Raghuram Rajan, the former IMF chief economist and governor of RBI. He was very clear that each country will lose about 5-6 percentage point of its GDP. The global economy will contract by more than 2 trillion. Therefore, the actual loss of Bangladesh economy is likely to be huge.
Thirdly, 75-80 per cent of Bangladesh economy depends on Ready-made Garments (RMG) and its affiliated/ dependent industries (mostly, transportation, bank, and port). Bangladesh cannot afford to shut down its economy for a long period, but that might be the only choice left to us, given the slow response we started with in tackling the crisis. As RMG is a labour-intensive industry, we cannot but wait up to the time when there is a reasonable degree of assurance that we are ahead of the pandemic, not after it.
Fourthly, buyer portfolio of each manufacturing factory is another important factor with regard to analysing the current situation. We have many buyers, compared to our business size, and a good number of those are medium and smaller. And these buyers are mostly in the category of cancellation, deferment, and discount requests. Therefore, our share of the negative business impact is quite significant.
Finally, on the basis of the current position of Bangladesh on the curve, we anticipate that we would not be able to reopen our factories before mid-May or June. If we can reopen earlier than that, it will be a bonus.
What are your suggestions/inputs to fashion brands/retailers on tackling this issue?
We need buyers to treat us with empathy. Brands/retailers should not cancel their orders as much as possible. If cancellation is unavoidable, they should compensate us for orders already placed. They may revise their forecasts and reduce projected orders, but for those orders that are already in process at any stage, they should compensate us, if they cannot take those.
Brands/retailers should put orders on hold instead of cancelling them. They may take goods in smaller batches gradually in each week so that suppliers are not required to incur huge losses due to total cancellation.
There will be a gap between demand and supply situations due to the shifting of the epicentre of the epidemic and consequent ripple effects in the supply chain. Brands/retailers should not take out their businesses from individual factories in particular and from Bangladesh in general due to the delay in supplying them goods on time in post-Covid era.
Bangladesh is heavily dependent on RMG exports and has no fault of its own for this Black Swan event. We want buyers/retailers to develop long-term retention strategy with Bangladesh factories so that the latter can get back to their feet as soon as possible.
Brands/retailers should form alliances to help Bangladesh factories just like they did to improve the compliance standards of these factories. This will reduce the burden on one single brand/retailer and distribute the load amongst all.
It is likely that the purchasing power of people will decrease across all social strata due to the contraction of the economies. Brands/retailers should reduce their profit margins and offer discounts and other forms of promotions so that people can buy things at a lower price. This will help factories survive with a steady flow of orders. Therefore, the economic burden of the contraction of the economy will be shared by both brands/retailers and factories.
If possible, brands/retailers should reposition their products so that the seasonal effects are minimised, that is, summer items designated for a particular region are repositioned to other regions where the summer-like season is continuing.
What steps are you taking to tackle order cancellations?
We have plans to retain all our workers/staff and have conveyed this message to them. They will be paid during the lockdown period and even after the factories reopen. We will take the extra expenditure as an investment in people and will try to recover the losses in the next two years. We will avail loans given by the government to finance the direct labour expenses during this period and beyond.
If we don't have sufficient orders for all the lines once factories re-open, we will eliminate overtime work. Machine layout will change to keep the workers busy while keeping them productive.
We will perhaps have to take orders with very low profit margin or no profit at all to keep the lines fed. As workers will sit idle for want of orders, we will have to go all out to secure low-margin orders that we would not have done during pre-Covid situation.
Worker safety and compliance measures will be remodeled and new work processes will be instituted. We might have to live with this virus for a long period. Therefore, we will have to fundamentally change our housekeeping, compliance, and health practices in our factories for at least a year or two.
We will have to revise our business strategy to select which brands/retailers we will serve in future. We have to be selective in deciding to serve 'all-weather' buyers who are ethically strong with sound sustainable business outlook. This will help us minimise order cancellation in events like this. (PC)
Published on: 14/04/2020
DISCLAIMER: All views and opinions expressed in this column are solely of the interviewee, and they do not reflect in any way the opinion of Fibre2Fashion.com.
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