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22 Май 2024

Who pays for the crisis? May 2024 analysis

As part of the Business & Human Rights Resource Centre Who Pays For The Crisis? portal, we will round up the key trends at the intersection of labour rights and purchasing practices that we’ve monitored every six months. We also provide an overview of the allegations linked to supply chain instability and purchasing practices, and provide an analysis of brands’ responses to our requests for further information.

Why are we focusing on purchasing practices?

Brand purchasing practices significantly influence labour rights outcomes, and, recognising human rights cannot be upheld on a shoestring budget, we will be delving into the critical relationship between these practices and their impact on workers' well-being. At the same time, we have witnessed an alarming increase in disruptions to purchasing models, exacerbated by economic slowdowns, political instability, and the impacts of the climate emergency in sourcing countries. This has led to factory closures, reduced hours, and non-payment of wages; underscoring the urgent need for ethical purchasing models that prioritise human rights over profit margins.

As the industry experiences increased pressure on its business-as-usual operations, this moment provides an opportunity to centre sustainable growth and the rights of workers. We are also entering a new phase of accountability for the industry as we see the increasing shift from voluntary to mandatory due diligence with the EU’s Corporate Sustainability Due Diligence Directive moving ever closer to the statute books. Yet, we know meaningful due diligence is not just about the process, but the investments made by buyers and suppliers along supply chains to ensure human rights are respected and risk mitigated. This means working towards good practice when it comes to international buyers investing in a commitment to safe workplaces and decent livelihoods within their purchasing strategies.

Who pays for the crisis?

The latest news and resources on the key intersection between supply chain resilience, purchasing practices and worker rights.

Our media monitoring has highlighted key trends impacting the sector and its resilience:

Supply chain shocks

  • Market instabilities and order adjustments: Emerging from the pandemic, the fashion industry continues to grapple with myriad global economic challenges including inflation, the Russia-Ukraine conflict and energy crises. Decreased demand due to the cost-of-living prompts shifts in brand purchasing practices, with 34% suppliers globally facing up to 10% order cancellations in 4 months.
  • Brand profits amid economic pressures: Despite economic challenges the fashion industry has maintained substantial profitability, notably driven by luxury and a small group of the top 20 most profitable brands. In 2023, these top 20 brands-including LVMH, Nike, Inditex, Hermes, Richemont, TJX, Kering, Fast Retailing, Ross, Lululemon contributed to 99% of the industry’s profits. And even though some brands like H&M reported lower-than-expected profits in 2023, their earnings remained significant. In contrast, many brands have reported losses, resulting in bankruptcies, mergers and acquisitions. This stark contrast in financial health underscores the deep-seated imbalances within the industry.
  • Brand strategies for profitability: There is evidence brands are doubling down on cost efficiencies and renegotiating sourcing agreements [despite many luxury and big brands remaining substantially profitable despite global economic challenges]. Two-thirds of executives are reportedly considering nearshoring options. We have also monitored increased technological changes, from mechanisation on the shop floor decreasing workforce numbers in selling countries, and a focus on increased digitisation along supply chains. These strategies are not impact neutral: they affect suppliers and in turn workers leading to workforce cuts, unpredictability of orders affecting workforce planning, delayed order, deferred payments, and demands for lower prices from suppliers. And with the Financial Times reporting H&M CEO’s plans to drive profitability by getting ‘even faster at fashion’ such approaches raise critical questions about their implications for purchasing practices and the welfare of workers.

What are the consequences of these trends on workers?

"Suppliers are being compelled to accept lower prices since retailers will not continue placing orders with them if they don't agree to the new prices. Sometimes, the prices are lower than the production cost."Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA)
  • Unpaid wages and job losses: The financial instability caused by order cancellations has severe repercussions, including delayed and unpaid wages and mass layoffs. In the first five months of 2023, Vietnam saw 70,000 job losses, with 17,000 workers let go without any compensation. In Pakistan, the economic downturn from early 2022 to mid-2023 has severely impacted the textile industry, resulting in the loss of 700,000 jobs in the sector. This significant reduction in the workforce highlights the dire economic challenges workers face due to decreased orders and cost-cutting measures by brands.
  • Factory closures: The prolonged demand shocks and financial pressures have led to frequent factory closures, especially in regions heavily reliant on export-oriented manufacturing. These closures are often an extreme consequence of reduced order volumes and economic uncertainties, leaving thousands of workers without employment – worse for those dependent on the garment industry for their livelihoods. Up to 30% of Pakistan's textile factories have closed down in 2022 and 2023, with similar reports of large scale factory closures in other manufacturing hotspots, including Türkiye, Sri Lanka, Bangladesh, India and Haiti.
  • Human cost: As brands navigate reduced orders and economic instability by cutting costs, workers at the lower end of the supply chain suffer from layoffs without severance and struggle for basic survival. In the UK, a staggering 75% of the food bank clients in Leicester are garment workers, illustrating the severe impact of these practices. In Bangladesh, workers manufacturing clothes for fast fashion brands are paid so little they have to scavenge food from garbage bins.

Brand engagement analysis: A mixed picture

We identified 55 cases of labour rights concern or abuse connected to brand purchasing practices, linked to 57 international brands. We sought responses from these brands, seeking information on each case and how they are ensuring that their purchasing practices are supporting suppliers, and in turn workers. Thirty brands responded, a response rate of just over half (53%), with only six brands answering all the three questions we asked.

  • Brands outlined their supplier policies and practices: Lululemon outlined the monitoring of responsible retrenchment and worker support by closely overseeing the implementation of severance packages, while Amer Sports highlighted their supplier maintains a dedicated building for their production, ensuring enhanced oversight and management of manufacturing processes. And J. Crew and VF Corporation outlined their focus on how structured engagement, including detailed planning and responsible exit protocols, can support stable and ethical supply chains. Only 3 brands (Lululemon, Next, Adidas) outlined how these policies had been put into practice in the factories linked to allegations.
  • Engagement of remediation mechanisms: Although 7 brands mentioned having some form of a remediation mechanism to deal with allegations brought to them, only 3 brands outlined how they were put into practice to deal with the specific allegations raised.
  • Reliance on local laws for worker remedies: Over a third of responding brands report relying on local laws to provide access to remedy on the allegations raised, which may not always align with good practice labour standards. For instance, although Next ensured suspended workers at Quantum Clothing Ltd in Cambodia received compensation, workers highlighted the amounts provided do not adequately support workers during periods of unemployment. Brands must provide support for and encourage suppliers to move beyond the legal floor and towards good practice.
  • Avoidance of accountability: 46% (nearly half) of brands distance themselves from direct responsibility for the labour issues raised by BHRRC, asserting the incidents either occurred outside their specific facilities or happened after they had ceased operations with the involved factories. Multiple brands stated past contract terminations as justification for limited responses, even though they were contacted specifically to explain the reasoning behind divestment and how these decisions were linked to purchasing practices and their impact on labour rights.
  • Limited worker engagement: While some brands claim robust engagement with trade unions, only 10% of brand responses show substantial direct interaction with workers or their representatives in addressing allegations.

Explore all allegations and cases linked to brands, alongside their responses, here.