Retailers withhold £2.5 billion from Bangladeshi factories as coronavirus dents sales

  • Video report by ITV News Business and Economics Correspondent Joel Hills

The Bangladeshi government says the country’s garment industry, which employs four million people, faces a "major crisis" because British retailers are cancelling orders.

An estimated £2.5 billion of contracts have been cancelled to date by companies like ASDA, Arcadia, Debenhams, New Look, Peacocks and Sports Direct.

Bangladesh’s Commerce Minister, Tipu Munshi, called on the British government to intervene to prevent mass factory closures.

"The factories may collapse.

"They will not be able to pay key costs and may not be able to run again.

"That’s a major problem," Mr Munshi told ITV News.

"The British government should take care of this.

"They have a responsibility.

"In our country, the government have taken positive steps to support [garment factories].

"The UK should have to support the retailers also, so there is stimulus, so they can take this load to support us."

Bangladesh makes so much of the clothing that UK retailers sell - and it too is in lockdown.

In the capital, Dhaka, the vast majority of factories have been closed since March 26, the four million people they employ have been told to stay at home.

UK retailers source from Bangladesh, in part, because labour costs are so low.

The average worker earns just under £100 a month.

The shutdown of the industry has caused extreme hardship to people who didn’t have very much to begin with.

The Bangladeshi government isn’t paying salaries in the way the UK government is.

It has offered low-interest loans to factory owners in the hope they will borrow to pay their staff.

Officially, no one in the industry has become unemployed but ITV News has spoken to workers who have already lost their jobs.

Kulsum Begum and her husband both worked in the same factory which exports clothing to the UK.

Until recently they earned £160 a month between them.

They were sent home by Sigma Fashion, initially on paid holiday leave but they’ve since been told they’ve lost their jobs.

Unemployment benefit doesn’t exist in Bangladesh, the safety net provided by the state is flimsy.

"What can we really do within this pandemic situation?" Ms Begum asked.

"Where will we get a job?

"Where will we eat?

"Where will I go?" "My daughter studies in eighth grade, how will I let her continue her education?

"And I do not know how I will take care of my parents when I cannot even take care of myself.”

Rushanara Ali is the MP for Bethnal Green and Bow, she is also the UK government’s envoy to Bangladesh.

She has written to Chancellor Rushi Sunak, asking him to act to either help or compel retailers to honour the orders they have placed.

She argues that cancellations by companies like ASDA, New Look, Edinburgh Woollen Mill, Peacocks, Sports Direct and Urban Outfitters "is causing workers to lose their only source of income, putting them and their families at risk of starvation".

A spokesperson for Edinburgh Woollen Mill Group, which also owns Peacocks, told ITV News that it has cancelled orders from Bangladesh but wouldn’t say what the value was.

He said some suppliers won’t be paid until all their clothes are sold, others will get only half what they are owed.

He added: "This was an essential step as otherwise we would be taking delivery of stock we simply could not sell.

"We have since entered into negotiations with suppliers to find a solution that works."

New Look has cancelled some of its orders amid the pandemic. Credit: PA

New Look cancelled 20% of its orders from Bangladesh, shortly after closing its UK stores, withholding £6.8m in payment.

The retailer said it has now reinstated some orders.

A spokesperson for New Look said: “We regrettably had to inform suppliers we could not place new orders and would be temporarily postponing outstanding payments.

"We only did so out of absolute necessity.

“We have started making some supplier payments where we are able to do so.”

Asda told us it has only cancelled five per cent of orders from Bangladeshi suppliers, and will only pay 60% of the agreed price.

A spokesperson for Asda said: “We have and will be paying for over 95% of our annual orders as per the existing terms and conditions agreed with the suppliers involved.

“The 60% payment is for the five per cent of orders we aren’t able to take, payable within seven working days, significantly faster than usual terms for the fashion industry.”

Sports Direct and Urban Outfitters did not reply to our requests for comment.

Arcadia declined to comment.

British retailers are up against it.

Debenhams went into administration three weeks ago.

The company is still trading online but is in the process of cancelling and renegotiating some orders.

According to Debenhams’s last annual report, it sources from 67 factories in Bangladesh which employ 165,000 people.

Debenhams told us it has to make tough decisions and is trying to be as fair as possible.

Not everyone is cancelling.

Last week Primark announced that it will pay for every item of clothing it has ordered.

The decision will cost the company several hundred million pounds.

In Bangladesh, factory owners are hoping other retailers will be either inspired or obliged to do the same.