COVID-19 and the global apparel value chain:

A call for responsibility and resilience

Jul 19, 2021

COVID-19 may offer an opportunity to address long-standing issues in the global apparel value chains. The challenges are well-documented: Global brands continue to hold an inordinate amount of power over suppliers; the product planning cycle is intrinsically slow; batch-oriented production and distribution are efficient but create large inventories whose velocity depends entirely on consumer spending.

Before COVID-19, the apparel market raked in $2.5 trillion USD in global annual revenues, spread over about 180 billion pieces of volume. The apparel sector (including garments, excluding textiles and footwear) employs nearly 40 million garment workers across the world, 85% of whom are women. A majority of these countries where apparel accounts for most of their export revenues are less wealthy and rely heavily on low wage women workers.

The apparel value chain is not only large and global but also complex and slow. Fast fashion further stresses this model by requiring speed to meet consumer trends. Fast fashion depends on and perpetuates consumption. Alternatively, while slow supply chains may produce longer-lasting, higher-quality products, their bulk purchasing to achieve efficiencies of scale creates inventory bloat. While they differ in speed and agility, both of these supply chains rely on low-wage labor, and neither focuses on achieving higher environmental or social labor standards.

The impact of COVID-19

Production. Production lines first came to a halt in China as garment factories closed. As the virus spread to the United States and Europe and lockdowns ensued, consumer demand fell off a cliff. The virus continued to spread globally, and more factories shut down. This freeze in manufacturing delayed raw material orders and shipments; production orders were missed and operating capacity at factory sites diminished, putting pressure on raw material prices. Between January and April 2020, world cotton prices experienced a jaw-dropping 20% decline, jeopardizing the health of farmers and cotton producers around the world. The supply shock reflects how dependent the apparel supply chain is on human labor and mass production.

Consumer demand. Downstream, with lockdowns and overall economic uncertainty, consumer demand declined leaving brands and retailers cash strapped. The demand shock also exacerbated the existing inventory bloat in retail as brands were left with fulfilled orders but few customers willing to spend discretionary income during an economic decline.

Suppliers. The demand disruption put suppliers, which already churn out garments on single-digit margins, under even more duress. Data from the Bangladesh Garments and Manufacturing Association revealed that orders worth nearly $3 billion USD were cancelled or suspended in Bangladesh, which led to more than 1 million garment workers losing their jobs or being sent home without pay. It wasn’t just Bangladesh impacted: Cambodia, Vietnam, India, Pakistan, Honduras, and many other countries reliant on apparel production for economic growth. 80% of these low-wage garment workers are women, managing multi-family households, and many garment workers are migrants. People in these disenfranchised communities were already living in poverty, and COVID-19 robbed them of their lives and livelihoods.

An uneven response

Brands. With disrupted demand and sales channels, cash-strapped brands invoked force majeure clauses in their contracts and canceled or delayed production orders. Some brands even asked for discounts up to 70% on their orders.

Government. Local governments stepped in to bail out garment factories while high income countries provided stimulus packages to brands. Although many governments provided financial support to affected garment workers, suppliers were often left holding the bag.

Individual countries’ wealth and internal politics led to inconsistent government responses around the globe, putting low-income and frontline laborers in this global supply chain at risk of hunger, homelessness, abuse and discrimination. COVID-19 severely affected low-wage workers without steady income or health benefits in producing countries.

In response to this crisis, the International Labor Organization issued a call to action to address this complex situation. This short but urgent call outlined priorities and commitments such as ensuring short term payment to garment workers, that organizations across the industry should endorse.

CSOs. Several civil society organizations (CSOs) tried to help workers worldwide. The Worker Rights Consortium released a tracker of brands upholding their commitments to suppliers (or breaking them). According to the WRC, they ranked company responses per below as of December 2020.

Needs work: The tracker lists American Eagle Outfitters, Arcadia, JCPenney, Kohl’s, Oscar de la Renta, Ross Stores, TJX, Urban Outfitters and Walmart (Asda) among a large list of brands that made no commitment to pay in full for orders completed and in production, well after the onset of COVID-19.
Good: Amazon, Asos, C&A, Cotton On Group, Gap Inc., H&M, IKEA, Inditex (Zara), Kiabi, Levi Strauss & Co., LPP, Lululemon Athletica, Marks & Spencer, Moschino, Next, Nike, Primark, PVH, Ralph Lauren Corporation, Target, Tesco, Under Armour, Uniqlo and VF Corporation had committed to pay in full for orders completed and in production by December 2020, according to the tracker.
Better: Patagonia, Kering and adidas were among a handful of firms to pledge to pay their suppliers for finished and in-process orders via the #PayUp campaign. Nike and other brands leveraged their foundations to donate locally or nationally, and some senior leaders took pay cuts to ensure paychecks to hourly workers. Gap Inc. and other brands partnered with suppliers to pivot their supply chain production to create medical gear and masks for general use. These are commendable examples of global brands adapting to address COVID-19, but they have not been the norm.

Remake, a community of millennial and Gen Z women, leveraged their existing efforts to put an end to fast fashion and called for brands to “pay up.” This push for brands to take greater ownership of their supply chains is redefining the scope of brand responsibility.

Despite demands by civil society and a handful of corporate initiatives to bolster pandemic support (or prevent a PR crisis), it is unclear whether the systemic issues of low-wage labor and wasted inventory will be addressed.

The challenge to be responsive and responsible

The apparel network lacks resilience: The issue doesn’t lie in consumer demand or one firm’s strategic operations. The apparent challenge is to get the industry to become both responsive and responsible. It’s not just about the speed of adjusting one’s supply chain to avoid financial risk, but about adapting the supply chain without risking factory worker livelihoods.

The traditional system reveals that financial profit has long dictated short-term solutions within the apparel industry. Civil society organizations (in partnership with a handful of brands) have taken on the burden of pushing for accountability and transparency across the value chain. COVID-19 has shown that this system of checks and balances is fragile. Capabilities needed to bolster this system include increased responsiveness within the supply chain, improved coordination across the value chain and a focus on garment workers. So, what should different stakeholders—lead brands and other actors—do to address these issues moving forward?

Would change be more sustainable if the industry response were collaborative?

A road map to resilience

COVID-19 has displayed the imbalance of power in today’s stakeholder network among mills, garment manufacturers, brands, investors, governments, civil society organizations and consumers. Supplier livelihood depends on brand commitments. Brands make and break commitments to drive profit and meet investor expectations.

The magnitude of COVID-19’s domino effect is so great that stakeholders can no longer act alone. In times of crisis, this system begs the question: Whose responsibility is it to care for millions of furloughed garment workers?

The answer is that it is everyone’s responsibility. Industry collaboration is possible.

The breadth of change that needs to occur can be achieved only through shared responsibility. Stakeholders must shift the ways they work together to develop a resilient and sustainable apparel value chain. This ideal global value chain places garment workers at the center of shareholder interests, giving all stakeholders the responsibility of interacting with each other—not just with the shareholders wielding financial prowess as influence.

We need to move from shareholder-driven decisions to stakeholder-driven decisions, so the primary stakeholders are the people who make the garments. They are the foundation of the apparel industry.

This is why we must define the roles and responsibilities to keep workers at the center of a reimagined value chain—one focused on economic, social and environmental health.

Devika Agarwal is an MBA/MS student at the University of Michigan; Ravi Anupindi is a professor in the university’s Ross School of Business; and Sean Ansett is president of At Stake Advisors Ltd.