Broken retail model pushes apparel suppliers to breaking point
Sanjeev Mahtani, chairman and owner, Must Garment Corporation
It has taken Sanjeev Mahtani 30 years to build Must Garment Corporation, but just a matter of months for his lifetime's work to come crashing down. As he tries to pick up the pieces of his manufacturing business, he tells just-style why he fears for the future of apparel suppliers - and the millions of workers they employ.
Mahtani is certainly not looking for sympathy. He's disheartened, disillusioned, "broken and battered" - and he's speaking out because he believes a moral line has been crossed by fashion brands and retailers in their response to the fallout from the Covid-19 pandemic.
He's also desperately worried for the future of the thousands of people who work in his factories and the millions across the industry as a whole. "The Covid year hit me very badly. I had two of my biggest clients declare bankruptcy, and I lost almost 40% of my business." With his other customers not taking the products they had ordered, demanding discounts, delaying shipments or asking the company to hold goods for as long as a year, "it just got to a stage where I couldn't handle it anymore.
"You have a noose around my neck, and if you pull it too hard, I'm gone." It's all the more painful because he's always tried to do the right thing at his two manufacturing complexes in Bangladesh - Lenny Apparels and Kwun Tong Apparels - and the Sidney Apparels site in Jordan. "I've been an honourable person, I've paid the best wages possible, given the workers the best facilities, the best accommodation, and have looked after so many families.
"In the 30 years that I've done business, whichever retailer I've worked with, 75% of the goods in that category were ours, and they sold, and they came back to us for more. They said our design capabilities were unparalleled, and our service, quality, reliability...all unparalleled. Yet look at what's happened to me.
"At the end of the day, I'm one person, I'm one manufacturer. But I have 13,000 workers. What happens to them?
That's the sad part of this whole thing."
Retailers "talk about sustainability, ethics...but what are you doing when you engage in unethical behaviour with your supply chain? You want the workers to have a safe workplace, but that doesn't exist any more because it's closed.
What's the point of solar power when there's no money to eat?" The fundamental problem, he says on an emotional call from his home office in Hong Kong, is that the fashion retail business model is broken. "If you have a business that doesn't work, and you keep passing all your problems down the supply chain, then the supply chain is going to collapse. "And when the supplier gets into trouble, who gets into trouble first?
The workers. All this goes down the line to the poor labourer who doesn't get paid. How do they survive with their family?
It's a nightmare. I can't sleep; I just worry about what we are doing to these poor people. "What breaks my heart is that [retailers] talk about sustainability, ethics...but what are you doing when you engage in unethical behaviour like this with your supply chain?
You want the workers to have a safe workplace, but that doesn't exist any more because it's closed. What's the point of solar power when there's no money to eat? How does this work?
"I feel there's a double standard here. I don't blame them, their business is hurting. Between the consumer and the supplier there's nowhere else to go.
But if you have an axe and you keep cutting the tree, one day it's going to fall - especially when you have a Covid wind blowing against it."
Fears for the future Mahtani has the benefit of hindsight to back his fears for the industry's future. As one of a handful of manufacturers in Bangladesh producing ladies' woven bottoms for the US market, Must Garment Corp had more than 20,000 workers before the pandemic, and shipped some 60 million garments each year to retailers including JCPenney, Walmart, Macy's, Target, Ann Taylor and Amazon.
"30 years ago, most of the business was with wholesalers. And slowly, as retail got more challenging, the retailers drove the wholesalers to the ground [by insisting on] markdowns, cancellations and discounts. The majority of wholesalers that existed 30 years ago have now become extinct.
"Then the retailers started buying directly from the manufacturers to get more margin, which led to the upswing in the whole manufacturing cycle. And now it seems it's become the turn of the manufacturers to bear the same brunt as the wholesalers and withstand everything the retailer passes on to them." While many brands and retailers are now fighting for their survival, a lot of them were struggling even before Covid-19.
And Mahtani believes they only have themselves to blame. "Clothing has always been part need and part impulse buy, an excitement like going for lunch or to the movies.
"The first word that you hear is partnership.
And when I hear the word partnership, I hear the word pain. I hear the words 'empty your pockets.' Because it's always a one-sided partnership." "But what the moderate-priced departmental stores do is buy the same corduroy pant from three different brands and their own private label, so everywhere you see the same corduroy pant hanging under different labels.
How exciting or appealing is that? It's not working. "And then you have the speciality stores.
If you look at them, where's the speciality? They're all competing with each other, they all look the same, the products are all the same. "Unless there is excitement, and unless you give people a reason to buy, and not give them six things that look the same in the same store, there's no fun.
And if you're not going to do that, there will be no business. "The supermarkets are obviously the gainers. People are going to buy food, they're looking at attractively priced clothing.
Supermarkets have really upped their game in terms of fashion, and have brought good quality and value to the table. "But I think the rest of the business is now controlled by three global retailers: Zara, Uniqlo and H&M." Retailers are also caught in the oversupply trap, having to buy in volume in an attempt to meet their numbers - "which means there's a huge pressure on costs, on performance all-around.
If their turnover is £1bn they have to buy enough goods to make £1bn, whether they buy junk, or six of the same when they need only one, or whether they put stuff in-store and just pray that it sells...it's not logical. "You're looking at a very fine line of IMU, and if something suddenly goes wrong, it collapses." The rise in private equity ownership is another cause for concern. "They're buying retailers that have hundreds of years of tradition, of culture, of values...and all this goes out of the window.
The new owners, the equity funds, are all about 'make money today or we go Chapter 11 tomorrow.' And the people who get hurt are the suppliers." Further compounding the problems is the complete mismatch between weather patterns and the garments in store. "In the month of January it's snowing, but you have spring merchandise. In the month of August it's boiling, and you have sweaters.
There's goods on the floor that you can't wear. What happened to buy-now wear-now? This is Retail 101.
It just doesn't exist. "Then along comes Covid. Now the traffic in the stores is down, the stores are closed, it just makes things harder and harder.
"Where's all this going? What's going to happen to this whole retail industry? And what is it going to do to the manufacturers?
The way things are going, I fear the suppliers are soon going to become extinct. So many manufacturers are being forced to close overnight. We're going to become dinosaurs."
Amidst all this, "the first word that you hear is partnership," Mahtani explains. "And when I hear the word partnership, I hear the word pain. I hear the words 'empty your pockets.' Because it's always a one-sided partnership. "Partnership today means the retailer can put a discount on us whenever they want, they can ask us to hold goods for one year, they can take whatever goods they want and leave what they don't want, they can delay the payment terms to between 90 and 150 days and they pay us no interest, and they can cancel the orders.
"And then so many things are getting passed on that normally you didn't have to bear. You have to pay to inspect your goods, for the lab testing, buying original design samples, to air the goods for a new launch in the hope that you'll get more business. We pay advertising fees, we pay promotion fees.
Where does all this come out of? "We don't have the room any more to pay for this, because prices haven't gone up in three decades, they've only gone down. Where is this margin going to come from?
"And their contracts are air-tight, they are completely one-sided. No manufacturer has the patience or wealth to sue a retailer. And anyway, if you want the business you have to sign the contract.
So it's a very one-sided affair for the supplier. "One retailer who went into Chapter 11 and didn't pay me told me it was for the betterment of our shareholders, for the betterment of our consumers...but I never heard the word supplier. Chapter 11 means reorganising to get better...but what about all the people that didn't get paid?
How do they survive? "You can't even get factoring on most retailers. The risk is all yours.
And when they don't pay you, it's all over. How many bullets can you take? No matter what bulletproof vest you wear, you can't take so much.
"Do the retailers realise what they're doing to the workforce that provides the goods on the shelves? And people like us who employ them. If we become extinct, where are they going to buy the goods from?
Are they going to invest in their own factories?"
Above and beyond Must Garment offers much more than just manufacturing, and has invested to provide the value-added services and sustainability focus demanded by customers. The company has trend forecasting teams in the US and Europe, and its own in-house designers and fabric specialists offering everything from design concepts to garments delivered in store.
Efficiencies have been honed through the use of RFID to provide real time updates on productivity and quality; and automatic colour dosing technology is used in garment dyeing to bring consistency of colour in computerised cycle machines. Sustainability, too, has been top of mind, with investments in nano bubble technology, bio-chemical water treatment plants, laser, ozone and advanced washing and dyeing equipment. The business has also been working to significantly reduce its carbon footprint through the use of solar panels, energy from renewable sources, providing its workforce with electric buses and planting trees on surplus land.
"I'm passionate about my business," he explains. "I believe in it, and I do what I think is right, every day of my life. I've lived in a bubble of belief that things will change, but I only see them getting worse. And what accelerated this is the whole Covid thing.
It just crashed and brought out the true colours in so many of these people. "I've given my heart and my soul to this business. I work with passion seven days a week, but what am I doing this for?
Where is this road going to take me? What will I achieve? It's disheartening."
While not entirely sure what his next move will be, Mahtani is looking to sell Kwun Tong Apparels, which is based at the Adamjee Export Processing Zone in Dhaka so that he can pay the outstanding compensation owed to his workers. A question mark still hangs over the future of Lenny Apparels in the Dhaka Export Processing Zone, but "finance has been secured for the Jordan facility, so that will continue." "I'm not entirely sure that I will walk away completely.
Obviously I'm under financial constraints, but I would like to try to find a way to continue. "I really want to do business with people I can trust, people I can have a true partnership with, who are financially sound." Here he singles out Walmart. "God bless them.
If you look at the Walmart business, they have tradition, they have true ethics, they have sympathy for the manufacturer. Yes they want a very good price, but they are so fair. I've never heard of a cancellation from Walmart, I've never heard of a discount from Walmart, they pay you promptly, they work with real ethics.
"Having these values is what is going to make the retailers survive - and us survive. I hope that I'll find a few more people like Walmart that will pick me up and give me the courage to go on."
Lessons learnt As for lessons learnt over the past year, "the first thing that comes to mind is do not engage with clients you don't completely believe in.
"The second thing is I should probably never have opened the doors to clients who are not financially sound. It's very easy to say that now, but I started with some of these people 20 years ago, I did a very sizable business with them. But how do you walk away?
You're stuck in a cycle, you can't get out, you have to stay in the game. "And it's only when Covid hit that you discover you're not going to get paid, you're going to go under. And you only realise all this when your own survival is at stake."
Research suggests more than 350,000 workers in Bangladesh's ready-made garment sector have so far lost their jobs during the coronavirus pandemic - which is likely to be just the tip of the iceberg. "Imagine what's in the pipeline. So many people are on shaky ground.
What about the poor guys who can't afford a design centre, who can't afford to become a hybrid vendor like me, who don't have all this marketing network? What's going to happen to them? "They'll take financial risks with retailers who no-one else wants to work with, and then there will be more trouble.
It's a very vicious cycle right now."
Tipping point Mahtani believes a tipping point has been reached. "At the end of the day, a lot of retailers have to face the fact that either they reinvent themselves, or they shut down. And that's also the same thing that every manufacturer should think about: do they have a viable business, what kind of risk are they taking?
Don't play the numbers game because one day you will get caught. "If business is not going forward, then we either need to shut it down or reinvent it. And reinventing is not easy, change is not easy, but that's what we're dealing with right now."
"Is there a need for so much clothing? Is there a need to buy new clothes? Where's the excitement to go to buy something else?
There is none. People are fed up of looking at the same stuff." Instead of clients "telling us what they want to buy, we've often tried to steer them in a different direction.
We believe in what we sell, and I've seen my programmes start from 50,000 pieces and go to a few million units because of their success. "We put our pulse around creating excitement, creating fashion, not trying to be the next person to make another flannel shirt. I've always tried to differentiate what we do...I've done this with passion, with energy, with as much foresight as I can.
"This is how honest we've been in running our business, and this is how we'll run our business in future. "The minute suppliers start picking and choosing their financial risk, their product risk, their business risk, everybody will start to get the same message: that just because he's your supplier he's not going to make junk for you. "We don't want to make it anymore.
That's what needs to happen; all parties need to make a change for the better, because we're living in a bubble, people don't need too many clothes, people don't need six items of the same thing in the same store from different brands.
This is a game.
And it has to end now."