Corona Daily 321: Ripped Jeans

Levi’s has reported 62% drop in sales, lost $364 mn in the first three months, and cut 15% of its corporate staff. Lesser known companies like True Religion, Lucky Brand, G-star RAW, Joe’s Jeans and Hudson’s Jeans have filed for bankruptcies.

The decline of the jeans market had started before the pandemic. In the 2000s, celebrities had popularized “low rise” and “skinny” jeans. Without corresponding bodies, they were uncomfortable. In the last decade, “athleisure”; leggings, joggers and yoga pants were making inroads into the jeans market. With work from home now, comfort is king. Employees don’t like to wear high heels or jeans at home; Zoom shows only their upper half anyway.  

Few people buy jeans without trial, online or offline. The declining trend in jeans was suddenly accelerated.

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The joy of unearthing and regulating the harassment at Lesotho Jeans factories was short-lived. Declining demand for jeans and garments in general affected 40 million workers worldwide. Global brands cancelled in excess of $26 billion of orders. 80% were cancelled with no compensation. In Bangladesh alone, fashion brands cancelled $3.5 billion at more than 1150 factories, causing 84% decline in orders. Factories stopped paying workers. Workers could not feed their families any more.

American and European companies hold all the cards. They draw the contracts; suppliers from poor countries have little bargaining power. Contractually, suppliers take all the risks. They must buy the materials, hire workers, and run factories. They can’t raise an invoice until the order is shipped. If big brands cancel existing orders and refuse shipments, invoices can’t be sent, and nobody in Bangladesh gets paid.

Since March, many garment companies simply cancelled the orders, or asked for up to 30% of discount. Factories had already bought cloth for the future orders based on sales projections. There was no contractual way to claim those costs from the brand owners. Some companies invoked “force Majeure”, a clause which many suppliers never knew the meaning of.

Kohl’s is one of the USA’s largest clothing retailers. On 22 March, in a conference call, it cancelled all orders it had placed with its global suppliers. Some of them were making garments for Kohl’s for over 20 years. Kohl’s closed 1159 stores, fired 85000 staff in the USA. Having efficiently taken these steps, on 1 April, Kohl’s paid out $109 million in dividends to its shareholders. All these actions were perfectly legal.

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The pandemic has exposed the power imbalance and demonstrated the impunity with which the fashion brands operate their business models. Levi’s, one of the less bad companies, pays for goods 90 days after delivery. In other words, they extort credit of three months from poor Bangladeshi and other vendors. Levi’s works with hundreds of factories. It employs 15000 direct employees, and has more than 300,000 indirect workers. Historically, the company has distanced itself from the workers who make their product. Factory closures and 1 million garment workers losing their jobs in Bangladesh have highlighted the imbalance.

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Talking of jeans, it is difficult to predict if they will bounce back. The longer the pandemic, the longer the work-from-home, the more difficult it will be for the demand to pick up. I feel global warming may also threaten jeans in the long term. Skintight jeans are certainly uncomfortable in hot weather. Someone has called them cardiovascular prisons.

The fashion brands will need to think of the supply side as well. Resurrecting broken supply chains, bankrupt factories and destitute workers is a challenge they will face in a year or two.

Ravi