Price squeeze continues for garment factories

AMSTERDAM – Research among more than 700 apparel suppliers globally has found continued downward pressure on prices faced by factory owners. The latest Better Buying index reveals suppliers in the lowest cost locations are being pressured for lower prices, with 38 per cent of Bangladesh suppliers reporting their buyers have held them to last year’s prices, despite inflation and rising wages. The index includes 802 verified ratings from 715 suppliers across 52 countries, and also measures the performance of 71 retailers and brands. This is a sharp increase from the last index in 2018, which saw participation from 319 suppliers across 38 countries and included 67 retailers and brands. One weakness with the index, however, is that brands retain their anonyminity, which means there is little incentive to change.

In Q4 of 2018, the average Better Buying score for all retailers and brands was 2 stars out of 5, but scores assigned to individual companies varied widely, ranging from a low of 0 stars to a high of 4.5 stars. The best performing category continued to be Management of the Purchasing Process (4.5 stars), while the worst performing category was Sourcing and Order Placement (0.5 stars).

In Bangladesh, where suppliers appear to be under most strain, 31 per cent of factory owners said they were left with unused capacity and 45 per cent were left with excess materials on orders. What happens to this waste is anybody’s guess.

Of these, 6 per cent reported retailers and brands paid for the excess materials, while 83.3 per cent were asked to hold materials for use in future orders. 6 per cent reported retailers and brands took no responsibility for excess materials.

Buyer performance in the Better Buying index is measured against seven key categories of purchasing practices: Planning and Forecasting, Design and Development, Cost and Cost Negotiation, Sourcing and Order Placement, Payment and Terms, Management of the Purchasing Process, and Win-Win Sustainable Partnership.

The findings show countries with the lowest production costs, such as Bangladesh and South-East Asia (Cambodia, Malaysia, Philippines, Singapore, Thailand, Vietnam), experience maximum pressure on pricing and cost negotiation – they are challenged most by brands to further lower their cost of production.

On the other hand, geographical locations with reputations for concerning workplace conditions are incentivised for compliant production (63 per cent in Bangladesh).

The research also found longer business relationships result in worse cost and cost negotiation practices, a scenario many will find unfathomable. Looking more specifically into the dynamics of business practices, the report found that the number of years retailers/brands and their suppliers have been in a business relationship is positively related to Better Buying scores in Design and Development but negatively related to scores in Cost and Cost Negotiation. It shows that, over time, the supplier would come to better understand what their customer is looking for, yet experience more pressure on cost negotiations. 

Marsha Dickson, Better Buying president and co-founder: “These practices and their associated challenges are the result of decades of cooperative business relationships between buyers and their suppliers. Nevertheless, it needs to change toward more balanced relationships with all suppliers. Better Buying supports retailers/brands and their suppliers in making this transition, bringing insights from both parties into strategising for improvements. By providing expanded transparency between supply chain partners and facilitating dynamic, solutions-oriented feedback, we change processes that deliver meaningful social, environmental, and business impacts.”