When U.K. Billionaire Philip Green’s Topshop Cancels Orders, Manufacturers Feel The Pain

Topshop billionaire Sir Philip Green has been accused of passing down the financial pain of his struggling retail empire to low paid garment workers overseas after his Arcadia Group rushed to cancel orders at the start of the coronavirus pandemic.

Once again Green’s Arcadia Group is at odds with other members of the U.K. highstreet who have made an effort to support their supply chain, honor orders or compensate suppliers throughout the coronavirus pandemic. U.S. advocacy group Worker Rights Consortium claims that Green has of shielding himself from financial pain during the coronavirus pandemic by “pushing the burden down the supply chain,” making it the problem for garment workers who often earn “less than a dollar an hour.”

In a letter seen by Forbes that Arcadia sent in March to suppliers in Bangladesh and possibly elsewhere, Arcadia Group CEO Ian Grabiner told suppliers that Arcadia has a “contractual right” to cancel orders at any point, even those in transit, and is not “legally responsible for any direct or indirect damage or loss this may cause you.” The letter continues, “Where we cancel an order, we are not responsible for the cost of the goods, the cost of any fabric, or any other cost at all, including the cost of any trim or component.” Although steering clear of an apology, the letter does thank suppliers for their “continued patience, loyalty and support during this challenging period.” It’s not clear just how many orders Arcadia Group cancelled, and the company won’t say.

In April Arcadia said it would accept delivery of a certain amount of orders from specific suppliers who had already shipped their goods before the lockdown but would impose a 30% discount on the agreed price. If the supplier disagreed with the terms of that deal the order would be cancelled and the cost of returning the stock would be put back on the supplier. It has not been confirmed if this offer was extended to all suppliers.

Passing The Buck

Green’s Arcadia Group—which in addition to Topshop includes the clothing brands Topman, Burton, Dorothy Perkins, Evans, Miss Selfridge, Outfit and Wallis—maintains a very visible presence on the U.K. highstreet, with over 600 stores around the country. Since the lockdown arrived on March 23 the group, under Green’s stewardship, reportedly saved millions of pounds by withholding rent payments it owed, furloughing staff and passing their wages onto taxpayers through an official U.K. government scheme.

However, downturn in U.K. retail during the pandemic is relatively small in comparison to that seen abroad in the countries from which fashion producers source their clothes. In the U.K. the Centre for Retail Research estimated a 4.6% contraction in yearly sales. However the losses deepen at the source of the clothes’ production.

Scott Nova, Executive Director of the Washington D.C. based Worker Rights Consortium tells Forbes, “We estimate, conservatively, that Arcadia canceled more than $300 million in orders globally, in response to the crisis.” His estimate comes from an extrapolation of the published figures in Bangladesh and the group’s documentation of garment production practices around the world. Although Nova says that at least some of the total cancelled order amount has been paid by Arcadia, he adds that the group is among the “worst actors in the industry, engaging in sweeping order cancellations when the crisis began, with damaging impacts on suppliers and workers across the globe.” 

U.K. politicians are now entering the fray as one of the countries most affected, Bangladesh seeks to make clear just how poorly its workers have been treated by U.K. retail giants during the pandemic

Labour MP for Bethnal Green and Bow, Rushanara Ali tells Forbes that although some owners of clothing retailers have acted responsibly during this crisis to protect their workers, others have not and are now putting the lives of garment workers at risk. “It is a disgrace that some super-rich individuals who have made their fortunes off the back of cheap labour in developing countries, have shirked their responsibility during this coronavirus pandemic,” she says in an email.

Adding, “By backing out of their contracts or cancelling orders, they have pushed local garment manufacturers and their workers in some of the poorest countries in the world into severe hardship.”

Arcadia Group, reached by Forbes, had no comment with regards to the allegations.

U.K. Retail In The Dock

Across the U.K. highstreet, there’s a stark difference among certain retailers and the ethical trading standards they claim to uphold.  

A spokesperson for Zara, part of the Inditex group controlled by Spanish billionaire Amancio Ortega with 107 stores in the U.K., confirmed that all orders that have been produced or are currently in production are completely paid for according to the original payment terms. Inditex has stressed the commitment to “keep manufacturers in business” including the payment of wages, income-support and job-retention schemes during the pandemic. 

H&M, run until recently by Swedish billionaire Stefan Persson, has 245 U.K. stores. The company told  Forbes that it is fulfilling all payments for delivered goods on time and at the originally agreed price, adding that “cancellations have been rare and only applied to some seasonal orders.” A spokesperson for H&M declined to comment on the value of orders cancelled.

Similarly in April, Primark, with 188 U.K. stores, has committed to pay suppliers $461 million of orders that were in production or finished. The status of future orders made after 18 March is not confirmed in the statement, but Primark’s total stock, both owned and committed to order, amounts to nearly $2.5 billion while some stores remain closed, suggesting future orders are unlikely.

However, Next, a large U.K. chain of 500 stores listed on the London Stock Exchange, confirmed to shareholders in late April that orders made before an April 10 cut off were paid in full, on normal payment terms. Next has cancelled clothing stock orders with a wholesale value of $356 million (£290 million) for this season but will compensate the suppliers affected, “to help cover the cost of fabric or similar components.” Next told shareholders that it is  working “to ensure workers are being paid and treated honestly and fairly for the work they have undertaken.”

Walmart, which owns 630 Asda stores in the U.K., features on a list produced by advocacy group Workers Rights Consortium as a company that has “made no commitment to pay in full for orders completed and in production” during the pandemic. However in a statement to Forbes, Walmart — which had been silent on the issue — confirmed that it has “long-standing and trusted relationships with our suppliers” and is “committed to helping them weather this crisis.” Walmart said that it intends to honor its commitments to products that are finished or in the production process.

Topshop Ethics

Like many fast fashion retailers, Arcadia knows that shoppers are increasingly spending money in line with the ethical values they hold. Young shoppers today have an increased awareness of pay and working conditions of producers. As such, Topshop’s own website details what it calls “Fashion Footprint” responsibilities and clearly states that “goods must have been produced … without exploiting the people who made them.”

However, unlike fashion retailers including ASOS, Primark and H&M, Arcadia has not signed the Ethical Trading Initiative, which sets out minimum standards based on the conventions of the International Labour Organisation (ILO). The initiative includes points on forced labor, inhumane working conditions and payment of a “living wage,” underlining that retailers who have signed the initiative ensure that pay for garment makers, “should always be enough to meet basic needs and to provide some discretionary income.”

Topshop’s Fashion Footprint team did not respond to a request for comment, and Arcadia has offered no statement addressing the allegations that by cancelling orders Arcadia has pushed the financial burden down the supply chain and onto the garment makers.

Bangladesh

Advocacy group Labour Behind the Label describes the impact of the cancelled orders as “huge” in the countries where making clothes for U.K. shops is a significant slice of the economy.

The group says that the garment industry in Bangladesh employs over 4 million workers and the workforce is majority female with a minimum wage of $95 per month. The Bangladesh Garment Manufacturers Export Association (BGMEA) says that, globally, fashion brands have recalled around $3.7 billion of orders they had already placed with suppliers for 2020. Rubana Huq, president of BGMEA, says that in the last month more than 25,000 workers have lost their jobs. If U.K. orders don’t pick up, she warns that the number could rise to 500,000 within six months. As reported by The Business Standard, in April a survey from Brac University and the Bangladesh Health Watch found that 47% of apparel workers thought they had likely lost their jobs amid the protracted shutdown over the coronavirus pandemic.

Advocacy groups Labour Behind the Label and The War on Want told Forbes in a joint statement, “What is important to Arcadia about Bangladesh is cheap labor. The global garment industry is a stark example of a ‘race to the bottom’ and it has been this that has allowed Arcadia and countless other fashion brands across the developed world to build huge profits whilst millions of their workers in the poorest countries don’t even get a living wage.”

On the shop floor in Bangladesh, Mostafiz Uddin, managing director at Denim Expert, a jeanswear manufacturing and washing group based in Chittagong, is one of the business leaders most affected by the cancellation of Arcadia’s orders since the pandemic began.

Uddin tells Forbes that a large order of jeans were “ready for shipment” but was cancelled in late March by Arcadia. According to the BGMEA, Denim Expert lost $345,316 and claims to have spent further credit on material for another 60,000 pairs of jeans for Arcadia. Uddin later adds over WhatsApp, “They just killing me.” (sic). The problem for Uddin is that although the value of the orders seems low as a part of Arcadia’s total pie, the cancellation of orders creates a deadlock in his supply chain that can effectively end his business. Unable to get the credit needed for new fabric to take new orders, Uddin tells Forbes that Denim Expert “will not produce” next month, bringing his business to a total standstill. Uddin adds that Inditex (Zara) has been sending across orders “to support me” but his credit is being “blocked” at the suppliers because he hasn’t paid for the materials needed to produce the last Arcadia order. The sharp contraction of Uddin’s business has likely begun – until the debt is cleared and the credit restored, the business simply cannot operate.

Arcadia did not comment about its dealings with Denim Expert.

Philip & The Pandemic

The lockdown and subsequent closure of stores across the country has been particularly devastating for bricks and mortar retail groups like Arcadia, which were suffering from a sharp decline in popularity compared to cheaper, more responsive operators like ASOS and Boohoo. 

Tellingly, Topshop’s closest rival, online fast fashion rival Boohoo, has enjoyed a rather better lockdown. With revenues in the first quarter up 45% year on year to $450 million, founder Mahmud Kamani decided to return the furlough money his firm had taken to pay staff, confirming in a trading statement on the London Stock Exchange June that “in light of the very strong trading performance we have not taken advantage of the available support.”

For Arcadia the outlook has been sharply different. In April  Arcadia’s CEO issued a statement saying that all 14,000 store employees had been “furloughed” as part of the government’s job retention scheme, which covers 80% of an employee’s wage, capped at a maximum of $3,100 (£2,500) a month at no risk or expense to the employer.

Arcadia would not comment on whether it plans to return furlough money to the U.K. government. On Wednesday retail industry news sites Drapers revealed that Arcadia is planning to lay off around 500 members of its head office staff, and included a statement from CEO Ian Grabiner that said, “Due to the impact of COVID-19 on our business including the closure for over three months of all our stores and head offices, we have today informed staff of the need to restructure our head offices.”

Sir Philip and his wife Cristina Green have seen their estimated net worth slump by over $3 billion in recent years. At their peak in 2016, Forbes estimated the couple’s combined wealth to be $5.9 billion.

The lion’s share of the Green fortune comes from a dividend Arcadia paid to Green and his wife of $2.1 billion (£1.2 billion) in 2005. Back then business at Topshop was booming and few eyebrows were raised when Sir Philip paid himself what was at the time the biggest paycheck in British corporate history. 

Today, Forbes estimates Philip & Cristina Green’s net worth to be $2.2 billion.