Bangladesh Turmoil May Disrupt H&M, Zara for Holidays

The escalating political unrest in Bangladesh presents a severe threat to its garment industry, potentially impacting major global retailers such as H&M, Zara, and GAP as they head into the critical holiday season. The turmoil, which erupted in July, resulted in the resignation and flight of Prime Minister Sheikh Hasina after a violent crackdown led to numerous casualties. Consequently, garment factories across Bangladesh have been shuttered indefinitely, according to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

The ready-made garment sector is vital to Bangladesh’s economy, accounting for 83% of the country's export revenue. In 2023, Bangladesh was the world's third-largest clothing exporter, trailing China and the European Union, with exports valued at US$38.4 billion (MX$745.28 billion). International retailers heavily depend on Bangladeshi factories for their supply chains.

H&M sources garments from about 1,000 Bangladeshi factories, while Inditex, Zara’s parent company, has Bangladesh as one of its 12 major manufacturing hubs. Japan’s Fast Retailing, which owns Uniqlo, sources from 29 factories, and US companies like VF Corp and Levi Strauss have significant operations in the country.

The current instability threatens not only production but also exacerbates existing problems within the industry. A study conducted by Aberdeen University and Transform Trade, as reported by Al Jazeera, highlighted that many Bangladeshi garment factories faced unfair trading practices during the COVID-19 pandemic. The survey of 1,000 factories found that over half encountered order cancellations, non-payment, price cuts, or delayed payments. These issues led to increased worker turnover, job losses, and reduced wages.

The study also noted that 37% of the 1,138 brands and retailers surveyed, including Inditex, H&M, Lidl, GAP, and Primark, engaged in unfair practices. One in five factories struggled to pay the legal minimum wage after lockdowns, with some firms demanding price reductions for pre-pandemic orders, while others refused to adjust prices despite rising costs.

In August 2023, major global retailers extended a two-year agreement with Bangladeshi garment workers and factory owners, reaffirming their commitment to labor safety standards. This pact, involving companies such as H&M, Inditex, Uniqlo, Hugo Boss, and Adidas, holds them accountable if their factories fail to meet safety standards.

Despite these efforts, the Bangladeshi garment industry continues to face significant challenges. The Rana Plaza collapse in 2013, which resulted in over 1,100 worker deaths, remains a poignant reminder of the sector’s safety issues. Although international pressure has led to improvements, there is still much work to be done.

The industry also faces pressures from global economic fluctuations, sustainability demands, and competition from emerging markets. Rising labor costs and stringent climate targets imposed by buyers contribute to these challenges. Additionally, the trend of nearshoring, which involves moving production closer to key markets, poses a potential threat to Bangladesh’s position in the global supply chain.