This article appeared first in The State of Fashion 2021, an in-depth report on the global fashion industry, co-published by BoF and McKinsey & Company. To learn more and download a copy of the report, click here.
When the pandemic hit western markets in March 2020, many large brands responded by cancelling orders and refusing to pay for completed goods. The impact on the supply chain was instant and, in some cases, devastating. Not only did the crisis place the livelihoods of millions of garment workers in jeopardy, it also revealed long-standing inequities in the relationship between fashion’s buyers in the west and its manufacturers in sourcing hubs across the developing world. Many months later, the effects are still rippling through the supply chain. Though orders have stabilised, volumes are down significantly, and the future remains highly uncertain.
Still, amid the disruption there are opportunities to pursue exciting new business models, according to Anant Ahuja, who leads sustainability initiatives at Indian apparel manufacturing giant Shahi Exports, which produces for brands including Gap, Nike and Uniqlo. While the relationship between buyers and suppliers remains delicate, there are also openings to drive positive change next year.
BoF: There’s been a huge amount of attention on the fact that a lot of buyers cancelled or delayed orders when the pandemic first hit. Were you surprised at how the industry reacted, and do you see a need to rewrite the relationship between suppliers and buyers going forward?
Anant Ahuja: I can’t really wrap my head around how some companies think that it’s okay to not honour these commitments and make these payments, because the effects of that are real. People will lose their jobs, people will starve. There’s going to be a lot of real suffering, not just company stocks going down. People use the word “partnership,” but it’s still [fundamentally] a buyer-supplier relationship, and the payment terms are what they are. [On the other hand,] if there can actually be clarity and commitment to say, “We’ll give you this many orders, we’ll forecast it this far ahead, and these are the things that will determine if we continue giving you orders or growing them,” and [buyers] stick to that, and it’s not just [based on] price or the kind of factors that they’ve relied on in the past, but it’s more holistic, [then] I feel like that is a good step in the right direction. That seems realistic also.
BoF: Do you see things evolving in that direction at all, though? Given the pressure from consumers for brands to show they are behaving responsibly through the crisis, have you found buyers more receptive to suggestions of improving payment terms or changing contract terms?
AA: These conversations are tough to have and I don’t think most suppliers are in that mentality yet. They’re just kind of conditioned to think that this is how it is and we can work with it, work around it, whatever. Right now, the priority for a company like Shahi is to secure orders to the extent where taking orders even at really low margins was better than not having orders [at all]. I guess going forward maybe our confidence will build up, as we know that we’re a reliable supplier and we should have these better kinds of arrangements.
Overall, everyone seems to be pretty risk- averse right now. Price is still at the top of the agenda. It supersedes everything else.
BoF: More broadly speaking, what changes are you seeing in the supply chain as a result of the crisis?
AA: [Our business heads] told me that buying patterns are returning to normal, but the turbulent times are still causing issues. [There’s] 20 to 30 percent lower buying by most brands. Buyers want strategic vendors so they’re consolidating their vendor base. Both on the buyer and supplier side a lot of companies are getting wiped out, so both sides are shrinking a little bit. Demand has dropped, so the tail-end suppliers have been removed from a lot of buyers’ vendor lists. If you have vertical integration, the ability to make your own fabric, that’s highly preferred. I think it also supports the speed and agility that a lot of brands are looking for. Overall, everyone seems to be pretty risk-averse right now. Price is still at the top of the agenda. It supersedes everything else.
BoF: On top of the big changes you’re seeing in the way the industry operates overall, what changes have you had to make internally? How do you make sure your operations are Covid-safe going forward?
AA: The idea of social distancing in the factory is a bit foreign, but it was a lot of common, basic stuff: temperature checks, everyone’s wearing masks. Most workers are young [and among] the lowest-risk category when it comes to Covid in some sense. But for the sampling tailors, who tend to be older… we created special provisions. [For instance, we give] them a separate space in the factory [and] limit their interaction, just because of them potentially being at risk. It was an emphasis on protecting workers’ health while still being able to deliver on production.
BoF: You are also a co-founder and chief executive of non-profit Good Business Lab, which develops and researches the impact of worker wellbeing programmes. There’s been a lot of concern throughout the pandemic over an erosion of workers’ rights. In India, some states have rolled back labour laws. How are you approaching this issue as an employer at Shahi?
AA: At Good Business Lab we have a slogan that’s “worker wellbeing is good business.” We’ve always believed that, but now I think Covid has forced [other] people to believe it. If, for example, you don’t take steps to ensure your factory is a safe working place and there’s a spike in cases, you could risk having your factory shut down or people quitting. The consequences of not investing in your workers are much higher now than before, but at the same time I think a lot of sustainability programmes are harder to do. We’re a big implementer of in-person training, so now we’re forced to rethink how to do that because not all our factories have spaces where you could bring a cohort of people together to run a session like that.
BoF: In 2018 the Worker Rights Consortium identified serious problems at one of your factories in Bangalore. What did you learn from that and what changes did you make to avoid problems cropping up again?
AA: That was probably our biggest crisis. We had never had to deal with that type of situation before. No one on the top management would have wanted our team members to behave in that way or to let that situation happen, but because the factories are essentially running as their own businesses, each head of a factory is almost like the CEO of the unit. Because of that decentralised approach not all the information flows to the top. It taught us a lot about the risk of this decentralised approach. Since then, we’ve invested a lot in building worker management communication systems, engaging with unions and being more aware about industrial relations. As unfortunate as the situation was, it did strengthen us in a lot of ways. We used it as an opportunity to grow and learn and shift our approach. Last year I was invited to Geneva to share the case study at the UN Forum on Business and Human Rights.
That was probably our biggest crisis… It taught us a lot about the risk of this decentralised approach.
BoF: There’s clearly a lot of change and disruption in the sector at the moment. What opportunities do you see for new supply chain models in the future?
AA: What I’m seeing that’s really exciting is the idea of actually partnering with brands and retailers. [We’re in conversations] with one of our biggest customers to set up manufacturing in the US together. We’re a consortium of four suppliers and two brands, and the original idea was to set up an agile, small-scale manufacturing unit in the US, in Detroit, and to use it for rapid prototyping, customisation, personalisation. It’s a start-up company that’s supported by large firms in the industry. I feel like those types of initiatives can kind of balance things out. The other conversation we’re having is with Walmart. It’s hard to imagine ever being on the same playing field as them. Shahi is now a billion-dollar company and Walmart added [billions] to their top line in the last year. But Walmart is asking interested strategic suppliers to set up units in the US. It’s looking at these proposals and investing in them. That’s an interesting approach where I think there’s a lot more sense of partnership.
BoF: To what extent do you think that being at the forefront of these kind of innovations around sustainability and efficiency are what it’s going to take to survive, and also maybe shift the power balance between buyers and suppliers?
AA: To be honest, Shahi has reached a size now where we’re actually bigger than some of our customers. Despite that, the power dynamic is still skewed towards brands and retailers because without them we don’t have any orders, right? We can be as big as we want, but all the demand comes through customers, at least the way our business is right now. [Still,] it feels like Covid has in some sense revealed the brands and customers who truly value sustainability; the ones who despite the crisis are going to continue investing in it, and the ones who maybe don’t as much. We’ve seen that our customers have become more demanding [about how we can help them achieve sustainability goals, as well as sustain quality and increase speed]. I think it’s a natural progression as you become bigger and work closer with [the biggest] brands that are at the forefront of a lot of these issues. For us, what we like about working with Uniqlo and Nike and H&M is that they really do push us to innovate.
This interview has been edited and condensed.
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