Three Years Later: How the Pandemic Exposed the Vulnerability of Suppliers and Workers Under the Power of Large Buyers

Three years ago at this moment, thousands of retail stores across the United States closed as COVID-19 began to spread rapidly and fatally. At the same time, factories in global manufacturing hubs such as Bangladesh, Sri Lanka, Pakistan, Cambodia, and Ethiopia also shut their doors, as large retailers and brands canceled billions of dollars in orders when their own businesses faced deep uncertainty.

These two types of closures were interconnected, but the outcomes were starkly different and unequal. Most U.S. retailers and brands recovered from the financial impact of store closures within a year. Meanwhile, many smaller factories closed permanently, and workers were laid off, losing much-needed income. For many factory workers, especially in the apparel and footwear industries—where wages have historically been low—debt, forced labor, and hunger followed.

The early pandemic exposed cracks in supply chains and revealed underlying dynamics that remain prevalent today, dynamics that existed before the crisis.

Although buyers and suppliers often talk about partnerships, the pandemic crisis showed how fragile the relationships between powerful brands and their overseas suppliers and workers can be, as subsequent research has shown.

"It exposed the vulnerability of workers in the supply chain," said Pamela Abbott, professor of education and director of the Centre for Global Development at the University of Aberdeen in Scotland, in an interview.

"They were in shock"

Walmart, Target, Aldi, Kohl's, Gap, H&M, Inditex, VF Corporation, Carter's, J.C. Penney, Tesco—according to academic researchers, these are just some of the companies that canceled supplier orders in the early days of the pandemic crisis.

By late April 2020, major brands had canceled $3.8 billion worth of apparel orders in Bangladesh alone, a figure Mark Anner, labor professor at Penn State University and director of the Center for Global Workers' Rights, found through a database released by the Bangladesh Garment Manufacturers and Exporters Association at the time. And that was just one country.

Some order cancellations were particularly financially devastating. In many cases, suppliers had already invested in raw materials or had produced goods—some orders were even in transit.

"They were in shock," Anner said in an interview with sister publication Supply Chain Dive. "Suppliers were heavily in debt, operating on credit, with payments coming later and later... When you cancel orders, they owe banks and others, and the ripple effects are severe."

Force majeure—previously a standard clause in contracts and law—took on a new, terrifying meaning for suppliers. Literally meaning "superior force," buyers began invoking it to cancel orders on a massive scale. Many suppliers were completely caught off guard. "'Where is this clause?'" Anner described the confusion of suppliers at the time.

If orders had already been produced, suppliers were often left to handle the goods themselves. For example, apparel factories in Bangladesh had to sell at much lower prices in local markets because clothing made for Western markets differed greatly from what locals wear daily, noted Mohammad Azizul Islam, professor of accounting and chair in sustainable accounting and transparency at the University of Aberdeen, in an interview.

Order cancellations were not the only harmful action by buyers. Brands also reduced new orders, delayed payments, and extended payment terms to minimize their own risk. In effect, they shifted financial and operational risks onto suppliers, researchers and activists said.

According to a paper published in January by Abbott, Islam, and other researchers at the University of Aberdeen, a survey of apparel producers in Bangladesh showed that about half of factories reported retailers taking at least one practice deemed unfair, whether canceling orders, lowering prices, refusing to pay for shipped goods, or delaying payments. Large brands and retailers were more likely to engage in these practices than smaller peers.

Debt, Hunger, and Instability

Suppliers did not absorb all the financial pain. Research found that the pain was passed further down to workers. Three years later, many still live with the consequences.

As stores and factories closed, workers faced reduced hours, temporary furloughs, or layoffs.

Researchers at the University of Aberdeen found that, based on surveys of factory owners, at least 25% of factory workers in Bangladesh lost their jobs between March and April 2020. Conditions in other global production regions were likely similar.

According to a 2021 report by researchers at the University of Sheffield and the Worker Rights Consortium, a survey of over 1,110 workers showed that nearly 80% of garment workers who lost their pre-pandemic contracts did not receive full severance pay, and more than two-thirds received no severance at all.

According to a joint report by the Asia Floor Wage Alliance and Global Labour Justice-International Labour Rights Forum, wage claims at 467 factories in six countries for Levi's, Nike, and VF Corporation totaled $24 million.

That figure covers only a small portion of the supply chain. But if the survey's average—$1.1 million in wage claims per factory—is any indication, unpaid wages to workers during the pandemic crisis across global supply chains could reach billions of dollars in the fashion industry alone.

The sharp drop in workers' income brought multiple consequences. Researchers, working with the Worker Rights Consortium, examined workers in Ethiopia, Honduras, India, and Myanmar and found that living conditions for garment supply chain workers deteriorated, with the few who had savings forced to spend them to survive, and more taking on new debt. Combined with borrowing costs and the nature of loans in many regions, workers have been more vulnerable to forced labor and other abuses since 2020.

Workers also faced food insecurity and hunger. According to a November 2020 survey by the Worker Rights Consortium, 88% of garment workers reported their households reduced food consumption due to lost income, and 77% said they or family members had gone hungry. Twenty percent of workers said they went hungry daily at that time.

When Western economies reopened and workers returned to factories, the difficulties did not resolve. Islam said employers imposed new contracts on those who had been laid off, and workers accepted them out of desperation, even at lower wages.

"Whatever the employer offers, you have to accept," Islam said.

When sales rebounded in wealthy countries and brands rushed to restock, production schedules became frantic, and many workers reported unpaid overtime.

Accelerated production schedules put greater pressure on workers who still had jobs after the initial crisis. Many have since reported unpaid overtime. These overtime wages are crucial because many workers in poor countries depend on them to make ends meet.

"Intensified production targets and various wage and hour violations—which the garment industry is known for—have worsened over the past few years because supply chains are unstable and suppliers try to make up profits on the backs of workers," said Sahiba Gill, senior staff attorney at Global Labour Justice-International Labour Rights Forum.

For workers, these ills are not new to the pandemic. Below-cost sourcing, fast timelines, and last-minute order changes by buyers have long put pressure on factories and their employees.

"Workers were not well off before COVID-19," Abbott said. "COVID-19 just exacerbated pre-existing problems."

Buyers' 'Character Moment'

After the initial crisis, many brands began paying for canceled orders. Anner noted that public pressure was partly responsible, as brands were criticized for their public behavior.

Workers and suppliers began cooperating in campaigns, including through the movement known as #PayUp, which aimed to pressure buyers to pay for canceled orders during the crisis.

As Anner wrote in a 2022 paper, cooperation between workers and factory owners in campaigns occurred because "suppliers realized they needed the moral legitimacy of activists and worker rights advocates, and worker rights advocates understood that if suppliers collapsed, millions of workers would lose their jobs."

As the initial crisis passed, the visibility of the issue has diminished. Cases of brands funding severance pay remain extremely rare. One of the few examples is Victoria's Secret, which reached a historic settlement with Thai workers in early 2022 over wage losses during a factory closure in 2021.

Again, this is currently the exception. As of the end of 2022, 90% of factories studied by the Asia Floor Wage Alliance had not resolved workers' wage claims since 2020, and more than half had not paid back overtime owed also dating to 2020.

This comes after years of pressure by activists on the brands in the study. One of those brands, Nike, recently became the subject of a complaint to the Organisation for Economic Co-operation and Development by unions and activist groups over the treatment of workers in the sportswear giant's supply chain, much of which dates back to early 2020.

For Anner and others who study buying and selling relationships in fashion and other markets, the 2020 crisis highlighted how unequal these partnerships are and how workers in poor countries ultimately bear the brunt of buyer behavior.

"Buyers squeeze suppliers on price, order volume, and payment terms, with devastating consequences for suppliers and especially workers," Anner concluded in his 2022 paper. "Millions of workers lost wages, jobs, and severance."

The lasting impact is both material and relational. "Partnerships and trust have been severely damaged—between buyers and suppliers, and between factory owners and workers," Anner said in an interview. "This needs to be rebuilt."

It remains unclear how relationships between large buyers and overseas suppliers have changed. According to researchers at the University of Aberdeen, among large brands, 72% paid below production costs at the end of 2021, and 68% sourced from factories that struggled to pay workers the local minimum wage.

Some say the plight of workers in supply chains is just as severe today, if not more so, and buyer behavior remains equally problematic.

"Based on what we're hearing, I think many buyers haven't improved relationships; in fact, they've doubled down on certain practices," said one researcher who studies labor issues in supply chains.

For Abbott and Islam, the problem is systemic. As they explain, countries compete to become manufacturing hubs and attract foreign investment. Factories in these and other countries compete to win contracts. Buyers face investor pressure to generate profits, pushing supplier prices as low as possible. Rock-bottom prices and factory pressure can lead to various abuses of workers. Everyone in the system is competing to supply consumers who seek status and try to keep up with cultural norms.

While the 2021 global supply chain crisis showed how dependent buyers are on suppliers, the following year buyers again cut and canceled orders when sales declined—though not as destructively as in early 2020. But researchers interviewed by Supply Chain Dive said workers again felt the pain of buyers' defensive actions.

"This is a real bellwether character moment for the industry, and they can still make it right," Gill said. "We really hope they find a way to compensate workers and the supply chain and change how they do business in the future."