Three Years Later: How COVID-19 Exposed the Vulnerability of Suppliers and Workers Under the Power of Large Buyers

Three years ago at this time, thousands of retail stores across the United States closed due to the rapid and deadly spread of COVID-19.

Factories in global manufacturing hubs such as Bangladesh, Sri Lanka, Pakistan, Cambodia, and Ethiopia also shut their doors, as major retailers and brands—facing deep uncertainty in their own businesses—canceled orders worth billions of dollars.

These two sets of closures were interconnected, yet 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 small factories closed permanently, and workers were laid off, losing much-needed income. For many factory workers, especially in the apparel and footwear industries—where earnings have historically been low—debt, forced labor, and hunger followed.

The early pandemic exposed cracks in supply chains and underlying dynamics that many say still persist today, dynamics that existed before the crisis.

Despite frequent talk of "partnerships" between buyers and suppliers, the COVID-19 crisis showed how fragile the relationships between powerful brands and their overseas suppliers and workers can be, and subsequent research has confirmed this.

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

"They were shocked"

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

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

The financial losses from some order cancellations were particularly severe. In many cases, suppliers had already invested in raw materials or produced goods—some orders were even on ships bound for buyers.

"They were shocked," Anner said in an interview with Supply Chain Dive. "Suppliers were heavily indebted, operating on credit, and getting paid later and later... When you cancel orders, when they owe banks and others, the ripple effects are very severe."

Force majeure—previously a standard clause in contracts and law—took on a new and frightening 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 dispose of the goods themselves. For example, garment factories in Bangladesh had to sell at much lower prices in local markets because clothing made for Western markets differs greatly from what locals wear daily, noted Muhammad 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 disruptive 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 University of Aberdeen researchers, surveys of garment producers in Bangladesh showed that about half of factories reported retailers engaging in at least one unfair practice, whether canceling orders, reducing 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 shows that pain was passed further down the supply chain to workers. Three years later, many still live with the effects.

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

Researchers at the University of Aberdeen, based on surveys of factory owners, found that 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 (WRC), which surveyed more than 1,110 workers, nearly 80% of garment workers who lost pre-pandemic contracts did not receive full severance pay, and more than two-thirds received nothing.

According to a joint report by Asia Floor Wage Alliance and Global Labour Justice-International Labour Rights Forum, wage claims at 467 factories of Levi's, Nike, and VF Corporation across six countries 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 used as a benchmark, unpaid wages to workers during the COVID-19 crisis across global supply chains could reach billions of dollars in the apparel sector alone.

The sharp drop in workers' income brought multiple consequences. Researchers, working with the WRC, examined workers in Ethiopia, Honduras, India, and Myanmar and found that living conditions for apparel supply chain workers deteriorated, the few with savings had to draw on them to survive, and more took on new debt. Beyond the cost of borrowing, the nature of lending in many regions has made workers more vulnerable to forced labor and other abuses since 2020.

Workers also faced food insecurity and hunger. In a November 2020 survey, 88% of garment workers reported that their households had to reduce food consumption due to reduced income; 77% said they or family members had gone hungry, another WRC study showed. Twenty percent of workers said they experienced hunger daily at that time.

Workers returning to factories after Western economies reopened did not resolve the difficulties. Islam said employers pressured those who had been laid off to sign new contracts, and workers, out of desperation, were willing to sign 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 added 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—well-known problems in the garment industry—have worsened over the past few years because supply chains are unstable and suppliers try to recoup profits on the backs of workers," said Sahiba Gill, senior attorney at GLJ-ILRF.

These harms to workers 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 this was partly due to public pressure, as brands were publicly criticized for their behavior.

Workers and suppliers began cooperating on campaigns, including the movement known as #PayUp, aimed at pressuring 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 went under, 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 is Victoria's Secret, which reached a historic settlement with Thai workers in early 2022 over lost wages during a factory closure in 2021.

Again, this is currently the exception. As of the end of 2022, 90% of factories studied by 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.

And this is 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 it dating 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 those partnerships are and how workers in poor countries ultimately bear the brunt of buyer behavior.

"Buyers squeezed suppliers on price, order volumes, 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. "Partnership and trust have been severely damaged—both between buyers and suppliers, and between factory owners and workers," Anner said in an interview. "It needs to be rebuilt."

It remains unclear what has changed in the relationships between large buyers and overseas suppliers. According to surveys by University of Aberdeen researchers, among large brands, 72% paid below production costs at the end of 2021, and 68% sourced from factories struggling to pay local minimum wages.

Some say the plight of workers in supply chains is just as precarious today, or even worse, and buyer behavior just as problematic.

"As far as we know, many buyers have not improved relationships; in fact, they have doubled down," said one researcher who studies supply chain labor issues.

For Abbott and Islam, these problems are systemic. As they explain, countries compete to become manufacturing hubs to attract foreign investment. Factories within and outside these countries compete for contracts. Buyers face investor pressure to generate profits, pushing supplier prices as low as possible. Lowest prices and factory pressure can lead to various abuses of workers' rights. Everyone in the system is competing to satisfy consumers who seek status and keep up with cultural norms.

Although the 2021 global supply chain crisis showed how dependent buyers are on suppliers, the following year buyers again reduced and canceled orders—though less disruptively than in early 2020—when sales began to decline. But researchers interviewed by Supply Chain Dive said workers again felt the pain of buyers' defensive behavior.

"This is a real bellwether character moment for the industry, and they can still make it right," Gill said. "We sincerely hope they find a way to pay workers and their supply chains what they owe and change how they do business going forward."