Coronavirus forces U.S. brands to cancel orders in Cambodia

April 15, 2020 3:56 PM PT

SINGAPORE — T-shirts, skirts and shorts are piling up at the clothing factories ringing the Cambodian capital of Phnom Penh.

Once destined for American and European stores, the spring and summer collections are casualties of the economic contagion that’s trailed the spread of the coronavirus, resulting last month in the biggest decline in U.S. retail sales on record.

Brands such as Gap and Old Navy can no longer sell the clothing and have canceled orders. That’s left factory owners and workers unpaid in an industry with little financial cushion to endure weeks without business.

“We only get paid when the clothes are delivered,” said Ken Loo, secretary-general of the Garment Manufacturers Assn. in Cambodia. “We have zero income and zero cash flow.

“We could sue them,” Loo said of the buyers refusing to pay, “but I don’t know if we’ll be around to sue.”

Cambodian workers buy food outside their factory in Phnom Penh.

The crisis unfolding on the factory floors of the Southeast Asian country is but a snapshot of the economic fallout rippling across the globe. But while unemployment and bankruptcies will undoubtedly inflict pain on developed countries like the United States, where car factories and plane manufacturers have dramatically cut back in recent weeks, they will have an outsize effect on poorer ones like Cambodia.

The garment business employs more than 800,000 people in a country of 16 million. It generates about 40% of Cambodia’s economic output and 80% of its exports. The industry migrated from China to chase lower labor costs and remains a linchpin in the global supply chain for household names including Nike, Target and H&M.

That’s given workers like San Sopha steady employment for two decades. But the mother of two is being furloughed Thursday, her $250 monthly salary reduced to a $70 monthly payment mandated by the government, which is about one-third of minimum wage. That won’t cover the $90 she pays each month for her microfinance loan, a ubiquitous form of debt that an estimated 4 in 5 garment workers access to help make ends meet.

“I don’t have any savings,” said San, 38, who works in a factory that supplies clothes to major Western brands such as Walmart. “I don’t know what to do when I’m not working.”

Loo estimates more than half of Cambodia’s 500 garment factories will suspend operations by the end of April. About 100 have already closed their doors.

The piles of unwanted clothes now building up in some facilities can’t be resold elsewhere because the factories don’t own the intellectual property for the garments.

“We’re just the contract manufacturers,” Loo said.

The Asian Development Bank projects economic growth in Cambodia to plunge to 2.3% this year from 7.1% last year due to the outbreak. Tourism and Chinese investment, two other pillars of the Cambodian economy, have contributed little to nothing since the emergence of COVID-19.

With no other major economic drivers left, factories are being kept open to serve what scant business remains. They are also confronting concerns from employees that cramped working conditions could invite transmission of the coronavirus.

“I’m very worried about getting my family sick if I keep going into the factory,” said Yim Pren, 23, who sews together sportswear for brands such as Puma. “But if I don’t go to work, how am I going to support them and pay my rent and my loans?”

Yim said his factory has introduced safety measures. Body temperatures are checked at the door. Workers are told to wash their hands regularly and are given hand sanitizer and face masks.

“Social distancing is almost impossible,” said Yang Sophorn, president of the Cambodian Alliance of Trade Unions. “From one [sewing] machine to another, there is less than half a meter in between. They sit close to each other. Their risk is very high. If someone contracted the disease, it will spread very fast.”

A relatively low infection rate (122 confirmed cases as of Wednesday) has allowed Cambodia to resist the sorts of lockdowns declared in other countries, but recent signs point to growing unease. The country canceled its Cambodian New Year holidays this week to prevent workers from traveling home and spreading the disease.

Prime Minister Hun Sen lauded factory workers for forgoing the holiday and remaining on the sewing lines.

“To continue working will ensure your well-being and safety, as well as your families’ and colleagues’,” he said Monday.

The autocratic ruler had previously downplayed the severity of the disease, which was widely viewed as a bid to placate China, Cambodia’s leading benefactor. Last week, the prime minister was given sweeping new emergency powers to bolster state surveillance and further control the press and social media.

A sinking economy and a diminishing space for dissent could lead to more exploitation of workers, activists said.

Union leaders have been jailed and workers shot for demanding higher wages in the past.

The European Union punished Cambodia in February for its human and labor rights record by partially revoking free trade access.

These problems are being exacerbated by foreign companies canceling contracts for goods, say industry officials and worker advocates such as Human Rights Watch, which released a report this month calling on brands to support workers in major garment-producing nations such as Bangladesh, Myanmar and Cambodia.

Bangladesh has seen $3 billion worth of orders canceled by foreign buyers since the outbreak, resulting in tens of thousands of layoffs, according to the Bangladesh Garment Manufacturers and Exporters Assn.

Human Rights Watch said forgoing payments violates commitments companies have made to uphold human rights — a particular irony felt by factory owners who have increasingly had to comply with brand-mandated audits to ensure their facilities are environmentally sound and free of sweatshop conditions.

Some brands such as H&M Group, Target Corp. and Zara owner Inditex Group have pledged to support their suppliers.

It’s unclear what other major brands are doing. Some, including Nike Inc., L Brands (Victoria’s Secret), Nordstrom, VF Corp. (North Face, Timberland and Vans) and Tapestry Inc. (Coach, Kate Spade, Stuart Weitzman), did not respond to questions about their supply chains. J. Crew Group declined to comment.

Gap Inc., owner of Banana Republic and Old Navy, halted its factory orders in response to the outbreak. That’s angered suppliers who say the company is breaching contracts and shirking its responsibility to compensate workers.

The San Francisco company said it has to cut expenses for the long-term health of the brand. It has already closed 90% of its stores and furloughed most of its store employees.

“We are taking the proactive and prudent actions needed to manage the business through this crisis to ensure that, on the other side of this pandemic, we can and will resume placing orders with our vendors,” the company said in a statement.

The American Apparel & Footwear Assn. urged governments and banks to assist in keeping supply chains solvent and suggested other measures such as deferring tariff payments.

“The health and economic crises caused by the COVID-19 pandemic have created a temporary liquidity crisis that is threatening to burn a permanent hole in global supply chains,” said Steve Lamar, the trade group’s president and chief executive.

Special correspondent Sokummono Khan in Phnom Penh contributed to this report.