Bangladesh suppliers find Polish retailer LPP's new conditions illogical

Central and eastern European clothing retailer LPP has issued new conditions for taking delivery of old orders, as well as the new ones, from the Bangladeshi garment manufacturers, which is a ploy to avoid paying the suppliers, allege the industry leaders.

As per the new conditions, LPP will deduct a 25% of the order value for faults in trims and labelling and another 25% for delivering cargo to wrong addresses.

"If, after the scheduled delivery date, goods are not sent, the buyer has the right to decide whether to accept or reject goods, without being under the obligation of paying any compensation," according to the LPP notice.

The notice further said LPP can deduct 3% of the order value for one week of delay in delivering an order, 6% for two weeks. For three weeks of delay, it will have the right to cancel the order or deduct 15% of the order price.

Relevant sources said after a report, titled "Polish retailer LPP's 100 Bangladeshi suppliers in trouble over payment delays", was published in The Business Standard on 16 October 2022, the retailer was forced to start bringing the goods. But after taking delivery of around 50% of the order, it rescheduled the delivery time for the remaining products, worth $90 million, to next November.

According to the new rules, the retailer has the scope to deduct up to 65% of the order value or the right to cancel the order, they added.

LPP suppliers alleged that the retailers have been placing orders with new suppliers and avoiding the old ones, who had dedicated capacity for making LPP products, to impose their new exploitative conditions. They have taken the measures to recover the losses they have suffered due to the Russia-Ukraine war.

Ashikur Rahman Tuhin, managing director of TAD Group, told TBS, "The buyer has taken unethical measures, violating all norms and business practices. It has no right to issue such a notice just because its business is in trouble due to global crises like the Russia-Ukraine war, because the suppliers are also suffering due to the same problem.''

Tuhin said LPP might have talked with the suppliers to find a way out of the crisis.

Due to deferred shipments, Bangladeshi apparel exporters are in trouble in paying their banks, he added.

He said generally buyers impose fines for delayed shipments but there is also scope for negotiations.

On condition of anonymity, the head of a multinational buying house told TBS, if there are any faults in trims and labelling, buyers should give suppliers an opportunity to correct the mistakes without imposing fines. Most of the buyers actually give the manufacturers such scope to remedy their mistakes.

"Besides, if a supplier fails to ship goods on time, buyers usually ask them to send them by air freight. Imposing harsh punitive measures like LPP did in such cases is unethical," he said.

The Bangladeshi suppliers also said LPP has introduced conditions to impose fines on suppliers for delaying delivery, while they themselves deferred the date of taking delivery of products without suffering any consequences.

Moreover, the buyers themselves can resolve the problem of delivering consignments to wrong addresses easily by coordinating the process in their own country.

Shahidullah Azim, vice-president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said, "LPP's new terms and conditions are absolutely illogical and it does not comply with the country's law."

Azim said the central bank does not allow any discount or fine on the price, which is above 5% of export value. If anyone does that, he might face a money laundering case.

He also said apparel exporters are currently doing business at a 3-6% profit margin due to the global crisis. Meanwhile, many exporters are doing business at a breakeven point or below that, due to the global economic crisis.

"It is the buyer's responsibility to check all goods during the pre-shipment inspection. BGMEA will call the retailer's local office representative for arbitration," he added.

LPP in trouble

Representatives of the brand's liaison office and buying offices in Bangladesh said LPP has been forced to shut down about 800 of its stores in Russia and Ukraine since war broke out in the region. Consequently, demand for its products decreased and the products it ordered for its stores got stuck in Bangladesh.

LPP has business with around 100 Bangladeshi suppliers, who are facing hardships because of deferred shipments of products and payments, according to industry sources.

As a result, Bangladeshi exporters and their raw material suppliers are facing a liquidity crisis due to non-payment of their back-to-back LC loans.

According to LPP's website, Bangladesh is the largest import destination for the retailer as it meets about 70% of its demand for apparels. It also sources ceramics, tableware, and jute goods from the country.  

The retailer's annual turnover was $2.84 billion in 2021.

LPP country manager resigns

Relevant sources said the LPP country manager in Bangladesh has resigned due to the current situation.

He assumed office in the Bangladesh office in December 2014, aiming to ensure transparency in its supply chain.

After the opening of the Bangladesh office, the retailer's business saw a big growth and it started sourcing ceramics, jute, and leather items from Bangladesh. ***