Why did Polish brand LPP suspend garment orders in Bangladesh
BKMEA has decided to blacklist Polish retailer LPP if it fails to clear outstanding payments owed to Bangladeshi suppliers.
The association also warned that it would raise complaints against LPP at various international forums, including the EU.
Polish apparel brand LPP has suspended placing new purchase orders in Bangladesh. At the same time, the company has decided to temporarily halt new product development work.
Reportedly, the Polish brand made this decision amidst a dispute over unpaid dues owed by Russian buyer FES Retail to Bangladeshi readymade garment (RMG) factories and buying houses.
According to concerned exporters, several Bangladeshi RMG factories and buying houses are owed nearly USD 40 million by Russian buyer FES Retail. They had supplied goods for the Russian firm under sales contracts made with the guarantee of Polish brand LPP.
Failing to recover their dues despite various efforts, several RMG factories and buying house owners took legal recourse. Subsequently, online meetings were held last month between LPP officials and leaders of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) and the Bangladesh Garment Buying House Association (BGBA).
However, when LPP conditioned any settlement on the withdrawal of the lawsuits, BKMEA and BGBA leaders disagreed, resulting in no resolution.
In a letter dated 21 July to BGMEA, BKMEA and BGBA, LPP said it was not the contractual party responsible for the disputed payments, although it had participated in mediation efforts. It also announced plans to gradually reduce sourcing from Bangladesh while leaving the door open to reconsidering the decision if the situation improves.
According to concerned exporters, several Bangladeshi RMG factories and buying houses are owed nearly USD 40 million by Russian buyer FES Retail. They had supplied goods for the Russian firm under sales contracts made with the guarantee of Polish brand LPP.
In a separate letter sent to Bangladeshi suppliers on 30 July, LPP said new purchase orders and product development activities would remain suspended until it completed a review of its future sourcing strategy in Bangladesh. During the review, the company said it would also assess sourcing opportunities and production capacity in other countries.
BGBA President Abdul Hamid told Prothom Alo that nine member institutions of his organisation are owed USD 4.5 million, bringing the total amount of arrears to nearly USD 40 million. He said that after the Russia-Ukraine war, LPP ran into trouble operating its business in Russia and appointed FES Retail as an associate, introducing the firm to Bangladeshi suppliers.
Purchase orders in the name of FES Retail were issued directly from LPP's office with payment guarantees provided by them, but LPP is now claiming to have no relation to FES Retail.
The BGBA president also noted that LPP had proposed paying the arrears at a 50 per cent discount through FES Retail. Discussions could have happened even with a 10 to 15 per cent price discount, he said, given that 75 per cent of the amount is already owed to banks.
Abdul Hamid further said that LPP purchases about USD 800 million worth of ready-made garments from Bangladesh annually. While they want LPP to continue doing business, the company has resorted to a cunning tactic to avoid paying the arrears of various garment factories and buying houses.
The BGBA president also noted that LPP had proposed paying the arrears at a 50 per cent discount through FES Retail. Discussions could have happened even with a 10 to 15 per cent price discount, he said, given that 75 per cent of the amount is already owed to banks.
A buying house named Ensa Clothing exported trousers worth USD 52,000 against an FES Retail purchase order in April of last year. Two months later, the goods reached a Russian port but because FES Retail did not pay and clear the goods, they remained stranded there.
Failing to secure the arrears after bargaining with LPP, the firm filed a lawsuit in the High Court of Bangladesh last month.
Ensa Clothing Managing Director Enamul Kabir said LPP's claim that it had no relationship with FES Retail after April last year was contradicted by the fact that LPP paid for shipments made in April and May. He warned that the factory supplying the garments could face closure if the outstanding payment is not recovered.
BKMEA also discussed the issue at its board meeting on Saturday and decided to blacklist LPP if it fails to clear the dues.
Confirming the matter, BKMEA President Mohammad Hatem told Prothom Alo that LPP had effectively threatened to wrap up its business. If the dues remain unpaid, he said, the association will raise the issue with the European Union and other international forums, alleging unethical business practices by the retailer.