Like the eerily empty “ghost show” which closed a concerned Milan Fashion Week, the recent COVID-19 pandemic has left shipyards well below “full capacity,” if not deserted.
Although some believe that the epidemic will increase online shopping, the inability of goods, parts and materials to make it to the United States — which transport primarily is done by sea — significantly impacts the fashion industry.
Ultimately, companies should view the current environment as an opportunity to study and refine their supply chains. Brands and retailers can and should take proactive steps not only to manage the current crisis but also to strengthen their long-term global supply chains:
• Review financial arrangements and explore expanded lines of credit or other financial agreements to allow maximum flexibility in the manufacturing and shipment of goods.
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• Review all existing contracts and, where necessary, attempt to renegotiate to allow for cancellation of obligations to buy where the seller is unable to perform or where government activity prevents shipments, or where conditions make it doubtful that the goods can be completed and delivered to destination.
• When entering into new contracts, consider choice of law and venue agreements or arbitration agreements where prompt, favorable results can be obtained.
• Consider potentially canceling and modifying contracts with suppliers in areas with high rates of infection. Review the contract language to determine your options.
• Draft contracts for future deliveries based on anticipated delays and interruptions. “Just in time supply chain” likely does not have the flexibility to assure deliveries in the current environment.
• Engage in alternative or redundant sources of supplies outside of areas with high rates of infection.
• Dates for ordering, manufacturing, completion, shipment and delivery should be reviewed and potentially advanced significantly.
• Locate and employ alternative routes of transportation from ports outside of areas with high rates of infection. If possible, try to diversify port use – even within the same country — to avoid choke points.
• Consider the use of air transportation where necessary.
• Obtain marine cargo insurance covering a broad definition of force majeure as well as claims for damage to or loss of cargo as the result of delay and government action (seizure or destruction), which most form policies exclude. This may require paying enhanced premiums.
• Obtain warehouse space at or near the ultimate destination of goods now so that when the goods have cleared customs or other government inspections, there is sufficient storage space. Consider a lease agreement with a right to sublet. Remember, there is limited availability and cost likely will increase with demand.
• Brands should think outside of the box to keep consumers interested and products on the shelves. Consider partnering with local artisans to create limited editions products, even ones outside of normal product lines. For example, a sneaker company may collaborate with a local jam maker or a traditional fine jeweler may partner with a local T-shirt manufacturer.
• Maintain a dialogue with consumers. Consider in-store and online events, even if your inventory is light. For example, a brand or retailer may release a video discussing its history. Then, host an in-store viewing with a trivia contest about the brand history (watch the video!). Create excitement for when products do arrive.
Monica B. Richman is a partner and Mary Kate Brennan is an associate in the New York office at Dentons.