Garment Exporters Hit as LPP Freezes Orders Amid $40m Payment Crisis

Bangladesh's ready-made garment (RMG) industry has suffered a fresh setback after Poland's largest fashion retailer, LPP, suspended all new sourcing orders from the country amid a bitter dispute over nearly US$40 million in unpaid dues owed to Bangladeshi exporters and buying houses.

The move has sent shockwaves through the apparel sector, raising concerns over export earnings, buyer confidence and the security of payments in one of Bangladesh's largest export markets. Industry insiders estimate that LPP sources garments worth more than US$700 million annually from Bangladesh.

In a letter sent to Bangladeshi suppliers on 30 July, LPP announced that it was temporarily suspending all new purchase orders and product development activities while conducting a comprehensive review of its sourcing strategy in Bangladesh.

"During this period, we will also assess sourcing opportunities and production capabilities in other countries," the retailer said.

Exporters say the decision came after a long-running payment dispute escalated into legal action. Several Bangladeshi suppliers filed lawsuits to recover unpaid export proceeds, prompting LPP to insist that the cases be withdrawn before any further negotiations could take place.

Nearly 40 garment manufacturers and buying houses are embroiled in the dispute. They supplied apparel to Russia's FES Retail under commercial arrangements backed by LPP.

According to exporters, LPP transferred its Russian sourcing and payment operations to FES Retail following the outbreak of the Russia-Ukraine war. While payments continued initially, they claim outstanding bills have remained unpaid for almost 18 months, leaving many factories under severe financial strain.

The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) has already met affected exporters to explore possible solutions.

The Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) has also taken a tough stance.

BKMEA President Mohammad Hatem confirmed receiving LPP's suspension notice and warned that failure to settle the outstanding payments could have serious consequences.

"They have every right to decide whether they will continue sourcing from Bangladesh. But if they fail to honour their payment obligations, we will move to blacklist LPP in Bangladesh," he said.

Hatem added that the issue would also be raised with the European Union, international buyers' forums and other relevant stakeholders.

He argued that Bangladesh's apparel industry would be better off without buyers who fail to honour contractual commitments, noting that several manufacturers have already suffered substantial financial losses because of the dispute.

However, Bangladesh Garment Buying House Association President Abdul Hamid said the industry could ill afford to lose a buyer that purchases more than US$700 million worth of garments from Bangladesh each year.

"We want to protect our exporters without losing such an important international buyer," he said.

Hamid revealed that LPP had at one stage proposed settling the outstanding dues after applying a 50 per cent discount�"an offer that exporters unanimously rejected.

"No exporter can survive after accepting such a massive haircut," he said.

Exporters said LPP had instructed them to continue shipping products to FES Retail after the Russia-Ukraine war began, assuring them that payments would remain fully guaranteed.

Although payments were initially made, they stopped around a year and a half ago.

Earlier this year, exporters said LPP informed them that it no longer had any commercial relationship with FES Retail, triggering the current dispute over millions of dollars in unpaid shipments.

"For the past 18 months, our members have repeatedly sent letters and emails seeking payment," Hamid said.

"We were assured time and again that the matter would be resolved, but nothing changed. Eventually, exporters were left with no option but to seek legal remedy."

Although LPP has reportedly expressed willingness to resume discussions if the lawsuits are withdrawn, affected exporters remain sceptical, arguing that they have already waited far too long for payment.

The financial damage is mounting.

Hejaz Sweaters Ltd. Managing Director Alamgir Hossain said his company manufactured garments worth US$49,000 for the Russian buyer, but the consignment has remained in storage for nearly a year after payment became uncertain.

"We have already paid for raw materials and workers' wages. Now we have no idea how these losses will be recovered," he said.

Another exporter, Shrabani Knitwear, said it had shipped garments worth around US$70,000 and still has another US$30,000 worth of finished products sitting idle in its warehouse without receiving any payment.

Many exporters believe LPP's decision to freeze new sourcing is intended to increase pressure on Bangladeshi suppliers during the ongoing payment dispute.

Despite the standoff, industry insiders maintain that Bangladesh remains one of the world's most reliable and competitive apparel sourcing destinations, warning that a prolonged impasse could undermine business confidence and jeopardise future orders from one of the country's largest European buyers.