Key Takeaways:
– The Chinese Ministry of Commerce initiates an investigation into the PVH Group over alleged business disruptions in its Xinjiang supply chain.
– The PVH Group, the parent company of Calvin Klein, finds scrutiny from several global retail companies for distancing itself from the alleged forced labor in Xinjiang.
– Calvin Klein and Tommy Hilfiger’s international revenue slumped by 4.3% due to the challenging consumer environment in Asia Pacific, particularly in China and Australia.
China’s Probe into PVH
The Ministry of Commerce in China confirmed on Tuesday that it has initiated an investigation into the PVH Group. This probe comes amid allegations of business disruptions concerning its Xinjiang-based supply chain. The PVH Group, the parent company of well-known brand Calvin Klein, has not stated a reason for the investigation at this time. However, the ministry has allotted a 30-day response period.
Unreliable Entities List
This inquiry is part of China’s “unreliable entities” list mechanism, an initiative launched in 2019 after the U.S. blacklisted technology giant Huawei. This China-managed list mirrors the U.S. Commerce Department’s entity list that restricts specified companies from accessing U.S. originated items. As a result, any U.S. defense companies on the list face a ban on China-related imports or exports.
Xinjiang Controversy
China alleges that the PVH Group has violated the regular market transaction principles with its targeting of Xinjiang suppliers. The accusation suggests that PVH’s actions have disrupted normal business dealings with Chinese bodies, individuals, and others, along with enacting other discriminatory measures. PVH is among several foreign retail companies under Chinese scrutiny for attempts to distance themselves from purported forced labor practices in China’s Xinjiang region.
PVH’s Stand
In a corporate responsibility report released in July 2022, PVH explicitly stated it did not permit direct or indirect sourcing from certain regions, including Xinjiang. No response is yet available from the PVH Group to these recent allegations, as it remains outside U.S. business hours.
Impact on PVH’s Revenue
These recent allegations surface at a time of financial turbulence for the PVH Group. Its international revenue for Calvin Klein and Tommy Hilfiger experienced a 4.3% year-on-year decrease, settling at $1.38 billion by the close of the quarter on August 4. The dip in revenue was due to a challenging consumer ecosystem in the Asia Pacific region, notably in China and Australia. Overseas earnings account for over half of the PVH Group’s overall revenue of $2.07 billion for the said quarter.
The Uyghur Issue
The Xinjiang region is home to the Uyghur Muslims, a group identified as oppressed by the U.N., U.K., and the U.S. Despite widespread criticism, China has consistently negated the forced labor and other abuse allegations associated with Xinjiang. The Chinese government insists that alleged internment camps described by the U.S., U.K., Canada, and various human rights groups are vocational training centers.
As the investigation continues, the ramifications for the PVH Group remain uncertain. Both domestic and international actors will be watching closely as this potentially damaging situation unfolds.