Stylecraft’s fall from grace
Something is off about Stylecraft Limited.
The readymade garments company had its best year in 2015 when it sold products worth Tk400 crore. But the business, set up in 1983, shuttered its factory just six years later in July, amid protests by its workers over arrears in wages.
A top official of the company, on the condition of anonymity, told The Business Standard that his situation was now dire.
“I have not been able to pay rent for the past 10 months. I do not know how to run the family. I think suicide is my only way out now, but looking at my kids, I cannot even take that step,” he said.
Another employee, a former assistant manager, said after the factory shut in July, he began buying used garments to sell in Gazipur. Covid-19 closed that avenue too. He soon moved back to his village, where he now teaches two students and works part-time at a general store.
His daughter once studied in a private school in Gazipur. Now, he has enrolled her into a madrasa, where education is free.
Fingers are now being pointed at the two sons of the founder Shamsur Rahman for the company’s spectacular fall from grace. A series of rash investments has brought the once-burgeoning business to its knees.
According to the company’s 2019-20 financial report, their factory had 3,500 workers and 420 employees.
Workers began protesting in April this year, demanding arrears of wages.
Earlier in August, State Minister for Labour Munnujan Sufian mediated between the government and Stylecraft to fix the time for payment of arrears to the workers. The company failed to meet that timeline.
Meanwhile, workers of the factory have been protesting in front of the Shram Bhaban in Bijaynagar of the capital since noon on Tuesday.
Joly Talukder, general secretary of the Garments Worker Trade Union Center, which led the movement, told The Business Standard that the state minister had met with the factory owners but no solution had been found.
The workers have decided to stay in front of the Shram Bhaban all night as another meeting with the minister is scheduled for today.
It has been learned that 4,300 workers of the factory are owed salaries of four to nine months.
So, what has gone so wrong for Stylecraft?
The second generation unravelling
Shamsur Rahman founded Stylecraft in 1983 and to ensure good governance, he listed the company on the stock exchange that very year.
He then employed his two sons in the company’s production and marketing departments, in order for them to learn the ropes of the business and take it forward.
It was a best laid plan.
Of the two children, Sharif Almas Rahman has been with the company since 1987 and Shams Almas Rahman since 2002.
Later, the two were promoted as directors of Stylecraft – Shams Almas in 2010 and Sharif Almas in 2017.
Sharif Almas is currently also the acting chairman of the company.
Shamsur Rahman had served the company as its managing director till his death on 31 January 2016.
During this time, he had built a medium-sized factory at Gazipur. Business was going well. In the year before his death, the company had had its best year in terms of profits.
But by 2019-20, the company’s revenue had fallen to Tk200 crore, which was chalked off as a repercussion of Covid-19.
The downward trend, however, continued into the 2020-21 fiscal year. In the first nine months of the year, sales fell by 41% to Tk98 crore and loss was about Tk8 crore.
Shamsul’s death was followed by his son Shams Alam becoming the company’s managing director. In one of his first big moves, Shams increased the production of Stylecraft and made other investments.
With his brother on board, the duo then established a retail clothing company, Moda Senza Rimorsi Limited, in the UK, and a washing plant in Tongi.
The money for the investment came from Stylecraft’s profits, according to multiple senior executives of the company.
More money was taken from Stylecraft and invested elsewhere. Unfortunately, none of the investments panned out.
Omar Golam Rabbany, the company’s long-serving partner and chairman, eventually stepped down from his role in late 2020, after being sidelined by the brothers.
Adding to the company’s woes, Stylecraft’s long-time major buyer, Japan’s Uniqlo, severed ties in 2019 over allegations of non-compliance.
Uniqlo accounted for 60% of Stylecraft’s total production, and its loss dealt a severe blow.
Some orders came from H&M, but those also stopped due to the pandemic.
As orders stopped and investments failed, arrears began to grow.
To arrange the money, the two brothers tried to sell the washing plant in Tongi, which had been closed since March 2020.
But as the plant had a bank loan to its name, selling it was not possible. Therefore, the company failed to pay salaries and wages on time, several officials of the company said.
Finally, a notice was issued by the company on 26 October when workers took to the streets again to demand arrears of wages.
The notice, signed by MD Shams Almas, cited technical reasons over the failure to clear arrears. The letter said as his mother, who was also a director of the company, had died on 8 October, the financial activities of the company were disrupted.
He, however, said the situation would improve and the factory would be reopened on 4 November.
A promise was also made of one month’s salary being paid within the next 15 days, i.e. 21 November. The remaining money will be repaid gradually.
The letter came with an added caveat: if the inheritance certificate was delayed, then the payment would also be postponed.
The company’s managing director, acting chairman, company secretary and chief financial officer were contacted more than once, but have not responded.
More violations found
Despite the factory closure, Stylecraft’s share prices have risen by 41% to Tk203 on the Dhaka Stock Exchange from July to August.
Their shareholders had also not been informed of the factory closure, which is a violation of the Securities Act.
While its share price fell to Tk137.50 on Monday, it rose by 7.33% again the next day when news of the factory reopening broke.
Md Rezaul Karim, spokesperson of Bangladesh Securities and Exchange Commission, said, “We are looking into the matter. Action will be taken in case of violation of securities law.”
Earlier in 2018, rumours had been circulating of the company paying hefty stock dividends. The company’s share price rose from Tk600 to Tk1,500.
In the 2017-18 financial year, they paid a 410% stock dividend.
For this reason, one of the directors and company secretary of the company was fined by the Bangladesh Securities and Exchange Commission.
The company, which pays regular cash dividends, has been paying large stock dividends since 2017 in the name of business expansion.
An office only in name now
During a recent visit to Stylecraft’s head office in Mohakhali by a reporter of The Business Standard, it was found to be almost empty.
A few lights were on, but apart from that, there was no hint of this being a functioning office.
Only two officers and a peon were seen. When asked questions, they directed the reporter to the company secretary and said questions should be submitted to him in writing.
After ten days of sending the questions, no response has been forthcoming.
Industry leaders said Stylecraft’s debt had increased more than its assets, so no bank was giving it any loans. In the interest of the workers, a solution was being looked for, he added.
An official of the company said on condition of anonymity that the company was trying to manage finance from another bank as their longtime partner, Pubali Bank, had denied further help. Agrani Bank was a possible option, he added.