The ethical fashion movement has been building for some time, but this year millions more people woke up to the extreme exploitation and unjust behavior perpetuated by large, profitable brands on garment workers.
First, at the end of 2019, Fashion Nova was discovered to have been using sweatshops in Los Angeles.
Then the Pandemic hit, and brands canceled an estimated $40 billion of orders worldwide, a brazen move that was against the contracts they had with factories, and likely illegal. In some cases, the orders they canceled (and refused to pay for) were already completed and shipped. Brands and retailers also said they would pay later than originally agreed, and not pay the full price they agreed upon in the original contract, asking for retroactive discounts of up to 30%. (Margins for factories are often around 5 to 10%, so factories would lose money on these orders.) Factories that refused to give the discount, were told they would never be sourced from again.
The consequences for garment workers were stark. On average they saw their income drop by a third, and many are now starving. As the fashion industry has staggered back to life, brands continue to ask for huge discounts and cheaper prices from suppliers, half of which have had to accept orders below cost. Meanwhile, the largest fashion brands are back to turning a hefty profit. “These last quarters, if you look at particular brands, you see a lot of them shored up liquidity,” says Remake’s founder Ayesha Barenblat. “And essentially kept their own balance sheets looking good on the basis of not paying these bills. And then when you think of the average Bangladeshi worker, she was making $96 a month. Workers don’t have safety nets, they don’t have health insurance.”
Even before the pandemic, factories weren’t making enough to pay their workers fairly. In Bangladesh, the price paid by large brands to suppliers declined by 13% between 2013 and 2018. That was completely absorbed by suppliers, whose profit margins dropped by 13% between 2011 and 2016. In Cambodia, while the legal minimum wages went from $100 to $153 a month between 2014 and 2017, the nominal apparel prices paid by E.U. and U.S. retailers in the same period mostly dropped. In a report by Clean Clothes Campaign, not a single brand or retailer of the 108 it cross-checked pays all of its supply chain workers a living wage.
“If I was faced with rising minimum wages on the one hand (which I was), and volatile uncommitted sales forecasts from brands on the other (which I also was)… I might choose to dismiss some staff in order to be able to secure the jobs of the remaining staff. I might opt for overtime, figuring that longer hours are better than no income at all. If factories had bigger profit margins and cash cushions, if fronting production costs came with more guarantees from brands, maybe some of these choices could be avoided,” wrote Kim van der Weerd, former Cambodian garment factory manager, on Medium.
So, Which Brands Are Ethical?
The answer is very few. Consumers, when faced with this shocking information, tend to look for better brands to support. But we’ve been trying that tactic, what you might call “conscious consumerism,” for years, and it hasn’t improved the global fashion industry one iota. As Elizabeth Cline, writer and author of The Conscious Closet, said in her pandemic essay The Twilight of the Conscious Consumer, “What did all of my decades of Ethical Consumerism do to protect these workers and raise their wages? Nothing.”
The big problem in the fashion industry is not that you are making selfish choices when you go shopping. The problem is that the system is broken.
No brand will ever admit to using a sweatshop. When it comes out that they are, like in the case of Fashion Nova, they say that they make vendors sign agreements to pay their employees and subcontractors in accordance with local laws. “Any suggestion that Fashion Nova is responsible for underpaying anyone working on our brand is categorically false,” it told Quartz.
So instead of asking which brands are ethical, you should ask why unethical brands continue to get away with this.
But Boohoo, another ultra-fast fashion brand which was called out over the summer for egregious exploitation of UK garment workers, had known for years of the sweatshop conditions, but chose to ignore that information. In December, the owner of Boohoo said he felt unfairly victimized and threatened to take manufacturing offshore. Later that week, it was discovered the brand had already done that — it has been exploiting Pakistani workers as well.
You can try to find a pattern as to which large brands behaved ethically and which brands didn’t. But there are no similarities in geographic locations, price points, or even a brand’s publicly stated sustainability goals. The only factor that seems to matter is whether a brand is independent, a.k.a. privately-owned, with a strong core culture, or a publicly-traded company that is at the whim of shareholders.
So instead of asking which brands are ethical, you should ask why unethical brands continue to get away with this. This being executives earning millions and owners earning billions while garment workers can’t feed themselves. JCPenney has yet to pay for canceled orders but paid out $4.5 million in executive bonuses in May. This being seeing their stock rise while pretending that they are so hard up for cash they can’t pay for boxes of clothes they ordered that are literally sitting on the docks stateside. In June, Kohl’s paid out millions to its shareholders while also refusing to pay for orders.
There seems to be a pattern here.
Still, brands continue to promulgate the illusion that the entire issue rests with greedy factory owners. This is simply not true. I’m not saying that all garment factories are paragons of virtue. But even the best suppliers and factories in the world cannot operate, much less pay their employees fairly and provide a safe working environment, in these conditions. In short, disrespect and exploitation of suppliers mean disrespect and exploitation of garment workers.
So this year I switched gears and started looking at the system: all its little moving parts that work together to suck money and power towards the top and leave garment workers in dire straights. I worked together with fashion expert (and friend) Marzia Lanfranchi on a report looking specifically at the global denim industry. We interviewed activists, labor leaders, foundation employees, and the owners and employees of the best, most ethical factories in the world to find out what we need to do to fix the system and share profits and risk equitably up and down the supply chain.
This report was commissioned by the Transformers Foundation, and you can read it in full here. But I’m going to excerpt the juiciest and freshest ideas about how to end unethical brand behavior here for you.
The 9 Reasons Why The Global Fashion Industry Is so Unethical
First, a little bit of background that can help you understand the why:
1. There are too many garment factories. In the past two decades, many factories were launched by novices based on financial incentives from NGOs and governments in an oversaturated market. Buyers from large brands leverage this fact to play suppliers off each other to get the lowest price. A supplier has to accept an order from any large brand, retailer, or importer at almost any price, even if it means losing money. And It doesn’t matter if there are red flags in the new relationship, or the brand is financially stressed. One supplier told us that after a well-known brand declared bankruptcy and demanded a 60% retroactive discount on orders in progress, the supplier continued to work with them and even started discussing new orders.
“If you ask me, my standard is nothing less than $8.50, that is in retail minimum $29. But I also produce for $5, $4.50. When my capacity is getting empty, I get nervous. So I start to take the orders,” another South Asian factory owner says.
2. Brands force suppliers to take on all the risk. Multinational conglomerates have used their power to chip away at the amount of financial responsibility they have over the production of jeans to almost nothing. They don’t put down a deposit on orders. Instead, they sign a contract with a promise to pay for the order within a certain time period after the goods are shipped or delivered. Suppliers then take this promise and order materials and pay the workers who produce the denim and jeans. Before the pandemic, it was already an open question of when suppliers would recoup this investment. According to a Special Report by Better Buying that asked suppliers to rate a brand or retailer on their buying behavior in 2019, 40% of suppliers reported payment terms of over 60 days and 31% reported the buyer paid on average 26 days late.
“There are brands that used to pay 45 days after the product shipped that are now paying 90 days after,” says Foxvog of the Worker Rights Consortium. She says they started extending payment times before the pandemic to stay competitive, and then, during the crisis, brands extended these laughably bad payment terms to 120 days and delayed orders so they wouldn’t have to pay for them. Suppliers were forced to pay for storage and take on the additional risk of orders getting damaged or destroyed while they waited at ports.
Several large fashion brands, at least temporarily, claimed that financial distress precluded them from honoring the original terms of their contracts, while their owners personally held billions in wealth. Meanwhile, suppliers scrambled to find a way to pay at least partial salaries to the furloughed workers. Coming off of many years of falling profit margins, they were unable to provide a financial buffer for their workers
Brands also won’t take on the risk of paying for fabric bought for clothing they ordered if it doesn’t get used. Suppliers are then on the hook to pay for it and store it until the brand hopefully finds a way to use it.
3. Brands charge fees and discounts to suppliers for ridiculous reasons. When it’s finally time to pay, brands and retailers can and do take the liberty of slicing additional money off invoices under the rubric of chargebacks and markdowns. Chargebacks occur when a retailer says a supplier made a mistake on an order, including packaging, documentation errors, or minor faults in the product, such as deliberately distressed jeans having a hole in a slightly wrong place. According to Better Buying’s May survey, 22% of suppliers reported that they received chargebacks for late shipment due to inadequate lead time, unsubstantiated claims about packaging, or unsubstantiated claims of quality defects.
“If our documents are not the way they’re supposed to be, they debit us. So everything is the expectation for the suppliers to perform at a 100 percent, and if you don’t perform at 100 percent, there is a penalty attached,” Sanjeev Bahl of the famous jeans factory Saitex told Sourcing Journal.
If retailers have to discount the product in stores, they will sometimes “request” that the supplier give them a discount on the invoice. This was so frequent during the crisis as to become the norm. One factory owner was told he would have to accept 20% and 30% discounts. “They have no idea the margins in our business are like 5%, 10% if you’re fucking genius,” the owner says.
“You can’t do much, right? You accept the discount because you still need money to pay your suppliers,” a South Asian supplier says.
4. Suppliers have a hard time financing their operations or securing credit from brands. Letters of credit (LCs) are the most secure and used to be the standard. A bank guarantees the supplier will receive payment once the bank receives documents proving the goods were shipped and accepted by the buyer. Seems fair, right? But brands have recently refused to have enough cash in the bank to make letters of credit possible. And financial institutions have been refusing to provide payment insurance or factoring to suppliers because they see how risky this business is. As a result, only 17% of apparel and footwear suppliers say they have some form of insurance that guarantees payment for orders. The suppliers had to trust the brand contracts, which proved to be worthless in the end.
5. Suppliers have no legal power. The problems start with the contracts that suppliers sign with brands. According to a report by the European Center for Constitutional and Human Rights, ECCHR, retailers including Kohl’s, Arcadia (Topshop), and Primark used the now-infamous force majeure clause in their contracts to unilaterally cancel orders at any time for reasons that were out of their control. But their definition was so vague as to include almost any circumstance. Suppliers signed these lopsided contracts for the same reason they make all of the other concessions: all the power rests with brands, and an industry overcapacity means there’s always another supplier willing to sign it.
A force majeure clause can usually only be invoked if the contract specifically includes “pandemic.” However, even in jurisdictions where this is not the case, the brand would have to prove that it was impossible for them to fulfill their side of the contract, i.e. there was no way for them to pay for and accept the orders. Even if the retailers could have anticipated the business interruption, had a robust online business, or was deemed an essential retailer and stayed open, they took no responsibility for warning suppliers or finding mutually beneficial solutions. It’s clear that for all of the brands who canceled, save for perhaps the ones that declared bankruptcy, they could have accepted and paid for the orders. Legal experts believe they were in breach of their contract. And these cancellations also seem to be illegal under international law, under both the UN Guiding Principles on Business and Human Rights (UNGPs) and the Organization for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises.
“The learning for me is that the value of a contract is… there is no value. They’ve said no liabilities for us, thank you very much, we’ll see what we can do in the future. And for me, that doesn’t feel right, that it’s so easy to walk away from it,” says Ali Abdullah, Managing Director of Diamond Denim by Sapphire.
If suppliers had the resources to take brands to court, they would likely win. But legal action can cost more than the value of a canceled order and moves too slowly to help suppliers with the cash flow problems caused by non-payment. Contracts also specify that legal action takes place on retailers’ turf, in Europe or North America.
“If I was one of those big, big groups that invoice € 100 million, believe me, I would go to court,” says Jose Royo of Tejidos Royo in Spain. “But the problem is that we are not that big. They put in the contract that in case we have a difference, we will use the Californian or New York State laws. We are talking about €50,000, €150,000. The lawyer is more expensive than the money that you make.”
6. Buyers are inexperienced and unaware of the repercussions of low prices. In the British Channel 4 TV documentary, Inside Missguided, a young buyer for the ultra-fast fashion brand haggles the price for a dress down from £7.75 to £7.40. The narrator says, “Shelley’s done a great job of getting it for £7.40. Nice one, girl.”
A Junior Buyer’s role is an entry-level job, in which inexperienced Westerners compete to extract the lowest price and shortest turnaround time from suppliers. Their aggressive negotiation tactics to meet their KPIs (Key Performance Indicators) can verge on bullying. For Better Buying’s report, more than half of the suppliers reported that the buyer they rated had used high-pressure cost negotiation strategies. And they can sometimes have a colonialist, condescending attitude toward suppliers, foisting the responsibility for labor violations on “greedy” factory owners, without understanding the ethical ramifications of their haggling “wins” on the lives of garment workers.
For example, lead times in Bangladesh declined by about 8% between 2011 and 2015, increasing forced overtime. Real wages dropped by 6.5% since the minimum wage increase in 2013 until the minimum wage increase in 2019. The number of violations against workers’ rights to form unions, bargain, and strike increased by nearly 12% between 2012 and 2015. In Cambodia, buyers forced prices down while the minimum wage went up, and subcontracting factories nearly tripled from 82 in 2014 to 244 in 2016.
7. Brand departments don’t cooperate or talk to each other. When lockdowns swept across the West, insiders tell us that the financial controllers took complete control at several brands and retailers, including ones who had been marketing their ethics, and forced the decision to cancel all orders down to the buying department, bypassing the Corporate Social Responsibility (CSR) and marketing departments completely. If these departments were consulted, even briefly, they would have pointed out that canceling orders was unethical, and would hurt the company’s business relationships and reputation, not to mention have a significant impact on garment workers.
Note that one of the first brands to publicly confirm that it would honor its contracts was H&M, whose new CEO, Helena Helmersson, had worked her way up through the company to Head of Sustainability and then Global Head of Production before becoming the COO in 2018. (H&M is also majority-owned by the family, giving it a bit more leeway than other publicly-traded companies.)
8. Factories are muzzled by brands and retailers. Because there is always another factory a brand can go to, suppliers fear speaking publicly or informing the media about bad behavior. Even the most shocking behavior is swept under the rug, in case the supplier is seen as “difficult” and blacklisted by the entire industry. A few leading factory owners have given media interviews about the crisis, but have spoken in generalities.
The one exception is Mostafiz Uddin, the owner of Denim Expert LTD in Chittagong, Bangladesh. Uddin was outspoken before the pandemic, and during the crisis has ramped up his media interviews and opinion editorials, naming brands and sharing financial information about lost orders. When employees of brands express their displeasure privately, Uddin shares those conversations with the public as well. “Brands and retailers talk a lot about transparency,” he told us. “But when I am transparent, they don’t like it.” Uddin says that other factory owners worldwide have contacted him privately to grouse, but don’t feel comfortable going on the record.
9. No organization or government holds brands and retailers accountable. Because the fashion supply chain is global, there is no single government or non-profit organization to enforce contracts and promote ethical behavior. In other industries, contracts refer disputes to an industry body for arbitration, but that body does not exist for fashion suppliers. Brands try to avoid being held legally accountable by signing on to a growing list of voluntary and industry-funded multi-stakeholder initiatives (MSIs) and open letters that lack any authority to punish or eject members who contravene the mission statement of the group.
“They’re supporting the ILO Call to Action, which is fine, but the danger is that they hide behind that,” says Holdcroft of IndustriALL. “‘Oh yes, we’ve adopted the so-and-so code, and oh yes, we’re members of this MSI.’ They’re not making any commitments to which they can be held to account.”
When the crisis hit, the Bangladesh Manufacturers and Exporters Association (BGMEA) went to bat for its suppliers, collecting and handing over data on canceled orders to the Worker Rights Consortium and Remake. The resulting WRC Tracker and #PayUp campaign convinced some brands to reinstate about half of the previously canceled orders. The BGMEA also threatened to blacklist the Edinburgh Woolen Mill from doing business in the country.
Arguably, however, national supplier organizations like the BGMEA should have made demands of retailers, brands, and importers before granting export licenses, and started blacklisting chronically unethical BRIs years ago when their amoral behavior first became apparent.
8 Ways to Solve the Problem of Unethical Fast Fashion
You might have noticed that all of the above factors are just different ways to say, “Brands are all-powerful, get all the profits, and are never held accountable for unethical behavior.”
The many ideas I’m excerpting from the Transformers Foundation report all come together to rectify this power imbalance, plus create consequences for unethical and/or illegal behavior from brands and retailers. The more of these we can accomplish, the better the fashion industry will get. So read them, absorb them, and share them with your colleagues and friends!
1. Create an ethical arbitration organization for the fashion industry. This organization would provide support to suppliers struggling with unethical buyers and contractual terms by:
a. Providing arbitration in cases where a supplier cannot get a satisfactory resolution. In other industries, buyer-supplier contracts typically include guidelines for resolving disputes, which send them up the chain of command at the supplier and brand until the issue is referred to an industry body for arbitration. This system holds brands accountable for breaking the terms of the contract and provides a quicker and more affordable resolution than a court case. This arbitration is not just for disputes with BRI, it can also be requested for conflicts with other suppliers.
b. Publishing the outcomes of these investigations into bad brand behavior for activists and media outlets to use in their campaigns and articles. In other words, it would provide true transparency on brand behavior and incentivize brands to resolve issues with factories.
c. Providing collated information on BRI purchasing behavior to the environmental, social, and governance (ESG) investment funds to guide their investment decisions and financially incentivize fair purchasing practices. Prior to the July scandal revealing that British factories producing for Boohoo pay as little as £3.50 an hour, the labor conditions in Leicester were an open secret. And yet, 20 environmental-social investment funds were invested in Boohoo, which was rated AA merely because it’s production is in the UK. Once the slave- wage conditions in its factories were revealed, these funds divested, culling £1.5 billion from its value. There are other examples of the power of investors. The Ethical Council of Norway’s Sovereign Wealth Fund dropped its investment in a supplier to Speedo and Jockey International, leading Speedo to investigate the factories where its products are made.
2. Push through due diligence legislation in the countries where large brands are headquartered. Suppliers are subject to multiple audits with consequences if they do not pass. But what about the brands, retailers, and importers? Real transparency for them is optional and only happens partway in almost all cases. While modern slavery legislation in the UK and California has nudged the industry forward, it has not come with any financial penalties for brands, so they carry on the way they were after adding boilerplate language to the site. Any legislation mandating disclosures, supply chain mapping, and due diligence must come with clear reporting requirements and large financial penalties for non-compliance. The legislation should also fund an effort to gather data about BRIs purchasing practices.
This legislation would make it impossible for buyers to aggressively haggle prices below cost, then claim ignorance when labor violations occur. Under this legal framework, if there are safety or environmental violations, the brand, retailer, or importer is financially and legally responsible for making it right, whether they were aware or not.
It would also legally require brands and retailers to publish detailed supplier lists. Currently, brands hide their suppliers so they can claim that it was a rogue supplier that they sourced from once or twice when something bad happens. To remedy this intentional obfuscation, every brand should host an organized and easily searchable supplier list on its website. The list should include first, second, and third-tier suppliers. And each supplier profile should include:
- Whether it is a factory or trading company
- What the supplier makes or does
- Website and contact information
- Owner or parent company
- Start and end date of the relationship
- Volume relative to other suppliers
- Results of its latest audit
3. Create a legally binding agreement among brands, retailers, importers, and suppliers. It has become abundantly clear that any attempts to fix the system through voluntary means — agreements, open letters, and promises — will only nibble around the edges of the problem. The most successful industry solution in the past decade has been the Bangladesh Fire & Safety Accord created in the wake of the 2013 Rana Plaza garment factory collapse. We need a similar legally binding agreement — but this time, transnational and with a fair pricing mechanism — to reform purchasing practices. It should include an independent, international office that floats above country-level politics and corruption, enforcement mechanisms, and an additional way to funnel money to workers in developing countries to provide a social safety net.
4. Create a multinational agreement to ban exploitative contractual terms. “The countries that rely on the garment sector are also dependent on [brands]. And so they don’t make adequate demands of the brands and then when brands don’t automatically do the right thing, then you’ve got country governments saying the behavior of the brands is unacceptable. When they actually granted export licenses and allowed that business to take place,” says Jenny Holdcroft of IndustriALL. We want governments in producing countries to explore an agreement forbidding certain exploitative contractual terms from being signed within their borders, such as overly broad force majeure clauses or a missing force majeure clause on the supplier side of the contract. Then, enforce contractual terms by revoking the export license within all signatory countries of any brand that has walked away from a contract without agreeing to arbitration.
5. Create a brand-funded social safety net fund for garment workers. Brands profit from the low prices that come from a lack of social safety nets in countries like Bangladesh and Cambodia. When cancellations happen, factories end up shouldering the cost of mitigating the worst effects of layoffs and furloughs, even though they have limited funds in which to do so. An international fund administered by labor unions, worker groups, and governments from both production and buying countries that portions out a severance and partial pay to workers affected by large events would ease factories’ burden while providing help directly to garment workers.
“A lot of these measures are traditionally seen as a supplier thing — paying for severance or paying regular wages. That’s certainly true, but if brands are not factoring in the cost of severance into their pricing, then it often financially can be very hard for suppliers to have the cash flow to pay for severance when factories are closed,” says Liana Foxvog, Worker Rights Consortium. “That’s something that we really want brands to be contributing to.”
6. Provide pro bono legal support for suppliers. Suppliers need access to affordable or free representation by attorneys practicing in buying countries and the supplier’s home country. An existing NGO should create a subsidiary organization whose cross-jurisdictional legal team can provide pro bono legal advice to suppliers and take legal action on their behalf when necessary.
7. Measure and manage garment and fabric manufacturing capacity. A factory that exploits its workers and brings prices down for the entire industry is not better than no factory at all, in our view. Every additional factory leads to lower prices and more exploitative hours for the workers. Production countries should follow the lead of government programs to measure and manage agricultural output, and explore an effort to similarly manage the output of fabrics, trims, and fashion products.
8. Reform the KPI system for buyer performance. Brands should embed an ethical approach into the buying team’s Key Performance Indicators. These might include: selecting best-in-class suppliers, respectful interactions with supplier contacts, as measured by an anonymous feedback system for suppliers on the behavior of individual buyers, adhering to the points within the Ethical Buying Code of Conduct, and incorporating the results of Better Buying’s annual ratings cycle. Brands should also ensure that people who have worked in the social compliance departments are a part of the upper-level executive team.
Want to learn more? Read the entire report and reach out to the experts and organizations that contributed to see how you can get involved in this effort.