The Flanarant: Workers pressured by more than social accountability
Rising demand for luxury clothes is said to be wiping out exotic mammals like the saiga antelope
The impact of unpredictable weather, over-geared retailers and uncertain consumers magnifies as it passes down the supply chain. But while pressure groups are adept at focusing on social and environmental scandals linked to the clothing industry, the impact of buyer behaviour rarely gets a look-in. Here, Mike Flanagan speaks up for garment factory owners.
It's been a vintage few weeks for examples of the damage the garment trade is supposed to be wreaking on the world, from the extinction of the saiga to inflicting greater poverty on millions of the world's poorest.
But what I believe - and most factory owners we meet believe - is the trade's most corrosive effect has rated just a tiny, scarcely noticed footnote in a little-read report from a United Nations division.
By far the most photogenic damage attributed to the world's expanding demand for luxury clothes is the wiping out of big, beautiful, exotic mammals like the saiga (pictured), snow leopard, chiru, Przewalski's horse and Tibetan gazelle.
All are allegedly finding it harder to survive on the Central Asian steppes from Tibet to Mongolia, which are being eaten up by ever-growing herds of goats bred for their cashmere.
The greatest challenge to the apparel industry, though, comes in a study of garment manufacturing wages in a number of developing-world exporting countries between 2001 and 2011.
This seems to show that despite the biggest ever boom in developing country garment making, overall garment wages grew less than local inflation, leaving workers even poorer. Its authors believe it puts the case for the so-called "living wage" campaigns.
Like the spate of fatal accidents in Bangladesh, Pakistan, India, China and Cambodia over the past year, and the July report of a sudden fall in compliance levels at factories monitored by the ILO's Better Factories Cambodia programme, the wages study appears to undermine the industry's previous proud boast of millions of new jobs created in the world's poorest countries over the past decade.
Other damage the industry has been accused of in the past month - aside from the constant litany of new problems in Bangladesh - includes a stream of new pollution scandals, and new evidence of child labour in the Vietnamese, Indian and Cambodian garment industries.
Human trafficking in Russia, money laundering for drug barons in Colombia, more cases of forced labour in Uzbekistan, continuing use of carcinogenic sandblasting techniques in Chinese jeans factories: there was scarcely a form of human suffering uncovered (or at least alleged) somewhere in the world's garment and textile business in July.
But hardly a peep about the issue factories complain about most.
Except, that is, for a couple of lines in a survey of factory managers published by the ILO's Indonesian Better Factories project in late July. "Sourcing challenges remain fairly consistent over time, including challenges stemming from uncertain customer orders...increasing concerns with the frequency of rush orders and ...longer delays between the delivery of an order and payment from customers."
We've not encountered a single factory manager this year, anywhere, who would disagree with a word of this - except to add that buyers are also more prepared to reject orders on downright flimsy grounds.
While increasingly erratic and tyrannical behaviour from buyers doesn't get the same coverage as the threats to the snow leopard, it does real damage to businesses and their workers' standard of living.
Speaking up for factory owners
Without pressure groups to lobby for emerging-market factory owners, I'll use this Rant to try to make their case.
Details vary a bit from project to project but garment factories, mostly, compete to gain orders for assembling garments from detailed specifications a client has written, all to be delivered by an agreed time.
They buy the raw materials their client specifies, and if the clothes they make meet the buyer's standards and are delivered by a given day, they get paid some weeks later. Increasingly, they're claiming orders:
- Are late arriving, or are changed during production - which means extra labour (usually at overtime rates) to meet the deadline, or
- Are rejected on quality grounds, though many claim the specified fabric turned out to be below the standard assumed, meaning a lot of unpaid time spent in checking for flaws, last-minute re-work - and still higher rejection rates than budgeted, or
- Have payment inexplicably delayed, or
- Have production delayed because of local problems beyond the manufacturer's control (recently a particular problem in Bangladesh because of frequent politically-motivated strikes and in Pakistan because of power outages and terrorist disruption). At best this can lead to the expensive use of airfreight; at worst to middle managers insisting workers ignore safety warnings, which happened at the Karachi fire in September 2012 that killed 200, the Dhaka fire in November that killed 120 and the Savar collapse in April that killed 1,200.
The world rarely turns out as it was expected to when an order was first confirmed - and the financial effect varies massively.
A debit note of a few thousand dollars is often just the cost of doing business for an established factory. But for many undercapitalised businesses in countries where credit costs are high, a week's delay in receiving payment can cost more than the entire labour cost of a project and push the business close to bankruptcy.
Many of the violent protests about delayed wages in Bangladesh turn out, on investigation, to stem from payment arriving later than was originally budgeted.
Obviously, not every factory owner is telling the truth when he claims it's someone else's fault a job has gone wrong. But the ILO survey confirms our impression: buyers are getting tougher and more unreasonable about this.
Which wouldn't be surprising, since life's getting tougher for many buyers. While garment wages didn't keep up with inflation in the decade to 2011, in many cases they increased in nominal terms. Gap, the world's biggest garment retailer at the beginning of the century, made lower profits in 2011 than in 2000 - and even then, they were just 6% of its sales.
Right now, three of the world's top 50 garment buyers are more strapped for cash than they were a few months ago.
Vivarte, whose turnover in garments and footwear is France's largest, admitted in July it had breached its loan covenants. Rumours flew at the end of the month that some suppliers to loss-making JC Penney were being denied credit by a US factoring house. The retailer's response was to insist its suppliers were able to factor invoices - but didn't mention any changes in the terms they were being offered. And business at the Jones Group swung to loss in the second quarter of this year.
None of these three are in real danger. But anyone who's bought for a retailer that's short of cash knows what happens. All sorts of cash-conserving programmes spring up - and many involve squeezing suppliers in one way or another.
Payment dates may lengthen, re-ordering may get cut, ingenious "promotional" discounts imposed, fabric de-specified or creative ideas emerge to reject orders: in times of trouble, it's always easier to force suppliers to help than to get customers to pay more or banks to lend more.
Pressure on workers
Now pressure on suppliers all too easily turns into pressure on workers. Few people set up factories intending to run away without paying wages, insist on lengthy overtime or avoid increasing wages when food prices go up. But when cash from customers dry up, that's when many start doing things they're going to regret later.
I'm certainly not saying JC Penney, Jones Group or Vivarte cause unethical behaviour in the factories they use. But if they've got problems, lots of smaller and less ethical buyers will share those problems -with the pressure that inevitably gets transferred to suppliers.
Like many other buyers, all three have some degree of over-gearing - but they also attribute their problems partly to sales being lower than they expected. This is a common enough problem in apparel retailing at any time, but especially so when the economy is as unpredictable as present.
In the US, there's real economic growth - but with unemployment refusing to shift, it doesn't feel that way to many consumers, and sales growth just can't be taken for granted.
It doesn't help either that the weather for the past few years has been exceptionally uncooperative. It's fashionable among commentators to sneer at retailers blaming the weather, but late springs or warm autumns inevitably lead to higher markdowns - adding falling margins to lower than expected sales. And who gets hurt most when margins fall?
The impact of unpredictable weather, over-geared buyers and uncertain consumers magnifies as it goes down the supply chain.
To management teams at major buyers, these are just the hazards of apparel retailing, and simply this year's challenges. As they cascade down to a factory floor in Jakarta or San Salvador, the solutions buyers adopt - from skimpier fabric to a week's extra payment time - become more and more oppressive.
I don't know the solution. But I do believe our industry should worry more about finding one than about the size of Mongolia's saiga herd.
Companies: JC Penney Company Inc
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