Plans by UK-based online fast-fashion retailer Boohoo to open a model factory in the city of Leicester will do little to drive change in garment supply chains. A better solution would be for UK brands and retailers to join forces in a ‘super factory’ that would take manufacturing cost and living wages out of competition, say Doug Miller and Nikolaus Hammer.
Under fire Boohoo has taken the bold step to fully onshore by opening its own clothing factory in Leicester. Having severed ties with 64 of its suppliers in the cluster, one might be led to believe that the company is well on its way to cleaning up its brand image, having declared that this will be a model factory.
Could the move initiate a qualitative shift in the industry’s trajectory, away from under-investment and the damaging competition on minimum wage and employment standards?
Looking at the sector’s underlying problems, however, it seems Boohoo – and indeed the wider industry – might be missing a trick by focusing on one model factory. It is unlikely such a move will be able to address the structural problems garment supply chains have been facing for a long time.
As the remnants of a once thriving UK clothing manufacturing industry have been pushed into a corner with lead-times and margins getting tighter, it has been smaller manufacturers – who subcontract further when needed – that have had some advantage in offering nearshoring for the hyper-competitive fast fashion retail sector.
While permissive regulation and enforcement have pointed the way to the low road of maintaining profitability, in parts of the sector manufacturing strategy has converged around the cornerstones of wage theft, work intensification, and lack of investment.
But how sustainable can such a strategy be in a country with a (relatively) high minimum wage level?
Unfortunately, economic and social downgrading have gone hand in hand and tainted the whole industry. Indeed the ‘Leicester’ brand has acquired a somewhat bitter aftertaste.
Boohoo’s planned model factory clearly is a statement to drive change. Yet, expectations need to be realistic: in order to assess its potential, we need to ask whether such a model factory can transform the basis of competition.
Boohoo might, in fact, be in for a rude awakening, since it will perhaps finally understand what its suppliers have to grapple with on a day-to-day basis when faced with the type of buying practices that have plagued the industry since its beginning.
Garment manufacturing prices have always been based on the minute cost. That might sound rational, except that in the fast fashion world in which Boohoo and other brands operate, the cost per minute is driven down, along with the number of minutes required to make a garment and complete an order – often too low for a manufacturer to make any money on.
Thus, in the current hyper-competitive environment, the squeeze is on how much can be sewn within a minute as well as the price of that minute. In addition, garment manufacturers concerned about maintaining full production capacity will often accept orders at below cost. This cutthroat environment is what lies behind the type of employment practices that have become endemic in Leicester East.
So it will be interesting to see how the Boohoo model factory takes shape as the company seeks to meet the due diligence requirements expected of modern brand owners.
First and foremost it will need to cost appropriately, both for its labour and compliance with health and safety requirements in the Covid era. The company code makes reference to the UK Ethical Trading Initiative (ETI) as the basis for its supplier code of conduct yet it is not a member. This may be deliberate since Boohoo’s code of conduct does not commit to a living wage, unlike the ETI’s provisions on remuneration.
As a model factory, one should expect, as a minimum, that a real living wage is paid to its own employees. At the current rate of GBP9.50 (US$ 13) an hour this ought not to pose much of a financial burden given that Boohoo Group’s profit before tax rose 51% year on year to GBP68.1m in the six months to August 2020.
However, a model – indeed world class – factory should reward skill and performance and thereby pay wages in excess of this. These matters can only be thrashed out in dialogue with the workforce, which is why trade union recognition and collective bargaining should lie at the heart of Boohoo’s new venture.
Then there is a question to what extent this model factory can level standards up or whether it will be a drop in the ocean.
Boohoo has stated that this will be a “huge” operation with approximately 100 workers. This may be big by Leicester standards but is small by European standards.
In order to meet its production needs, Boohoo has approved a further 68 suppliers, only five of which have more than 100 workers.
Clearly, the model factory bypasses large parts of the workforce: simple mathematics shows that 100 workers in the model factory contrast with an estimated 3,000 workers across 88 factory locations in Boohoo’s Leicester operations, and a further 7,000 in the rest of the industry.
Thus, the majority of workers will likely continue to struggle in precarious work, not just on behalf of Boohoo. We have to be realistic here – parts of the Leicester clothing industry will continue to engage in the use of unorganised and undocumented workers, including first wave migrant workers from India, Pakistan and Bangladesh and more recent recruits from Somalia, Bulgaria and Romania. Some of these will still be working on Boohoo production.
As UK apparel brands struggle with the right collective response to the worker abuses in the Leicester garment manufacturing cluster, there can be little doubt that Boohoo has an opportunity to present a partial solution by establishing a model of industrial relations at the outset that can act as a beacon for the rest of a beleaguered apparel industry.
However, UK apparel brands and retailers, Boohoo included, are missing a trick. Is it not time for them to join up and go one step further and jointly invest in a ‘super factory’?
With multiple brands having a stake in such a factory, it would provide a basis to address the problematic trinity of pricing, wages, and capacity within one and the same framework. Quite apart from the business arguments – proximity to market, faster lead times, reduced stock volumes, make to order potential, full transparency of manufacturing cost and direct control of quality and efficiency – the opportunity emerges for such a factory to be grounded in business and human rights due diligence, meet freedom of association and collective bargaining requirements and cost for compliance to deliver, as a minimum, a real living wage and a safe working environment for its workers.
Would this fly in the face of competition law? Lawyers always shut down any collaborative discussion between buyers where cost is concerned. However, the picture changes dramatically as soon as brands, through their joint ownership of a super factory, agree on the cost of a minute of factory work that is compliant with their own ethical standards.
In fact, it subverts the cost collusion argument as the manufacturing cost of labour and overhead charge are taken out of competition. Instead of a race to the bottom on wages, factory management would be able to improve efficiency for the whole factory and all their brand customers and retain some profit for investment, leaving competition between brands and retailers to be based on style, fabric and retail price.
This, really, is what industrial upgrading is about: to shape industry governance that can sustain an upward trajectory of manufacturing excellence rather than running down the dead end of social downgrading.
After all, the industry’s sustainability is not served by operating as a playground for media exposés. What is certain is that levelling up needs structural changes in the industry. A super factory, rather than a little model factory, could be a cornerstone in this process.