Ansgar Lohmann, head of the Corporate Social Responsibility department at KiK Textil and Non-Food GmbH (KiK)

Ansgar Lohmann, head of the Corporate Social Responsibility department at KiK Textil and Non-Food GmbH (KiK)

After garments made for KiK were found at each of the factories involved in the apparel industry's biggest tragedies, the low-cost German clothing chain is on a mission to raise the bar on working conditions within its supply chain. Recent developments include legally binding audits at supplier factories, and the extension of building safety assessments to Pakistan, as Ansgar Lohmann, head of KiK's Corporate Social Responsibility department, explains.

It's the elephant in the room in any discussion concerning KiK Textil and Non-Food GmbH (KiK) and corporate social responsibility: two fires and one building collapse at factories in Pakistan and Bangladesh in 2012 and 2013 killed at least 1,600 garment workers – and KiK bought clothes from all of them.

The fires at the Ali Enterprises factory in Karachi and Tazreen Fashion in Dhaka, and the Rana Plaza factory complex collapse, also in Dhaka, are the worst industrial accidents ever seen in the apparel supply chain.

And KiK, a unit of German retail giant Tengelmann Group, has spent the last five years caught up in compensation claims – including a lawsuit filed against it in the German courts – that have so far seen it pay out US$6.4m to injured survivors and the dependents of those who lost their lives.

But Ansgar Lohmann, head of KiK's Corporate Social Responsibility department, is glad of the opportunity to set the record straight, stressing the payments have all been made on a voluntary basis.

The Rana Plaza building had been evacuated for security reasons on the day of the tragedy, he tells just-style, but the owners forced workers back into the building. "KiK did not have production at Rana at the time of the accident, but there were still some products left from a previous order."

The fire at Ali Enterprises was the result of an arson attack because the factory owner had refused to pay protection money, "not because conditions in the factory were poor." Indeed, auditors had given the facility a clean bill of health just one month before the fire.

And KiK's business relationship with Tazreen had ended six months before the accident.

His colleague Britta Schrage-Oliva, head of corporate communications and public affairs, points out that an arson attack and factory owners forcing people back into a building are both "beyond entrepreneurial due diligence," and that an independent investigation by an OECD committee confirmed KiK had not neglected its due diligence obligations at Tazreen.

Indeed, both are adamant that the tragedies have opened up much-needed discussions on compliance and corporate responsibility in apparel supply chains. And that combined efforts from governments, NGOs, unions, brands and retailers to improve building and worker safety in the aftermath of Rana Plaza have proved that a joint approach is the only way to drive change.

"We are always working to improve our operations," says Lohmann, but "the tragedies have made it clear to the wider public that working conditions have to be addressed."

Greater transparency

Lohmann joined KiK in June 2013, two months after the Rana Plaza collapse, and was tasked with bringing greater transparency into the business.

As one of Germany's largest retailers, with more than 3,200 stores across nine countries in Europe – 2,600 in Germany alone – the discounter generated annual sales of EUR1.8bn (US$1.9bn) in 2015.

It sells a range of women's, men's and children's clothing, baby wear and underwear, as well as toys, accessories and home textiles, and prides itself on the fact that customers can buy a complete outfit for less than EUR30. Indeed, women's dresses cost from EUR9.99, a pair of basic skinny jeans is EUR7.99, a basic top EUR3.99, and a pair of slip-on sneakers EUR6.99.

Not surprisingly, KiK is also used to fending off accusations that low prices lead to exploitation of the workers who make its clothes.

"The price of the product is no indicator of the production conditions," Lohmann explains, adding: "Expensive textiles are produced in the same factories by the same employees as low priced textiles."

What does make a difference, he contends, is whether the buyer is in fast fashion, with a business model based on turning round merchandise in weeks rather than months.

At KiK the focus is on more basic styles with only occasional changes in its assortment – which means it places big order volumes and can work to long lead times from nine to 12 months.

"We are not a trendsetter, we are a follower. That is the DNA of the business model, and also enables us to import the merchandise fully on the basis of sea freight instead of air freight.

"We are not dependent on trends or seasons. Our orders can be produced without time pressure when there is little utilisation in the factory. This helps the factory owner to stabilise his orders and keep workers employed. Our business model therefore does not result in working seven days a week without rest."

KiK also invests in the development of its suppliers and believes forging long-term relationships with key strategic partners has an important role to play in reducing risk. Just over half (51%) of its supply base has a relationship with the retailer going back more than five years.

Audit scoring system

Reporting directly to KiK CEO Patrick Zahn, Lohmann is currently in charge of all aspects of sustainability, including environmental issues, supply chain management, supplier relations and social projects. The department also liaises with the German Partnership for Sustainable Textiles (Textilbuendnis or Bündnis für nachhaltige Textilien).

His team includes about 20 people who work in the CSR department at the retailer's headquarters in Bönen, as well as a team of 18 at its service unit in Dhaka, Bangladesh, who work on issues at the company's suppliers in the country.

Overall, Kik buys its products from around 500 suppliers in Bangladesh, China, Pakistan and Turkey, with Bangladesh the biggest contributor, accounting for over 40% of orders. And while the retailer sources through agents, orders are only placed at a factory once it has been checked "on the ground" by KiK's sourcing and CSR department.

This so-called enlistment visit is the first step in a three-step process that also includes a social audit after the first order has been placed, and is followed by investment in training and capacity building at the factory. While KiK presently audits its first-tier supply base only, these suppliers are obliged to communicate the requirements of its conduct of conduct to the lower supply chain.

Among the major changes that have taken place under Lohmann's leadership has been the introduction of an audit scoring system to improve supply chain transparency as well as create a vendor scorecard and provide early warning of corrective actions.

Since the beginning of last year KiK no longer grades suppliers based on the traditional categories – 'high risk,' 'non-compliant,' 'improvements needed,' 'good'.

Instead, it now uses 20 questions to measure each of the relevant chapters of its code of conduct – including health & safety at work, compensation, working hours, child labour, forced labour, discrimination, environment, freedom of association, transparency – and assigns them an index rate from zero to 100%.

The resulting report is automatically uploaded into KiK's cloud-based CSR software to provide real-time information on the status of each factory. "This enables the CSR department in Germany and in Dhaka to immediately react to the findings."

Legally binding audits

And in another significant move the retailer also holds auditing companies legally liable for findings in their reports.

"KiK is the first company in Germany and possibly in Europe with a contract in place with its auditing firms, which makes them legally liable for their findings on the ground for a period of three months following the audits," Lohmann explains.

For example, if an auditing company visits a factory and fails to spot the fire extinguisher has expired, and this is then discovered during a physical check in the factory, "we can go back to the auditing firm and ask them to pay a penalty."

However, KiK stresses the aim is not to penalise the auditing firms, "it's in order that they make their job 150% accurate."

"We need to have a picture of the factory that properly reflects what we find there, because we are the ones facing the risk later on," Schrage-Oliva explains. "This is why we now hold our auditing companies liable for what they present us with as the truth in the factories. And this is in response to what NGOs have demanded to have a closer look at factory conditions."

Perhaps not surprisingly, "we struggled to find any companies who were willing to sign this contract, even very reputable auditing bodies. But then we found organisations who agreed it was a good approach."

Capacity building

A final step to improve audit results and drive lasting change is a focus on capacity building measures. This means that after a social audit is done, a training company visits the audited factories in order to install a CSR-based management system.

"Having the scores in place means you can see every little progress, which automatically improves the motivation of the supplier. The overall goal is that all of the suppliers should be incentivised by us in order to concentrate on installing a CSR management system."

But this investment in its vendor base means KiK is reluctant to publish its supplier list beyond sharing it with the Accord.

"We've put a lot of money into the social auditing process, the qualification process, and the visits by my own team to our sourcing countries in order to give the suppliers an extra push from our side – and we want to keep that knowledge and investment in our company. So for competitive reasons we are not eager to share our supplier pool with our competitors, although in individual cases we are open to sharing the information."

Committed to Bangladesh

Despite ongoing building safety issues, terrorist threats, and a recent government crackdown following wage protests, Lohmann says KiK remains committed to Bangladesh, where a number of ongoing projects mean the company is also the country's second biggest private school operator. Its most recent initiative guarantees the school education for up to 700 children, from kindergarten to college diploma.

On top of this, it has teamed with the AWAJ Foundation to provide doctor stations, training and childcare in its supplier factories, and has worked with the NGO RDRS Bangladesh on various drinking water, hygiene and sanitation projects.

The retailer was one of the first German signatories of the Accord on Fire and Building Safety in Bangladesh set up in May 2013 to inspect and remediate factories for fire, electrical and building safety, and is also among a group of global union federations and brands now looking to continue the work of the Accord in Bangladesh once its five-year remit comes to an end next year.

Stressing that discussions are still in the early stages, KiK has been sharing its experience so far, the specific challenges faced by a European brand, and offering practical advice on how the Accord could be extended beyond 2018. But what is not negotiable, Lohmann says, is the company's position that any "new 'Accord' document, if agreed upon, must be legally binding."

Factory safety in Pakistan

Significantly, KiK is also extending building safety, electrical safety and fire prevention assessments based on those carried out by the Accord to some 30 of its supplier factories in Pakistan – another move thought to be an industry first.

Under plans that got underway earlier this year, an initial inspection – paid for by KiK – will be carried out by Hong Kong based Elevate, with any corrective measures and overall factory security the responsibility of the factory owners.

KiK launches building safety initiative in Pakistan

The overall aim is to make factories safe in a country that is highly vulnerable to earthquakes, and where poor electrical safety has led to factory fires in the past. And Lohmann says the response from suppliers has been "entirely positive."

"They have understood that they need to invest in the future of their factories. They understand this requires some effort as well as money, but they have realised that doing this makes them more attractive for Western buyers and guarantees orders in the years to come."

The goal, he explains, is to complete all remediation work in Pakistan "within one year after the last inspection," with the retailer "currently examining which countries could follow next."

Partnership for Sustainable Textiles

Building safety in sourcing countries is also a key part of the political agenda of the German government's Partnership for Sustainable Textiles, a multi-stakeholder initiative set up in 2014 to bring about social, ecological and economic improvements all along in the textile supply chain – and provide greater transparency to consumers for products sold in Germany.

KiK is among more than 180 members including Otto Group, C&A, Adidas, Puma, Hugo Boss and Tchibo, and is actively engaged in all the initiative's working groups.

"We want to contribute our share to improving production standards in terms of chemical management, environmental management, increased uptake of natural fibres, and transparency in the supply chain. Many challenges in the textile industry are sector problems and should thus be tackled by the sector."

Among the other issues being assessed by the group are taking a deeper look into the textile supply chain and the payment of living wages. "We will support whatever the Partnership decides on this. However, the mere fact of defining a living wage is complicated and indicates how difficult it will be to make progress on this matter soon."

Currently, a third-party review is underway of roadmaps submitted by members on their company's plans for the next 12 months, and is due to continue until mid-May. After this, "2017 will allow us to see how we are able to fulfil the goals. As of 2018, the goals should become public."

Looking to the future, Africa is on the company's radar as a potential sourcing option. "The textile industry in Africa is in the process of developing; this is an advantage, because it offers the possibility to start from scratch with appropriate factories and production conditions," Lohmann explains.

"The challenge remains that for the time being productivity and piece rates, in addition to available capacities, are not yet fully adequate to shift larger orders to African countries. There are also infrastructural challenges to overcome."

More immediately, however, the retailer is refining its purchasing strategy for the US market, into which it is preparing its first move in 2019.