Bangladesh Factory Safety Elusive Amid Chase for Profits: Retail
The second fatal fire at a Bangladesh garment factory in two months has intensified the debate over providing consumers with the latest fashions and putting lives at risk.
Apparel sold by Inditex SA (ITX), a Spanish company that owns Zara and helped pioneer faster fashion cycles, was found at a factory that caught fire on Jan. 26, killing at least six people. As a precautionary measure, the company stopped doing business with two suppliers linked to the blaze, Inditex spokesman Jesus Echevarria said. Both companies denied handing off production to unauthorized suppliers, he said.
Fast fashion has trained consumers to expect a steady flow of new garments in stores and has allowed the likes of Gap Inc. (GPS) and Urban Outfitters Inc. (URBN) to generate sales and profits in a tough economy. The challenge for apparel companies is how to maintain a flexible supply chain that can feed stores with new fashions in the future without putting garment workers at risk.
“If they don’t get the products to the customers on time, at quality and in the specifications they want, customers will switch to a competitor,” said Richard Locke, a professor at the Cambridge, Massachusetts-based MIT Sloan School of Management, whose supply-chain research has taken him to factories around the globe. “At the same time, brands and large retailers need to be careful about reputational risks associated with poor working and safety conditions.”
Garments from Inditex’s Bershka and Lefties brands were found among the wreckage at the site of the Jan. 26 blaze, the Institute for Global Labour and Human Rights said on its website. The factory was owned by Dhaka-based Smart Export Garments Ltd. Inditex has sent its own investigators to the scene, Echevarria said. Inditex shares fell 0.8 percent to 106.50 euros at 3:46 p.m. in Madrid.
More than 100 people were killed on Nov. 24 at a plant producing garments for companies including Wal-Mart Stores Inc. (WMT) More than 700 garment workers have died since 2005 in Bangladesh, according to the International Labor Rights Forum, a Washington-based advocacy group.
Labor rights activists are urging the industry to help pay for safety upgrades at about 4,500 Bangladesh factories. Doing so would amount to 10 cents per garment -- or $3 billion over five years -- according to an analysis provided by the Worker Rights Consortium, a Washington-based monitoring group.
Retailers are wedded to the sales-driving power of fast fashion as Americans wrestle with joblessness and higher taxes.
Holiday sales grew 3 percent in November and December from a year earlier, far short of the 4.1 percent forecast by the Washington-based National Retail Federation. Through Jan. 24, the Standard & Poor’s 500 Retailing Index (S5RETL) had gained 7.2 percent this year compared with a 4.8 percent rise for the broader S&P 500 Index.
“The American consumer wants the widest variety possible, and they want it now,” said Nate Herman, vice president of international trade for the American Apparel & Footwear Association. “They don’t want to wait. If they wait, you lose sales, and they’re not going to come back.”
Gap declined to comment for this story, while Urban Outfitters and Hennes & Mauritz AB (HMB) didn’t provide comments requested in phone messages and e-emails.
To keep costs under control, companies have been shifting their manufacturing from China to Bangladesh. While the South Asian nation boasts a skilled workforce and many managers speak English, factory safety regulations are spottily enforced.
The move to Bangladesh coincided with fast-fashion’s spread through the industry. Previously, companies ordered clothes for each season, and a garment took as much as a year to travel from concept to store. While apparel makers could rush orders to market to meet unexpected demand, doing so was costly.
Then Inditex and H&M changed the game by proving that it was possible to cut lead times -- and keep costs low. H&M, among the largest buyers of ready-made garments in Bangladesh, has posted gross margins higher than 50 percent for the past 10 years. Gap and Urban Outfitters never exceeded the low 40s in that time. That’s why much of the industry boarded the fast- fashion express.
“Most companies have adopted some part of fast fashion and are trying to compress the product creation cycle,” said Timothy Lee, a former apparel sourcing executive for Adidas.
The business case is evident: continuously introducing blouses and skirts drives more shopping trips because consumers expect to find new clothes, thus increasing sales. Accelerated production also better matches supply and demand and allows stores to offer more fashionable merchandise. Shoppers are less likely to wait to buy, and stores can charge full price.
Fast fashion doesn’t work without a flexible supply chain, said Jim Brownell, who works for enVista, a Carmel, Indiana- based consulting firm that works with Urban Outfitters and other retailers.
Clients “don’t want to over-buy product in hopes it sells because if it doesn’t, you’re stuck with it,” he said.
At the same time, consumers have come to expect their clothing in a rainbow of hues and styles. In Nike Corp.’s (NKE) 2010 Corporate Responsibility Report, the company said “asking factories to manufacture too many styles is one of the highest contributors to factory overtime in apparel.” When workers don’t take enough breaks, accidents can happen, MIT professor Locke said.
Constantly changing orders adds to the pressure.
Two months ago, Fazlul Hoque, who runs a Bangladesh garment maker called Plummy Fashions Ltd., got a request from a European apparel maker that Hoque declines to name requesting a design change to the belt loops of 30,000 womens trousers. The switch came two months before the garments were due to ship, forcing Hoque to run his factory overtime and absorb the extra costs.
“It’s like a chain reaction,” Hoque said. “Consumers always want new designs; they always want to stay in season. Clothing companies follow the new trend, and we pay the price.”
Asking a factory to switch an order of 20,000 black shorts to 15,000 black ones and 5,000 red ones doesn’t sound like much “but has a bullwhip effect,” MIT’s Locke said. The suppliers’ factories might be forced to order new materials, work longer hours or subcontract out some of the manufacturing to meet the new demands.
“They still have to ship on time,” Locke said. “If they don’t, they probably won’t get another order again.”
The desire for flexibility means apparel companies are loath to sign long-term contracts with their suppliers, a move Locke and labor rights groups say would boost safety as retailers establish relationships with the factories where their merchandise is produced.
Ultimately, the industry will have to offer fewer choices, Locke said. That’s anathema to the companies, which say they are only responding to consumer demand.
Scott Nova, the Worker Rights Consortium’s executive director, doesn’t buy the argument consumers are hooked on fast fashion.
“It’s an expectation retailers have created,” he said. “Consumers weren’t demanding that 20 years ago. If seasons were reduced from 26 to 10, I promise consumers will survive. Retailers need to step back from this absurd approach of changing styles every 15 minutes if factories are going to be minimally safe.”
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