Can Everlane Make Ethical Chic?

The online clothing company goes to China to pick a new bag factory.

Michael Preysman has come to China on a warm day in October to confront a young executive whose family owns the Dongguan factory that makes his popular backpacks. Preysman is the fast-talking founder and chief executive officer of Everlane, the five-year-old online clothing company committed to, and capitalizing on, “radical transparency” about where its shirts, sweaters, T-shirts, pants, coats, shoes, and bags are made and how much they cost to make. Its influence is greater than its size suggests: Everlane has been called “the Internet’s smartest clothing brand” (Fader) and the next J.Crew (Racked). “We want the look of Céline and the ethics of Patagonia,” Preysman says.

In May 2014 the Dongguan factory shipped almost 1,000 Everlane backpacks with the strap buckles on backward, and they went out to customers without anyone noticing. The company had to recall the bags. Preysman is also concerned about the factory’s low score on a recent audit of its working conditions.

“I had to tell him he’s our No. 1 problem,” Preysman says shortly after a meeting with the executive. “We’re his smallest client, so I thought maybe he just doesn’t care,” he adds. “But he says he wants to keep our business.” Preysman is visiting two other factories on this trip; Everlane will select one to take over some—or all—of its bag production if it doesn’t keep all its business in Dongguan.

The executive and the rest of the factory owners asked to remain anonymous so as to not upset their bigger clients, well-known American and European luxury brands. But, at Preysman’s request, they allowed me to join a tour of the facilities and to record what Preysman has staked his company’s reputation on: namely, that people can feel good about what they buy from Everlane, because they can see, on the website, the factories, workers, production costs, and Everlane’s markups.

Elena Rodriguez, a production manager; Bay; and Preysman in the Shenzhen factory
Elena Rodriguez, a production manager; Bay; and Preysman in the Shenzhen factory.

With Preysman are two Everlane executives, Rebekka Bay and Kimberley Smith, as well as four merchandising and production managers. That’s 10 percent of the staff. Bay, who helped create COS, the minimalist clothing line owned by H&M, and led the Gap’s design team for two years, joined Everlane as head of design and product in August. Smith, the head of production and sourcing since the spring of 2014, has two decades of experience finding and working with apparel factories.

Dongguan, south of the Tropic of Cancer and close to the Pearl River, hosts a sprawling network of factories. The complex that Preysman and his team are visiting also includes a five-story dormitory and canteen designed by the South Korean owner, as well as a basketball court. The factory owner was the first in China to sign on with Everlane and produces “weekender” and tote bags, too. But then there was the buckle debacle. As Everlane improved the bags, the factory sometimes struggled to keep up. In the spring of 2015, Everlane hired an auditor to inspect its factories, focusing on safety and health requirements, as well as workers’ wages and quality of life. The Dongguan factory had the worst score of the five in China that were audited. A second audit didn’t go much better. The main issue has been the factory’s records, especially when it comes to overtime. The hours worked don’t match the wages paid. That’s not good, Smith says, but maybe not as bad as it sounds: “The biggest thing for them is reconciling their paperwork,” she says.

It takes about 15 minutes to tour the main factory floor, where workers in light blue shirts cut and stitch under fluorescent lights. The executive overseeing the factory (and several others in Asia) is the son of the founder. As he walks past a line of women seated at sewing machines, he describes an incident that occurred last year. Workers went on strike, demanding that he fire the manager, a South Korean woman, for berating them. After two days, the workers gathered outside the executive’s office and wouldn’t let him leave. He didn’t agree to fire the manager, but promised she would treat them better and offered to pay them for one day’s work. “It wasn’t pretty,” the executive says. Preysman sighs when I mention this. He knows about the episode.

As we walk through the cafeteria, Preysman stops by the staff preparing dinner. We share a red bean bun. “That’s pretty good,” he says. He takes a photo.

Everlane wants to post audit scores and update its line of bags, so Smith has been looking for alternatives to the Dongguan factory. Getting into a good one in China isn’t easy for small companies, and if they’re not recommended, they often get nowhere at all. Some factories didn’t even respond to Smith’s inquiries.

Even if clothing companies don’t want to boast about how good their suppliers are, they should know how efficient they are. A company’s supply chain can be one of its biggest vulnerabilities. Everlane is hoping its factories can be one of its greatest strengths.

A worker in the production facility at the Shenzhen factory.
A worker in the production facility at the Shenzhen factory.

Preysman was 25 years old with a degree in computer science and some experience in private equity when he founded Everlane in 2010. He’s confident and quick to take chances. He agreed to let me join the trip to China after a 20-minute discussion, our first. The next time I saw him we were jet-lagged and eating breakfast in a hotel in Shenzhen. He came over to my table and gave me a hug. That morning and for much of the two days we were together, he carried his phone, passport, credit card, and hotel key in his hand as if he didn’t have pockets.

Preysman tells me he doesn’t keep any photos or mementos in his San Francisco loft. For a while he just had a bed and empty white walls. He’s interested in function and systems, not fashion. When Bay says she brings a mathematician’s mind to design, he smiles. “I love when she talks about grids.”

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Preysman understands brands. “Everything is always about the product and ideas and stories that we can tell,” he says. When he started Everlane, he wanted to offer high-quality clothes at lower prices by operating online only. He secured $1.1 million from Kleiner Perkins Caufield & Byers and several investors. Everlane became a Silicon Valley rebuke to traditional retailers: no stores, no collections, no discounts. Everlane’s aesthetic was pared down, too.

In 2011, when Everlane went live, Preysman put some numbers on Everlane’s Facebook page. He figured the cost of making a T-shirt at a Los Angeles factory was $6. He said the price of a similar shirt at a traditional retailer was $45. The price at Everlane: $15. Publicizing information that some retailers consider a trade secret helped Everlane gain a following and more funding. Preysman has raised $9 million so far. He and his employees own a majority of the business.

Everlane is in good company: Toms Shoes started the buy-one-give-one business model and today sells bags, clothes, eyewear, and coffee while committing to having a “responsible” supply chain. Warby Parker sells fashionable glasses for $95; now it’s worth $1 billion. Everlane’s transparency has limits, though. The company says it doesn’t publish the names of its factories on its website for competitive reasons. The auditing firm agreed to let Everlane link to its factory reports on the condition that Everlane remove the auditor’s name from the documents and not use it anywhere else.

And Preysman no longer shares Everlane’s sales. He said they were $12 million in 2013, and double that in 2014. PrivCo, a firm that tracks private companies, estimates Everlane’s revenue could be $35 million this year. Preysman will say only that the company is reinvesting and breaking even. Everlane has about 200 styles on its website and 300,000 customers.

“They have a missionary, not mercenary, approach to their business,” says Sucharita Mulpuru, a retail analyst at Forrester Research. “Typically, those businesses stay small.” But Preysman and Bay don’t want Everlane to stay small.

“They have a missionary, not mercenary, approach to their business”

When Preysman began courting Chinese factories in 2012, he and his original production manager were often ignored. Even now, “they want to see that we’re not a headache,” Smith says. “They’re vetting us just as much as we’re vetting them.”

In April 2013 the Rana Plaza in Bangladesh collapsed. More than 1,100 workers in factories that supplied clothes to American and European retailers died. Many companies promised to improve their auditing. Preysman saw an opportunity. He put photos and videos of workers and factories on Everlane’s website with the tagline “Every factory has a story.” Eventually, Everlane added the cost breakdown for every product.

Apparel audits have become so expected that some factory managers coach employees and keep a second set of books to hide violations. “Even quality audits and a relationship with the factory only get you so far,” says Sarah Labowitz, co-director of New York University’s Stern Center for Business and Human Rights. “You have to tie compliance to business incentives. If a supplier improves working conditions, they get bigger and longer-term orders.”

Everlane wasn’t the first to publicize its supply chain, but it remains one of the few fashion brands to do so. The company has tried to customize its audits so it gets information about median wages, the highest and lowest salaries, and how those break down by gender. “We ask if the dorms have hot water, heating, air conditioning,” Smith says. Factories have to be willing to be photographed and have their costs and audit scores made public—all for a customer that could be their smallest.

The numbers aren’t always as precise as Everlane wants. “Factories can pad costs all over the place,” Smith says. Everlane’s most effective pitch is that when it can see the real costs, it can figure out how to lower them. “You tell us why something is so expensive, and we’ll adjust our business for it,” Preysman says. Sonny Lee, president of South Korea-based Nobland, which makes knitwear in Vietnam for Everlane, and one of the few executives who agreed to be identified, says most companies want to see production costs, but only Everlane shares them with customers. “We were happy to be transparent,” she says. To save money, she’s since invested in automatic cutting machines and transferred sample development from South Korea to Vietnam.

The worker dorms in Shenzhen
The worker dorms in Shenzhen.

One of the two new contenders for Everlane’s bag business is a factory in Shenzhen. The owners agreed to create samples for Everlane because Smith is good friends with an executive at one of the factory’s biggest customers. The factory is used to dealing with luxury handbag companies; several young women from a much larger American brand are also there.

Shenzhen is home to 10 million people. It’s possible to drive two hours in any direction and still technically be in the city. We drive past security guards into a neat, green compound. A four-story, white-tile building sits back from the road, with a lawn in front, dormitories and a basketball court in the back.

The factory’s founder started out almost five decades ago making handbags in his apartment in Hong Kong. A daughter of the founder and her nephew now run the facility. The employees are organized into teams and can make 90,000 bags a month. There’s an industrial engineering department that’s implementing the Japanese kaizen system of continuous learning. A poster on the wall lists the 20 principles: “Principle 13. Ask why 5 times to discover the root cause.” “That’s just like us,” Preysman says. “We always ask why.”

“They are very efficient,” Bay says as we walk by a leather-cutting machine designed in Italy and run by one employee. Says Smith: “It’s efficient and high-quality, and it’s also going to be expensive.”

Workers' dormitories
Preysman and Bay visit the dorms.

In the dorms, the rooms are unadorned and compact, with space for four bunk beds and not much more; employees sleep on the bottom bunk and use the top for storage. Laundry hangs from the balconies. Preysman notices air conditioners. “When did you put those in?” he asks. Three years ago, the founder’s daughter answers.

Preysman asks about the percentage of workers who return after the Lunar New Year holiday in February, an important indicator of how well the factory treats them. At this factory, it’s risen to 85 percent. “I bet the air conditioning helped,” he says.

After touring the premises, everyone sits around a conference table for the official presentations by the factory and Everlane. “On the West Coast, we have the idea that we can democratize everything,” Preysman begins. “We want to keep our markup as low as possible. We didn’t intend to be transparent about costs and factories, but we realized it was a real angle for us to tell the story.”

“You really tell a lot of stories,” says the female executive. She seems appreciative.

“We look for partners with the same aesthetics,” Preysman says. “We’ve found that factories that perform worst on the audits have worse quality, too.”

“You’ll be impressed when you see our organic vegetable garden. You’ll get organic vegetables for lunch,” the executive offers. (Lunch is served not long after in a bright, airy room near the vegetable garden: figs with fresh Parmesan cheese, handmade pasta, and mushroom sauce.) “Having a vegetable garden sounds silly, but it does show your values,” Preysman says. “Still, your workers aren’t eating organic vegetables.” A brief, awkward silence follows. Smith ends it. “We’re not a big brand yet,” she says. “We know there will be a lot of growing pains.”

Workers' Dorms at Shenzhen
Bay and Preysman in a worker's dorm.

The other factory Preysman and his team visit is in the city of Suzhou, about 90 minutes west of Shanghai. It’s owned by a company in Taiwan. Its customers are some of the biggest retailers in the world. “Usually I would say absolutely no,” Smith says. “It’s like whoa, too extreme. We’re going to be a little blip on the map, and no one is going to care.” But another former colleague suggested she consider the factory; it works quickly and cheaply and has the resources to help Everlane grow.

The general manager has flown in from Taipei and leads the Everlane team through a long hallway of showrooms. Luggage and backpacks made for almost every big American department store and mass brand are on display. He gives Preysman a quick once-over. “Hey, how much did those pants cost?” he asks. The pants, from Cadet, are black, loosefitting, and made of light wool. They cost $260. “That’s too much,” says the general manager. “But the material is $27 a yard,” Preysman says. He asks the real costs of almost everything he buys. “They need a better fabric supplier,” the manager says. On the factory floor, workers don’t look up when the seven Everlane employees walk by. They’re too busy. Preysman asks how many return after the Lunar New Year. About 97 percent. For lunch, the manager takes everyone to the top floor of the building. There’s a lounge with couches and a pool table. He points to a wine storeroom. Preysman and Bay give their pitches as we sit around a table full of Chinese dishes and Pizza Hut pizza. The manager talks about shopping at the Barneys sale in San Francisco and doing yoga. “When your business with us reaches $1 million, I’ll do the splits,” he says.

The sample review begins after lunch. Bay asks about using different material and hardware that’s less shiny. Also, could the factory make the bags without a lining? “The simplicity is a big challenge,” the general manager says. He pulls Smith aside and tells her that Bay has expensive taste. He looks worried. “It doesn’t have to be expensive,” Bay says later. “It has to be clever. I wasn’t adding anything. I was suggesting different ways of doing it.”

Workers at the Shenzhen factory prepare material for pattern cutting
Workers at the Shenzhen factory prepare material for pattern cutting.

A week after the trip to China, Preysman and Bay are in Everlane’s New York studio. They’ve come to a decision on the bags: The factory in Suzhou is out. “It just didn’t make sense,” Preysman says. “There are certain vibes that you get, and the vibes there were a little odd.” Bay adds: “We would never be able to have a conversation with one of the workers. And I think that’s also one of the intangibles. It was too much of a traditional production line.” She worried that would affect the quality, too. “The fewer hands that touch the product, the higher quality. The longer the lines, the less the worker is engaged.”

There was also the issue of the factory’s other customers. Everlane needs attention, and Preysman and Bay didn’t think they could compete against the mass-market brands already there. Later, Smith says Everlane might again consider the factory if it expands into luggage.

Everlane expects to place a test order for one of its new nylon backpacks with the Shenzhen factory in December. They’ll be available in May.

Comparing prices isn’t easy, Smith says, because the factories used different materials to make samples. But Everlane can compare one cost: labor. The Suzhou factory has the cheapest labor. It’s 20 percent lower than the Dongguan factory, which is 10 percent to 20 percent lower than the Shenzhen factory. “The whole vetting process is to find good factories,” she says. “If we pay more for labor to be in a better factory, we’ll have to decide if that comes out of our margins. It won’t affect our price.”

Preysman gave the Dongguan factory one last chance to go through training provided by the auditor—which it did right after his visit—and to try to raise its score on the next inspection. “We have a level of loyalty, so working with the factory to improve is important. We can’t just say, ‘Hey, we don’t like what you’re doing. Peace. We’re out.’ ”

If Everlane keeps growing, eventually it will face the question many companies do: Can its ambitions keep up with its size? Or, put another way: How big can a company get before it has to make compromises? Preysman worries about how fast to expand Everlane’s offerings, when the company will have the resources to trace the materials it uses, and how to measure environmental sustainability. But he doesn’t worry about Everlane losing its way. “The bigger you are, the more impact you can make.”