Look Who's Sweating Now

After federal agents raided an El Monte (Calif.) sweatshop last August that had enslaved 72 Thai immigrants, Labor Secretary Robert B. Reich wasted no time. He ran straight to the media with the names of several large retailers whose names had been found on boxes in the dingy shop. Angry and embarrassed, Sears, Montgomery Ward, and Dayton Hudson agreed to meet Reich in New York in mid-September to discuss ways to combat the use of sweatshops. Even though the chains aren't liable if they unknowingly sell illegally made goods, they promised to adopt a statement of principles calling on their suppliers to adhere to federal labor laws. Retailers fervently hoped that this would end the public-relations debacle and get that pesky Reich off their backs.

No such luck. In recent weeks, Reich has drawn up plans for a media blitz against retailers. His aim: to get stores to crack down on sweatshops by policing the 20,000 tiny U.S. garment makers that supply the half of the country's clothing that isn't imported. He fired the latest broadside during an Oct. 2 appearance on The Phil Donahue Show, where he showed a videotape of the Thai workers who had been held behind barbed wire and paid less than $1 an hour. The largely blue-collar audience cheered when one of them said: "Nobody can live on even $4 and change an hour. We're all being exploited."

Reich isn't stopping there. He's planning more sweatshop raids and promises to name more stores that sell sweatshop-made goods in a full-scale campaign beginning the week after Thanksgiving. That's the start of the four-week Christmas buying season, when stores rake in 20% of their annual sales. Although it's unclear just how responsive consumers will be, "Reich could hurt the industry," warns Robert C. Blattberg, director of the Center for Retail Management at Northwestern University. Even "a small percentage change in sales can mean a big change in profits."

There's not much doubt that garment sweatshops, once considered a turn-of-the-century problem, have resurfaced in a big way under the pressures of a global economy. It's partly because of the way the apparel industry works. At the top, large retailers sell clothes to the public and negotiate prices with large manufacturers. The manufacturers, from Guess jeans to Ralph Lauren, design garments and rely on some 20,000 subcontractors to sew the clothes. While the industry employs 800,000 people in the U.S., most shops are tiny, with 5 to 50 workers, and they go in and out of business at the drop of a pin. The workforce: mostly female immigrants from Latin America and Asia who earn an average of $7.34 an hour--just over the federal poverty level.

The apparel industry has been under fierce pressure from imports in the past 20 years, largely because the work is so labor-intensive. The competition has held down wages in the U.S. and fostered the spread of sweatshops. A 1989 report by the General Accounting Office found that some two-thirds of the 7,000 garment shops in New York City were sweatshops. Last year, a Labor Dept. spot check of 69 garment shops in Southern California found a stunning 93% had health and safety violations (charts).

BUYING POWER. The Labor Dept. has had a tough time keeping up. Cutbacks under Presidents Reagan and Bush slashed the number of investigators to 816 from 970 in 1989. And congressional Republicans' current budget-cutting efforts have targeted an additional 12% reduction for investigators, who must police all 6.5 million employers covered by federal labor laws.

Now Reich wants the retail industry to take up the enforcement slack. Last year, he mounted a series of raids against garment manufacturers, invoking a little-used 50-year-old law to hold them liable for their suppliers' illegal actions. The law doesn't cover retailers, however.

So the Labor Secretary is turning to public pressure. His goal is to get retailers to use their immense buying power to make sure that subcontractors comply with labor laws. Mainly, he wants them to mount spot checks of their own. Retailers should hire inspectors to visit shops randomly and without warning, he says. "We need to enlist retailers as adjunct policemen," says Reich. "At a time when business says to government, `Get off our back. We can do it ourselves,' we're giving them the opportunity."

The retailers say such demands are unfair. The logistics would be enormous, for one thing. A large department store such as Sears, Roebuck & Co. has up to 10,000 direct suppliers, which in turn farm work out to even more subcontractors. Nor do stores have the expertise to detect violations in the government's "very complex" wage and hour laws, says the general counsel at one large retailer. "We can go into a location, but that doesn't mean we would know what we're looking for," he says.

Just making the connections between supplier and retailer isn't always easy. Sears and Mervyn's, a division of Minneapolis-based Dayton Hudson Corp., which were identified as receiving goods from the El Monte shop, still haven't been able to confirm the charge after two months of investigating. Montgomery Ward did confirm a connection and has filed a federal lawsuit against its supplier, New Boys Inc., which subcontracted with El Monte.

Retailers also argue that their contracts don't say anything about spot checks. "We don't have the legal authority or the manpower to do that," says Tracy Mullin, director of the National Retail Federation, a trade group. "The Labor Dept. is trying to get us to do their work for them."

LEVERAGE. Reich retorts that retailers are just ducking the issue. They can afford to hire a few inspectors with labor law expertise, he says. The giant companies also have plenty of leverage to force both manufacturers and minuscule shops to accept new contracts allowing random spot checks. And while the task may be daunting, any added enforcement is better than doing nothing as the Labor Dept.'s resources dwindle.

Still, it's possible that Reich's campaign won't move price-conscious consumers, says Northwestern marketing professor Mohanbir Sawhney. After all, union campaigns against companies that make sweatshop goods here and abroad have had relatively little impact.

But image-sensitive retailers may not want to run the risk. They're suffering through a fourth tough year of lackluster apparel sales and need a home run at yearend. "We didn't know" isn't much of a rallying cry, concedes Robert L. Mettler, Sears' president of apparel, who wants fellow retailers to find ways to address the issue. Retailers aren't directly responsible for sweatshops. But if Reich has his way, they'll have a lot more responsibility in the future.

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