With the release of Oxfam’s 2016 ‘Naughty or Nice’ list, retailers are reminded that ethical practice is fast becoming mandatory. Global retail giants like ASOS, Uniqlo, Topshop and Zara typically make headlines for disrupting Australia’s fast fashion industry, but this week, they’re in the news for the wrong reasons. They’ve all been named and shamed in Oxfam’s 2016 ‘Naughty or Nice’ list, which has become one of many ranking systems evaluating retailers on the transparency of
their supply chain processes.
Retailers are on notice. It’s now been more than three years since the Rana Plaza collapse in Bangladesh killed 1,136 garment workers and the pressure on fast fashion players to up their game is mounting. Many, including Uniqlo, signed the Bangladesh Accord after the tragedy as a commitment to change, but as Specialty Fashion Group (SFG) CEO Gary Perlstein admits, ethical procurement is a challenging process.
“We will always be on this journey, I don’t think it ever ends,” Perlstein told Inside Retail Weekly.” You have to invest in the team and capabilities within the business to drive things and that doesn’t come at a small cost.”
Levels of commitment
Perlstein says SFG has been working on making their entire supply chain operate at best practice levels for a number of years. All of the group’s brands have been named on the ‘nice’ list this year for publishing their supplier lists and Perlstein himself says that’s exactly how his shareholders like it.
“I’ve never had more questions about what are we doing and what more we could be doing from our shareholder base. Ten years ago, shareholders may have wanted to know what the ROI was, but they get it today.
“The consumer will not accept anything less than what we are doing. I’m not saying today, but in time – it’s just a matter of when,” Perlstein explained.
As shoppers continue to demand more information about where their products are coming from, Perlstein says the focus is shifting from tier one suppliers, who put the clothes together to tier two operators, such as dyeing mills, and even tier three suppliers that operate cotton farms throughout Asia.
Seventy-nine per cent of the 87 companies assessed by Baptist World Aid for its 2016 Australian Fashion Report had engaged in some effort to know their tier two suppliers, up from 41 per cent in 2013. However, Baptist advocacy manager, Gershon Nimbalker, said that only around five per cent have full visibility over their tier three supply operations.
“In 2017, we’ll see a significant uptick in how much each company knows of their primary fibres,” Nimbalker said. “Transparency is one of those critical measures that builds trust with consumers and genuinely makes companies engage with and look at their supply chain practices.”
The pricing conundrum
The shift towards tiers two and three visibility is going to require ongoing investment from retailers and major wholesalers, which is a tough sell in a competitive market where consumers are accustomed to paying such low prices for goods.
Although there is some inclination that attitudes are changing, a Nielsen report released late last year indicated that 66 per cent of global consumers are willing to pay more for sustainable goods (up from 50 per cent in 2013). It also revealed that in 2015, global growth for brands that embraced sustainability was three per cent higher than those that didn’t.
“We know that there are a number of brands that charge a lot more that don’t actually translate to improved protection for the workers,” Nimbalker argued. “We need to raise awareness that rock-bottom prices will often be inconsistent with workers earning a living wage.”
However, the question of whether consumers will actually vote with their wallets when confronted with consumption choices is contentious. Michael Parkinson, general manager of operations for DesignWorks — the wholesaler who now graces the ‘nice’ list after a few appearances on the ‘naughty’ side — says that there’s a disconnect between consumers and retailers.
“Our business lives at that low-profit high volume space in the industry and its highly competitive. All the majors – Big W, Target, and Kmart – compete with each other in that space,” Parkinson told IRW.
“Eventually, people will spend more, but at the moment, there’s a level of distrust: Is the claim real? is it validated? Can I be sure that if I put this extra dollar in over here that I’m actually contributing to somebody’s life in a good way?” Parkinson said.
KPMG consumer markets analyst Trent Duvall doesn’t think Australian shoppers are quite there either. Speaking to IRW, he predicted that consumers are more likely to want it both ways, demanding ethical sourcing and the prices they are accustomed to.
“In this day and age, I don’t see prices giving. This is what consumers are willing to pay,” Duvall said. “They’re expecting that they’re already paying for their share of the ethical sourcing…it comes down to how you cost-effectively manage that.”
“It’s what price your brand is worth, and that’s the question the owners and management of organisations need to ask. Can they afford to have their name on the front page, and what’s the cost?” he continued.
According to Perlstein, retailers who invest are most likely to reap the benefits in terms of sales growth at current margins, particularly as the brand marketing around ethical sourcing ramps up over the next few years.
“Companies that do this will prevail. It may be a situation where the ethical companies do a whole lot better over time. Not because they’ve lifted prices to compensate for costs, but because of the storytelling around what they’re doing,” Perlstein said.
With transparency as the operative term in the minds of consumers, Parkinson revealed that DesignWorks is currently working towards utilising the same types of supply chain technology currently helping groups like SFG enable omnichannel to actually deliver product stories to consumers.
“We’re working on QR codes and trying to get some barcoding in on ticketing from ticket talkers that we can link back into our factories,” he explained. “The idea is that you can actually scan [products] and see the factory it was made in and read bios of some of the people who work there.”
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