How Covid-19 Exposed the Broken Links in Fashion’s Global Value Chains
Has the Covid-19 pandemic simply shed a light on the flaws with fashion system that we already knew existed? International human and labour rights expert Auret van Heerden shares his insights into how a tiny virus unearthed the deep-set problems with the globalised value chain on which so many retailers rely.
COVID-19 is stripping us bare. We, and what we do, are naked in the face of a microscopic particle that has exposed the frailties of our socio-economic system and the value chains that bring us goods and services.
Let’s face it, we weren’t in any position to put up much of a fight. Our highly skewed tax and budget policies under-funded public goods such as health, education and security for years. We didn’t have enough people or equipment to cope with a wave of infections, to say nothing of the lack of political leadership.
And while we’re on the question of leadership, how is it that so many countries have leaders incapable of understanding that the coronavirus does not recognise national boundaries. It’s impossible to be an island of immunity in a sea of infection, and yet one of the first reactions of leaders just about everywhere (once they had overcome the stages of denial and defensiveness) was to shut borders and compete with their neighbours and allies. The UN Security Council, the EU and the G20 have shown impressive levels of delay, disorganisation and disunity. Every time we lower our expectations of these bodies, they exceed them.
Finding the broken links
One of the earliest achievements of the ingenious little coronavirus was to reveal the fragility, and sometimes the folly, of our global value chains. We suddenly realised where our medicines and masks and medical professionals come from. The fact that a lot of manufacturing was off-shored in recent decades is not news, but the extent of it still caught many people by surprise. Who knew that the USA was dependent on active pharmaceutical ingredients and medicines from China and India, or that China produced 50% of the global supply of masks? Who could have imagined that the people your life depends on would have to wear garbage bags for protection?
Global value chains are long and complicated, with multiple tiers in many countries interacting to produce even the most elementary products. They are fragile because a natural disaster, social unrest or epidemic in any one of those countries can break the chain. They are also fundamentally inefficient and wasteful.
Why do I say that? Take the ‘push’ value chains that most brands and retailers rely on, which are driven by long-term projections of customer demand. Many of them take nine to twelve months to push product into the market. By then, the market dynamics may well have changed, and the product misses the moment. The result? Mark-downs. Retailers hope to sell 60% of their goods at full price, but it can be as low as 35%. This wiped $300 billion off the accounts of retailers in the USA in 2018, and the dead stock that remains ties up another $50 billion a year – not to mention to huge amounts of waste associated with this model.
Big companies taking bets on future fashion tastes and trends is always going to be risky and wasteful, but what’s the alternative? ‘Pull’ value chains. Responsive retailing. This is what e-commerce does better than conventional commerce, pulling product in once the consumer presses pay, and with big data and AI capabilities, they can predict demand a lot better than most brands and retailers can.
However, e-commerce models as presently conceived are dependent on ridiculously short delivery times and free returns, both of which provoke wasteful behaviour. Consumers order more than they need and just send back what they don’t want, ignoring the logistics footprint that goes with each order and return. Brands lose about 30% of their revenue to returns, and the value of returned goods was forecast to hit $550 billion in the USA in 2020. A lot of this (like 2.25 billion kilograms) ends up in landfill in America or gets shipped to developing countries.
So, pull supply chains do a better job of matching supply and demand on the consumer end of the value chain, but they don’t change the fact that the brands selling across e-commerce platforms may be over-producing and out of whack with demand and fashion trends. As such the current e-commerce business models have just added more waste to already wasteful value chains. Everyone loses – consumers, brands, investors, the planet.
There is one final form of waste that all these value chains are producing, and it is the most damaging of all. They are wasting lives. Millions of lives, often young women. From the farms that grow fibres to the factories that cut and sew garments through to the e-commerce warehouses and retail stores that sell them, the textile and apparel sector is plagued by bad labour practices. Workers are treated as a cost to be contained, and given the competitive pressures on each link in the chain, workers often serve as the adjustment variable in company budgets. It’s easier to shave wages and befits than rent and utility costs. Workers put in long and intense hours for wages that leave them poor, and when they eventually quit, they can still not sew a dress because all they were ever taught was a single repetitive function like cuffs or collars or side seams. This has reached such proportions that it is difficult to get millennials to work in apparel factories, even in labour surplus countries.
We have to be very honest about this. There is incessant pressure in global value chains for lower prices and faster delivery, and when those contradictory demands collide, workers suffer. And we consumers are part in this. Apparel prices in the major markets have been declining in real terms for decades. Consumers are hooked on those amazing prices. To keep producing those permanently low prices brands and retailers cut the margins to manufacturers, and the manufacturers are caught between a rock and a hard place. The easiest way for a manufacturer to claw back a bit of margin is to sub-contract to an even cheaper manufacturer, or hollow-out the wages and benefits of workers. Both options have implications for wages and working conditions. Both options put lives at risk.
Someone pays for the too-good-to-be-true prices we consumers can get on the high street or e-commerce platforms, and that price means that the young women and men coming in to work in this sector often leave without savings, without a certified technical skill, and without the life skills to become self-employed.
Exposing a system that was already imploding
The COVID-19 pandemic just accelerated the inevitable. The global value chain for fashion was already running out of road. The retail apocalypse has been raging for years as consumers sought better ways of buying. Ways that spoke to them aesthetically and ethically. So it was inevitable that brands and retailers would be hit hard. They responded by slashing orders, even refusing delivery of completed orders, regardless of the consequences. SME suppliers, with minimal reserves and anaemic cash flow, folded. Workers are being furloughed or terminated wholesale.
Smart, forward looking brands will step in to support suppliers with orders or loans to ensure that the suppliers are ready, willing and able to ramp up when the recovery comes. But short term, transactional buyers just walk away, sometimes without even paying for the work performed. Irony of ironies, by abandoning suppliers they may find that they have shredded the supply chain and cannot ramp up to meet renewed consumer demand.
So surely we can come up with a better system than this? As we sit in our digital sequestration and ponder how we got here let’s ask ourselves if it has to be this way?
Read our interview with Mostafiz Uddin, founder of the Denim Expert Ltd factory in Bangladesh, about his experience during Covid-19.
See Fashion Roundtable founder Tamara Cincik’s take on how Covid-19 may radically reshape the British Fashion Industry.
See our communication advice for businesses during the coronavirus crisis.