By  on October 2, 2007

Low prices are coming at a cost that consumers and fashion companies can no longer ignore.

Globalization and relentless retail competition among the likes of Wal-Mart, Target, H&M, Kohl's, Gap and Macy's might have turned supply chain "efficiency" into a high art, but the pressure on factories has spurred a slew of sweatshops, industrial pollution and consumer safety concerns that many expect ultimately will increase prices.

At the same time, rising wages in China are only increasing pressure on manufacturers there as they strive to maintain the nation's status as the world's low-cost factory across a variety of product categories. This could result in even more shortcuts being taken by suppliers as they subcontract out more of their production.

Recent safety recalls of Chinese-made toys, bibs and toothpaste prompted consumer outcries and governmental reviews in both the U.S. and China that could lead to new regulations in both countries. The misery and human toil of sweatshops never fails to resonate with Western consumers at some level, and the green issue has gained traction in the last year, especially with tales of industrial pollution making front-page news.

What is becoming clear in these scandals is the relentless drive toward lower and lower prices — whether it's a toy or T-shirt — in turn comes at a price, be it greater pollution, displaced populations or possible safety hazards.

"This is potentially hugely important — all these issues do become lumped together," said Charles Kernaghan, director of the National Labor Committee, a watchdog group that has uncovered worker abuses, such as those discovered in special Jordanian trade zones last year. "If there are a few more recalls [of Chinese products], then I think we're going to see some real change."

While these issues rarely impact the luxury or high-end designer world, they could come to bear more and more on designers and celebrities as they increasingly strive to broaden the bandwidth of their brands, be it Karl Lagerfeld for H&M, Vera Wang for Kohl's or Sarah Jessica Parker for Steve & Barry's. And, while none of these brands have been involved in these issues up to now, consumers are unlikely to give any company a pass on product safety in the long run."When it comes to the point where children are sucking on a toy with lead paint on it, that's where they draw the line," said Kernaghan. "What will the Congress, what will the administration do to guarantee the safety of these products? It's something that's so powerful and so frightening to people [that] it does bring it right into their home."

Paul Charron, former chairman and chief executive officer of Liz Claiborne Inc., said China has had such incredible growth, it's "like the Wild, Wild West."

"There's a lot of pollution in the Pearl River Delta," Charron said. "There has been unbridled growth without appropriate checks and balances. I think that period of unbridled, undisciplined growth is about to be over."

It isn't just China. Much of the apparel supply chain relies upon the developing world, where it can be difficult for companies to get a handle on their suppliers. But now consumers want companies to do just that, and they might start expecting even more guarantees that firms aren't polluting or otherwise cutting corners, just as they did with sweatshops in the past.

"The balance is tipping a bit and now we do have product safety and climate change and environmental stuff on the front burner as we didn't before," said Barbara Franklin, commerce secretary under former president George H.W. Bush and a consumer product safety commissioner in the Seventies.

"Right now, there are some different points of view, what we expect and what the developing world's trying to do," said Franklin. "It's just one of the fault lines between developed and developing as we become more and more global."

The cultural differences or levels of development that have contributed to environmental and other problems require more of a multifaceted understanding from companies.

"A lot of the sins of the father are now coming back to haunt the sons and daughters," said Elaine Hughes, president of executive search firm E.A. Hughes & Co. Sourcing executives have had to evolve beyond their traditional role as experts of the technical aspects of making goods overseas, she said.

"They need to be a little more well rounded in understanding the supply chain and logistics pieces to it," said Hughes.As a result, fashion companies are starting to take a broader look at ethical standards in their sourcing practices.

"What we've been doing has been focused on labor and safety in the factories," said Laura Wittman, vice president of compliance and human rights at Jones Apparel Group. "However, we do anticipate expanding that to consider environmental and other areas."

The intertwining of product safety, environmental and sweatshop concerns marks a significant evolution in the sourcing landscape navigated by fashion brands, retailers and importers in general. The combination of the three issues might be enough to awaken the consumer in ways worker conditions alone rarely have.

So far, apparel hasn't been caught up in the product safety scandal beyond an investigation by the government of New Zealand into unsafe levels of formaldehyde reportedly found in some Chinese-made apparel. Most apparel consumer safety issues are centered on flammability and drawstrings that could choke children.

However, there seems to have been some interest on the part of fashion companies to make sure their goods don't contain harmful substances.

"The last four months have been crazy," said Dina Dunn, marketing agent for the International Oeko-Tex Association, who has been working to establish a U.S. business for the Zurich-based firm that tests textiles for harmful substances. "Now, they're coming to us. There are a lot of people talking about it. Right now it's toys, but it's not going to be long until apparel gets onto that list."

Given the catch-as-catch-can nature of Washington politics and policy making, fashion companies could get caught up in the sweep of changes, even if they avoid a consumer safety scandal.

For instance, Sen. Susan Collins (R., Maine) said the Senate Homeland Security and Governmental Affairs Committee would investigate the safety standards not only for children's toys, but also clothing in the current Senate session.

When it comes to new standards, industry tends to favor voluntary guidelines and a market-based approach in which the ultimate consumer would punish brands whose policies fail to keep their goods and supply chain up to snuff. That might no longer be enough, though.

"We've seen too many instances in which companies can counter any bad publicity with clever p.r.," said Robert Reich, who tackled sweatshop issues as former president Clinton's labor secretary, in response to e-mail questions. "Moreover, it's far from clear that consumers are willing or able to keep the pressure on companies to clean up their acts."Big changes, though, are going to require some kind of buy-in from the consumer/voter.

"If Congress is going to make any headway, the public has to be willing to pay more — in the form of a carbon tax if we want to avoid global warming, for example, or higher prices if we want higher wages and better working conditions," said Reich, now a professor of public policy at the University of California at Berkeley. "There's the rub. And I'm not sure the public is willing to bite these bullets quite yet."

Consumers have indicated that they are willing to pony up more money for goods produced ethically, or for products labeled organic. Anecdotally, this can be seen by a proliferation of fashion lines at least claiming to be "green," though that means different things in different instances, and charging a premium. The same applies to the beauty industry.

More scientifically, a 1999 survey by Marymount University showed that 86 percent of the people polled would pay an extra dollar on a $20 apparel purchase if it were guaranteed to not come from a sweatshop. Similarly, three-quarters of consumers would avoid shopping at a store they knew to sell goods produced under sweatshop conditions.

That attitude, if extended to environmental and safety issues and brought fully to bear, could increase pressure on brands.

Harmful chemicals that might work their way into fashions on store shelves and into waterways outside of factories are also a worker safety issue. Such a connection helps give industrial pollution a human face, which makes combating it an easier sell to the consumer.

"The antisweatshop movement probably hasn't paid enough attention to this," said Bob Jeffcott, policy analyst at the Maquila Solidarity Network, which agitates for worker rights. "We have to make sure the consumers are also equally aware of the impact of these dangerous chemicals used in the production of these products."

Unions also are taking note and planning to mobilize.

Bruce Raynor, general president of apparel union UNITE HERE, said the spate of tainted products from China is a serious blow to the sourcing status quo.

"This is not going to go away," said Raynor. "This is the biggest major development since the sweatshop issue."Raynor pointed to Wal-Mart and said the company was being impacted by campaigns highlighting its business practices to consumers. Wal-Mart, the world's largest retailer, has come under fire for its antiunion efforts, its health care benefits and conditions at overseas factories.

"The consumer is the boss and the consumer is now making judgments about sourcing," said Raynor, who described the legacy of tainted consumer goods as the "third leg" that will force the debate to a new level.

"We need to see campaigns led by unions and student organizations," he said. "You're going to see consumers react with their buying power."

If interest groups are going to use ethical sourcing habits to nudge consumer behavior or attitudes on trade issues, they are going to have to make the issue "real" to shoppers.

"Until they can take it and turn it into something people can see, touch and feel — if they can take that message and make it concrete, then it's more likely to effect the way people think, but otherwise it's abstract," said Laura Peracchio, professor of marketing at the University of Wisconsin in Milwaukee.

They also are going to have to appeal to the early adopters — not just celebrities, but fashion-minded people who set trends. Consumers generally don't move quickly, though.

"Behavior is slow and hard to change," stressed Peracchio.

It also might be hard to change the dynamics between manufacturers, vendors and retailers. As John Eapen, chairman of the American Apparel & Footwear Association's environmental task force, told WWD in August: "You have to honor and reward suppliers that have the know-how, that have the knowledge level and have the resources to do the right thing. [If] you go for the cheap stuff, this is what you get. When you don't have the relationship and you don't pay them properly, they're trying to cut corners and you can get into trouble. When you have 2,000 suppliers, somebody's going to cheat you."

In the end, though, the bottom line might be that ethical sourcing, no matter how engaged the consumer is, is just good business. The implementation of such practices across the industry could result in what Wal-Mart has found with its push for more environmentally friendly practices and products: The push has resulted in cost savings across the board."I'm seeing a rapid trend toward long-term sustainable enterprise that may increase costs somewhat," said Steven Jesseph, ceo of Worldwide Responsible Apparel Production, a nonprofit organization specializing in certification of ethically sourced goods.

"When you start imposing systems at a factory, is there a cost involved? Yes, but there are also efficiencies that are gained," said Jesseph, who retired from Sara Lee Branded Apparel in 2005 as vice president of compliance and risk management. "It therefore becomes an investment and there is a return on investment."

As with everything else in business, companies simply can't afford to take their guards down.

Kevin Burke, ceo of the American Apparel & Footwear Association, however, said the increase in freer trade after the elimination of a global system of quotas in 2005 has streamlined the supply chain and made it easier to source goods responsibly.

"There are not as many factories making products as there were," said Burke. "Now they can have long, steady relationships with factories. There are fewer and fewer bad players. They can't afford to be in business anymore."

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