The high cost of cheap clothing continues to fall on factory workers video

RACHEL CLAYTON/Stuff.co.nz

Shoppers can't stay away from cheap prices.

Workers in poor countries are being exploited to make the clothes we wear. But consumer demand is such that one already-cut-price brand, Kmart, has promised to reduce its prices by a fifth by moving its offshore production to cheaper factories. Rachel Clayton and Susan Edmunds investigate.

Mum-of-two Rachel O'Gorman stops into her local Kmart about once a week. "I could close my eyes and tell you where everything is," she says.

"I really like the range of products they have. I can go to Kmart for just about anything.

"I know a child's dress is going to be $17, onesies are $9. If you go to The Warehouse or Farmers sometimes they have specials and sometimes they don't, but I kind of know the prices at Kmart."

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Consumer demand for cheaper products has led to Kmart promising to cut its prices by a fifth.
PAUL JONES

Consumer demand for cheaper products has led to Kmart promising to cut its prices by a fifth.

 

Another shopper, Nikisha Lekasa, says she often goes in for one item and comes out with a trolley full. "It's like a one-stop shop for me."

Kmart played to the wallets of shoppers like O'Gorman and Lekasa when it announced its move to a factory in West Java, Indonesia, will cut the cost of 320 items on its shelves by 20 per cent.

The savings, according to Kmart boss Ian Bailey speaking on Australia's A Current Affair program, will come from reduced shipping costs and cheaper production from the new mega-factory.

Rachel O'Gorman is a Kmart devotee but worries about where the stock is made.
SUPPLIED

Rachel O'Gorman is a Kmart devotee but worries about where the stock is made.

"It's not the cheapest labour in the world, but what they do have is production on a huge scale," he says.

A $10 T-shirt will drop to $8 by August.

O'Gorman was sceptical of the move and said she worried about who was making the clothes on Kmart's racks. 

"I've been following the media. I know they say that they are using good factories and things and [workers] were going to work for at least the minimum wage but I sometimes worry that it looks good on paper but when you think about it, it might not be that good. What is the minimum wage there?"

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Baptist World Aid advocacy manager Gershon Nimbalker believes she is right to be worried. Kmart cannot cut already cheap prices by 20 per cent without someone, somewhere along the supply chain, being exploited.

"It is very hard to sell a $5 or $8 T-shirt without seeing that someone is paid wages that are at poverty levels," he says.

Kmart managing director Ian Bailey says Indonesia doesn't have "the cheapest labour in the world" but it's still one of ...
LOUIE DOUVIS/AFR

Kmart managing director Ian Bailey says Indonesia doesn't have "the cheapest labour in the world" but it's still one of the lowest paid countries in Asia.

"Minimum wages in most developing countries are set so low that people struggle to lift themselves and their families out of poverty."

More focus has gone on worker exploitation in global supply chains over recent decades. But while many consumers know that cut-price labour is an international problem, we still want cheap stuff.

Factory owners are under pressure to move to two- to three-week fashion cycles, as opposed to the four seasons of the 1990s. If they miss a deadline, the clothing line is dumped and they are not paid.

OUTSOURCING

That growing demand has meant the supply chain has become increasingly murky.

To keep up, suppliers subcontract their orders to other factories and homeworkers – often without the knowledge of the brands they supply.

Miriam Seifert, a PhD student in the marketing department at the University of Auckland, said that meant retailers in New Zealand would have little visibility of who was really making their clothes.

"They know that it was outsourced but where is often unclear," Seifert says.

They can only monitor the conditions of the factories and workers they are aware of.

Firefighters attempt to extinguish a fire at a garment packaging factory in the Tongi industrial area on September 10, ...
GETTY-IMAGES

Firefighters attempt to extinguish a fire at a garment packaging factory in the Tongi industrial area on September 10, 2016 outside Dhaka, Bangladesh. At least 24 people died in an explosion at the Tampaco Foils factory.

Tear Fund advocacy co-ordinator Claire Hart says sub-contracting is "absolutely prolific throughout fashion supply chains because it's so competitive".

"If you're a supplier and a big brand regularly gives you orders, then you're literally going to do everything that you can in your power to fulfil that order," Hart says.

"Even if that means telling the brand you have space when you don't. That small factory will subcontract out to another factory, which sub-contracts out to another factory, and another one.

"It gets smaller and smaller and you end up having a few kids in a living room sewing the beads onto your T-shirt or blouse."

Bailey told A Current Affair that factories that make Kmart clothes pay their workers the minimum wage set by the local authorities.

In West Java the minimum wage is 1.42 million rupiah (NZ$148) a month while in Central Java it less, about 1.37m rupiah.

Both are among the four lowest paid provinces in the country and less than half the living wage calculated by the Asia Floor Wage. which is 4.05m rupiah a month.

Kmart uses almost 800 factories in Asia, including 13 in Indonesia, which is one of the lowest paid countries in Southeast Asia for manufacturing.

Wages are usually just low enough to make workers buy food and other essentials on credit, which keeps them locked in a cycle of debt.

Zara and H&M will need to force their suppliers to treat workers better if there is any hope of the smaller brands ...
REUTERS

Zara and H&M will need to force their suppliers to treat workers better if there is any hope of the smaller brands making changes, Tear Fund advocacy manager Claire Hart says.

Kmart was contacted for comment for this story. Its public relations staff responded to an initial request but stopped returning calls or emails once Stuff provided an intended line of questioning.

First Retail managing director Chris Wilkinson says retailers like Kmart and The Warehouse work within a highly competitive industry focused on profit.

"The big-box retail model relies on sourcing products as cheaply as possible in order to be competitive in the market," he says.

"This requires low labour and material costs which are typical of these mass-merchant supply chains the world over."

Being socially compliant doesn't always fit this model.

"You're in a tricky position … it's a race to the bottom," Wilkinson says.

Wilkinson believes companies need to appear to be more socially responsible in the wake of the Rana Plaza collapse, in which more than 1000 people were killed, and factory fires in Pakistan. But there's no financial incentive to try to change the whole system because profits come first.

"The push is on profits and not necessarily social responsibility, so there's a tension there.

"It's hard to justify some of those more socially responsible decisions when the businesses are being compared by analysts against compatriots that may not necessarily be ticking all those boxes in terms of social responsibility."

A group of garment workers inside the Canadia Industrial Park during a demonstration demanding an increase of their ...
GETTY-IMAGES

A group of garment workers inside the Canadia Industrial Park during a demonstration demanding an increase of their minimum salary in Phnom Penh, Cambodia.

Kmart is owned by Wesfarmers, one of Australia's largest companies, which also owns the Bunnings home improvement chain in New Zealand. 

It reported a profit for Kmart of A$470 million (NZ$493m) before tax in 2016, up nine per cent on the year before. Kmart managing director Guy Russo earned A$4m before his annual incentive of A$1.1m in the year to June 2016.

The Warehouse operates a similar retail model to Kmart and its chief executive Nick Grayston's base salary is $1.4m. Last year The Warehouse made a $78.3m profit after tax.

Unlike Kmart, The Warehouse does not disclose the locations of its factory.

Quality manager Trevor Johnston says customers are not interested.

"Apart from queries like yours and the interest of NGOs we have very little direct demand from our customers for this level of disclosure," Johnston says.

He would not comment further.

The Warehouse refused repeated requests for an interview with Grayston on the broader issue of exploitation in the garment industry and how they might be addressed.

China is home to 66 per cent of factories used by The Warehouse. But spokeswoman Julia Morton would not say what provinces they were in. She pointed to internal reports available on the company's website.

Baptist World Aid advocacy manager Gershon Nimbalker says: "Companies are constantly looking for cost reductions, which ...
SUPPLIED

Baptist World Aid advocacy manager Gershon Nimbalker says: "Companies are constantly looking for cost reductions, which puts increased pressure on workers and governments to keep wages down."

"It's hard for us to comment on the stuff we don't see, because if we don't see it we don't know it exists," Morton says.

"We look into what we do know and control everything we can control but beyond that we don't have our team members wandering around China and looking to comment on other people's practices."

China was once considered to be the "factory to the world", but rising wages and better conditions for workers is making the country uncompetitive.

In a bid to stop manufacturing work moving to cheaper countries, some local governments in China have frozen wage rates.

Vice-minister for human relations and social security Xin Changxing said in July last year: "Our advantage in labour costs is no longer as clear-cut as before; we should ease the frequency and scale of wage increases so as to preserve our competitive advantage".

First Union general secretary Robert Reid says two years ago there was much more product coming from China.

"China's wages are still low but are rising by about 10 to 12 per cent a year. Thailand and Malaysia are also out because their wages are too high.

"It means we've got major countries competing with each other. There's an export garment industry starting in India, which never had much of a presence before."

While China is one of the best paid countries in Asia for manufacturing workers, those workers still cannot afford to live with their children.

The Warehouse spokeswoman Julia Morton says factory locations are confidential because: “we simply don’t want our ...
MAARTEN HOLL/FAIRFAX NZ

The Warehouse spokeswoman Julia Morton says factory locations are confidential because: “we simply don’t want our competitors to benefit from the work we’ve done”.

Baptist World Aid's Nimbalker says although China's wages have risen, many workers send their children to live with grandparents and work into the early hours of the morning to make ends meet.

"They might see them a few times a year because they simply cannot afford to have their children with them because their wages just aren't high enough," Nimbalker says.

"These conditions you hear about, they're not an outlier at all. That is the industry.

"The way our current economy works creates this horrendous exploited class that service us, and they have to endure terrible suffering.

"It might be better than what's available to them living a subsistence agriculture life when the crops fail, but it's still not right that we get to enjoy all these luxuries while these people are so terribly exploited."

The garment industry is one of the biggest employers in the Asia Pacific region with about 40 million people, mostly poor women, working in factories according to the International Labour Organisation.

In 2016, Bangladesh exported 3 billion taka (NZ$55b) of goods, almost double the country's 2013 output, according to the International Trade Centre.

Almost 90 per cent of that came from clothes and footwear.

But as the sector grows in one country, workers become empowered, trade unions demand higher wages and safer conditions.

The Warehouse chief executive Nick Grayston refused to be interviewed for this story.
SUPPLIED

The Warehouse chief executive Nick Grayston refused to be interviewed for this story.

The resulting rising costs means retailers are quick to move production across the border to a cheaper, less developed country.

Indonesia, Sri Lanka, Bangladesh and Cambodia are popular for garment factories because wages, working conditions and production scale replicate what China offered a decade ago.

Victoria Business School associate dean Dr Arun Elias says it's hard to look at whole supply chains because at every point along the line someone is trying to make a buck.

 

"There are a lot of intermediaries involved, so many people who act in their own interests and own way to make a profit," he says.

"There is limited information sharing because people are always thinking, what am I going to get out of it."

Elias says maintaining high standards in a supply chain is not the most profitable business model and when brands have to answer to shareholders, ethics are easy to shelve.

 

"In an era of digital technology it's not a huge cost to follow your supply chain … but first there has to be cooperation," Elias says.

But "many companies are only looking at the short term cost advantage."

SO WHERE TO FROM HERE?

Kowtow founder Gosia Piatek says truly ethical fashion is difficult to achieve.
SUPPLIED

Kowtow founder Gosia Piatek says truly ethical fashion is difficult to achieve.

Palmerston North Kmart shopper Rebekah Bruce knows she should be more concerned about where her clothes and cheap homewares come from but can't see what she can do.

"You're just the little guy. You want to make a difference but how are you going to do that when the majority of the population are still going for all the cheap stuff.

"I work in a daycare centre and kids grow out of clothes so easily, so what's the point of spending $20, $30 on a top when you can get a $4 one from Kmart." Bruce says.

Instead, the answer may lie with governments. New York University associate professor of International Development, Salo Coslovsky, has studied positive changes to labour markets in Brazil's sugar and pig-iron industries.

He found both public policy and government labour inspections are needed to enforce labour laws, and private auditors are needed as "insiders" to persuade suppliers better standards will boost their bottom line.

"It's not impossible but it's difficult to find a way. It takes a lot of coordination and investments in the country," he says.

"Industries don't naturally evolve, we actually see the opposite happen with brands working to keep labour cheap."

Coslovsky says it doesn't hurt for consumers to shop differently but "it's not the solution people think it is".

"It's easier to just say I'll buy the fair trade one and I'm done. But change needs to come from domestic policy on the ground.

First Retail Group managing director Chris Wilkinson says intense competition in the global fashion industry keeps ...
KEVIN STENT/FAIRFAX NZ

First Retail Group managing director Chris Wilkinson says intense competition in the global fashion industry keeps brands from being more socially responsible.

"Empowering the unions, workers, training government labour inspectors, and domestic political pressure is what will change things."

The crux of that solution is that governments have to want better conditions and wages for their factory workers.

Like the 1999 United States-Cambodia Bilateral Textile Trade Agreement, which gave Cambodia a larger export quota to the US if its labour practices improved.

The agreement essentially linked access to US markets to workers' rights. And it worked, until quota trade systems were phased out.

The Transpacific Partnership Agreement tried to create similar labour rights provisions for countries like Malaysia and Vietnam.

Nimbalker says there are things that can be done.

"It's just whether we have the collective will to do them."

* An earlier version of this story incorrectly stated The Warehouse chief executive Nick Grayston's salary as $4m.

 - Stuff

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