Inconvenient truth about irrational expectations

http://www.bloomberg.com/news/print/2013-04-28/shoppers-turn-blind-eye-to-bangladesh-in-6-bikini-hunt.html

Shoppers Turn Blind Eye to Bangladesh in $6 Bikini Hunt

By Sarah Shannon - Apr 29, 2013

In the wake of disasters in Bangladesh garment factories that have claimed hundreds of lives in recent months, shoppers in the west have shown growing concern about worker safety in developing countries. As long as it doesn’t mean an end to bargains.

“It bothers me, but a lot of retailers are getting their clothes from these places and I can’t see how I can change anything,” 21-year-old university student Elizabeth McNail said, clutching a brown paper bag from clothier Primark the day after a building collapse in Savar, Bangladesh, killed at least 381 people. “They definitely need to improve, but I’ll still shop here. It’s so cheap.”

Both of Primark’s (ABF) stores on Oxford Street in central London heaved with crowds sorting through clothing under neon signs heralding “Amazing Fashion Amazing Prices” last week. The floors were littered with crumpled t-shirts, jeans, and sundresses, while shoppers waited in queues 50-deep to pay for summer wear like a 1.50-pound ($2.32) fluorescent sun visor and 7-pound cut-off denim shorts.

Primark, a unit of Associated British Foods Plc (ABF), is one of at least five retailers whose products were made in the eight- story building that collapsed. Loblaw Cos.’ brand Joe Fresh, U.K. budget retailer Matalan Ltd. (MTN), plus-size womenswear seller Bonmarche Ltd. and Spanish department store El Corte Ingles have also said they had suppliers in the building.

A 2012 report by consultants McKinsey & Co. said purchasing chiefs at American and European clothiers considered Bangladesh the “next hot spot” due to its low costs. Over four-fifths plan to cut China sourcing, where wages are rising, because of declining profit margins. The Bangladesh Garment Manufacturers and Exporters Association says the country is the world’s second-largest apparel exporter, after China. Textiles account for about 80 percent of Bangladesh’s exports.

Electrical Wiring

The shift to Bangladesh has created an $18 billion manufacturing industry, yet one that is marred by factories with poor electrical wiring, an insufficient number of exits and little firefighting equipment. More than 1,000 Bangladesh garment workers have died in fires and other disasters since 2005, according to the International Labor Rights Forum, an advocacy group in Washington. A November fire at a factory making clothes for companies including Wal-Mart Stores Inc. killed 112 people.

Clothing companies have come under increasing pressure to lower costs as the rise of fast fashion at cut-throat prices has trained consumers to expect $5 T-shirts and $6 bikinis. The cost of clothing in Britain has dropped 20 percent since 2005, according to the U.K.’s Office for National Statistics, while food is up 43 percent.

Sunglasses, Handbag

Even small price increases in the name of better worker safety would be enough to turn away some shoppers, like American exchange student Shannon Atwell. The 21-year-old spent 12 pounds on a dress, sunglasses and a fake-leather handbag at Primark last week. “I didn’t buy a 13-pound dress because I thought it was too much,” she said. “If prices went up I wouldn’t buy from here.”

As attention turns to Bangladesh, Primark is among the companies with the most to lose. The retailer has more than doubled sales in the last five years to 3.5 billion pounds, far outpacing rivals on the British high street like Hennes & Mauritz AB (HMB) and billionaire Philip Green’s Topshop. That’s been driven by a focus on trendy, regularly updated fashions and low prices on garments imported from Bangladesh and other Asian countries.

Contractor’s Subcontractor

Primark says it hired a supplier called Simple Approach to make some of its garments. Simple Approach, in turn, contracted with a company named New Wave, which had a workshop in the collapsed building.
Since the factory collapse, Primark has vowed to push for structural surveys of buildings as part of supplier audits. Spokesman Chris Barrie said the retailer has sent senior staff to Bangladesh to work with a non-governmental organization to get food and other assistance to the local community. He declined to comment further.
Primark has many pages on its website dedicated to what it calls its ethical trading stance. The company outlines its code of conduct, supplier auditing process, and its own performance. The site includes a short film about how the company provides health and nutritional education for female garment makers in Bangladesh.
The program “has encouraged me to learn more and work harder,” Habiba, a 24-year-old worker whose surname was not provided, said in a case study on the site.

Conduct Code

The Ethical Trading Initiative, a consortium of apparel makers, trade unions and non-governmental organizations that establishes codes of conduct for companies, has spoken out against the “horrific incident” in Savar and called for better safety. The ETI declined to comment specifically on Primark’s sourcing practices.

“This terrible tragedy highlights the urgency of putting a stop to the race to the bottom in supplying cheap means of production to international brands,” said Jyrki Raina, general secretary of the Industrial Global Union, which says it represents 5 million garment workers worldwide, including some at the collapsed Bangladeshi factory.

The challenge for Primark is balancing activist and government demands with customer desires for cheap clothes. Those two forces collided April 27 when a group called War on Want held a protest outside Primark’s Oxford Street store, according to the BBC.

Nike’s Reaction

While Primark will likely see little impact from the disaster, despite the global headlines, “it’s something they have to monitor more carefully because while it won’t hurt trade, it may impact consumer perception of how well they look after their suppliers,” said Honor Westnedge, an analyst at retail industry trackers Verdict Research.

Perceptions do matter. Just ask Nike Inc., the world’s largest sporting-goods maker, which improved Asian factory conditions in the late 1990s after its stock sank amid widespread reproach from advocacy groups, politicians, and shareholder activists. Critics said workers were hurt by low wages, forced overtime, and the use of toxic chemicals in poorly ventilated facilities.
To avoid similar censure, Primark should put more time and effort into monitoring its suppliers, according to Planet Retail analyst Isabel Cavill.
“They could probably afford to invest in their factories, but it’s a tough market and it’s very difficult to up prices,” Cavill said. “The consumer may need to start getting used to higher prices.”

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net