Posted on 05/04/2013 4:32:40 PM PDT by rickmichaels
Before last week, Loblaw’s Joe Fresh was known mostly as a hot spot for cheap, stylish clothing. Few customers likely cared how the clothes were made. That all changed with the deadly collapse of an eight-storey factory complex used by the retailer in Bangladesh. Nearly 400 people are dead, and the owners of the complex—and the factories within it—that was reportedly built without proper permits, have been arrested on charges of negligence. Bangladesh’s government has vowed to inspect every manufacturer in the country.
The worst industrial accident in Bangladesh’s history offers an uncomfortable glimpse into the fast-growing garment industry there, and the treatment of its workers. According to a 2011 report by the consulting firm O’Rourke Group Partners, a generic $14 polo shirt sold in Canada and made in Bangladesh actually costs a retailer only $5.67. To get prices that low, workers see just 12 cents a shirt, or two per cent of the wholesale cost. That’s one of the lowest rates in the world—about half of what a worker in a Chinese factory might make—and a major reason for the explosion of Bangladesh’s garment industry, worth $19 billion last year, up from $380 million in 1985. The country’s 5,400 factories employ four million people, mostly women, who cut and stitch shirts and pants that make up 80 per cent of the country’s total exports.
For that $14 shirt, the factory owners can expect to earn 58 cents, almost five times a worker’s wage. Agents who help retailers find factories to make their wares also get a cut, and it costs about $1 per shirt to cover shipping and duties. Fabric and trimmings make up the largest costs—65 per cent of the wholesale price. Toronto-based labor rights activist Kevin Thomas says wages ultimately get squeezed most because businesses can easily control them, unlike the price of cotton or shipping.
A cost breakdown only partly explains the maze of relationships in the garment-supply chain. The retailer H&M, which had no connection to the collapsed building, works with 166 different factories in Bangladesh. It has published its supply chain, listing every factory around the world that makes H&M clothing in an effort to prove what most major stores claim: that it knows where its clothes come from. But according to observers, many don’t. Though most brands have a regular stable of factories, they may contract hundreds more for short stints. “It would be a very high risk to have a limited number of suppliers,” says Adriana Villaseñor, a senior adviser with the global retail consulting firm, J.C. Williams Group. Smaller factories often take on more than they can produce, Thomas says, and then subcontract later on—without the retailer’s knowledge. This week, Wal-Mart said it had “no authorized production in [the collapsed] facility,” but added that if unauthorized production were discovered, it would take “appropriate action.”
Amid mounting protests, both in Bangladesh and abroad, and calls for boycotts, retailers have pledged to improve working conditions. Primark, a U.K. chain that made goods in the ruined factory, and Loblaw Companies Ltd., have said they will compensate victims’ families. But Bangladesh is just one country in a vast supply chain. H&M, for instance, uses hundreds of other factories, including 262 in China. In Vietnam, workers make only slightly more than in Bangladesh: 14 cents per shirt. Real reform will mean paying a lot more than $14 for a shirt.
I'll bet you a million dollars, my left testicle and first born child they have them.
I'll bet you a million dollars, my left testicle and first born child they have them.
LOL. That’s pretty good. I wonder if any of the building inspectors have ever seen it.
You clearly don't understand the purpose of government. The building inspectors are undoubtedly paid handsome figures to ignore it.
a 400 golf driver costs about 65 bucks.
Remember that the low margin % also has to be examined in the context of how quickly a product is sold once it is added to a retailer’s inventory. A 1%-2% margin on a piece of apparel that spends no more than a few weeks on a rack is one thing, but that’s an abysmal return if you’re talking about a piano that may sit in a dealer’s inventory for months or years.
Nordstrom is a high end clothing retailer, and the vast majority of its stuff is made in China or other low-cost labor locales. Edgar filings show a gross profit margin of 31% for 1994 vs 35% for 2012. I'd wager a big part of the margin difference comes from improved purchasing power as the company's annual revenues went from $3.6b to $11.8b, its store count went from 57 to 242 and its geographical coverage went from 10 to 31 states in the ~ 20 year interval.
I suspect some of the margin difference over the years comes from retail consolidation, as regional chains become national chains, and regional chains or individual stores that can't compete go out of business or are bought out by the nationals. Fewer competitors means more pricing power. It doesn't mean that prices go up, but they might go down less in the absence of competition that went belly-up. Everybody has the same access to overseas sources of labor, but fewer competitors generally means better pricing from the seller's point of view.
My favorite Dylan song.
They don’t write them like that anymore.
Show me a news item on a phone support office in Bangledesh collapsing or a catastrophe hitting an offshored quality assurance staff and then maybe I can releate.
TSA paid about $75/shirt of taxpayer dollars for Mexican made uniforms.
Worst case scenario we open the factory in New Jersey and pay union workers $40.00 per hour, how much would that move increase the labor cost and by how much?
Let's say for argument that is takes 5 minutes to make one shirt(probably less time than that but we will go with 5 minutes of labor). the labor per shirt in Bangladesh is basically free. The labor per shirt in out New Jersey union factory per shirt is 1/12 hour times $40.00 = $3.33 per shirt.
So now the shirt would cost about 3 dollars more. Approx $17.00. OK that sounds like a lot but if you reduce the duties and shipping costs that would reduce the price a dollar to $16.00 per shirt. To me the 15% increase is offset by the decrease in social costs of the lower IQ chronically unemployed....
Takes alot of fabric to make XXXXXL shirts.
You can buy a 10’x10’ tent on Amazon.com for only $100.
I imagine that if clothing had to be made locally, we’d soon have machines that were doing the entire process. Right now, there’s no major incentive to invest in the research to make automatic sewing machines because labor in certain third world countries is so cheap that the machines would not be able to compete. But if the third world gets its act together, and their economies expand and their wages increase, machines will become more viable.
Another "benefit" was to mask inflation so that the Fed could keep printing money without apparent consequence, loaning it to the big guys who built factories overseas with it.
Bingo, and it will happen. I have a few ideas of what to do about it, but few would like them without making serious adjustments in their thinking.
--and to everyone else it's better to buy the shirt for $2 less, provide a living wage for hundreds of workers, and still have funds left over to feed the "lower IQ chronically unemployed" in Jersey.
You really hate the USA, hater GTH
I know someone to whom this happened. But this isn't a Walmart thing - it's a universal thing. With the destruction of local and regional chains, national price competition finally became a universal phenomenon. I am personally acquainted with someone who once operated a mom-and-pop grocery. There was no way she could compete with any large scale player. Big players have higher turnover and can dictate prices to the vendor. Mom-and-pop stores have inventory that sits for a while and definitely cannot dictate prices to their suppliers.
I also personally know someone who was a domestically-based Walmart supplier, and went out of business when he couldn't meet the price they demanded, and did not want to take the trouble to move his business abroad. It's the way of the world, and not a Walmart-specific phenomenon. Walmart is just bigger, so it touches more people.
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