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.
You'll notice quite a few things missing from that graphic between the $5.67 "cost" and the $14.00 retail price. I'll list just a few of them here:
1. Retail labor (sales employees, management, etc.)
2. Facility costs (rent for retail space, maintenance, etc.)
3. Security personnel
3. Employee benefits
4. Taxes
5. "Shrink" due to loss of product, theft, etc.
6. IT and other administrative costs
That barely scratches the surface, but you get the idea.
I was sitting home alone one night
In LA, watching old Cronkite on the seven o’clock news.
Seems there was an earthquake that left nothing but a Panama hat
And a pair of old Greek shoes.
It didn’t seem like much was happening,
So I turned it off and went and got another beer.
Seems like every time you turn around
There’s another hard luck story that you gotta hear.
And there’s really nothing anyone can say.
And I never did plan to go anyway, to Black Diamond Bay.
Bob Dylan
Absolutely. Still, the low margin percentage surprised me, and it’s probably much higher for upscale stores, and smaller merchants.
Apparel margin expectations are in the sixties for the national retailers. Margin in this instance means gross margin. Their net is not so freely discussed.
And it's not always the case that cheaper means lower quality. In the case of goods from Asia cheaper usually just means a lower cost of production.
Also, not all merchandise is sold at full price, therefore markdowns are factored into the price so that the merchandise is not ultimately sold at a loss.
Without making a profit businesses would fold.It’s what we call capitalism.
Shh! Not supposed to talk about this. We like our good deals on stuff made by slave labor! Shutting all our smelly smokey polluting factories saved the earth, too! /s
It means we as a country put broad swaths of the non-union, rural south out of work for no benefit to the consumer. The benefit was higher retail gross margin.
Well, it’s been seen more lately where I live. And you can even be a fussy shopper at thrift stores and pick better brands, at least in men’s shirts and jackets.
And what's all that about the non-union rural south? Are you saying Bangladeshi garment workers are putting American farmers out of work? If you mean the textile industry in the South, that has been gone for decades. Most of the work force reductions in the textile industry came about as a result of automation. Foreign competition killed off the remnant. My grandfather worked his entire life for Cannon Mills and I'm quite familiar with the history of that industry. The bottom line is if the textile companies had been able to compete they would still be in business. And there is never any reason to force consumers to pay more just so an inefficient industry can keep going.
I haven't bought a shirt in over 40 years.
I'll have to ask my wife what one costs.
I watched it happen first hand, not vicariously through a relative.
Stop and think of what you’re saying. The decimation of the domestic textile industry began due to automation? It’s a wonder, then, that offshoring ever provided such benefit due to radically lower labor cost.
Those domestic manufacturers that continue to exist remain competitive as a result of automation. It obviously didn’t put them out of business. Offshore sources face the same capital expenditure for modern automated equipment.
Home textiles and apparel are dissimilar in several ways as well, your grandfather’s no doubt outstanding contributions to the now defunct Cannon Mills notwithstanding I’m sure.
Well tgats what dry cleaning is for ya know... heh
Right, because real patriotic Americans don't want all this off shoring of workplace deaths. Why should we allow "nearly 400 people" in Bangladesh when in 2011 alone we had 4609 workplace deaths in America!
OK, so maybe we're breaking the sarc/ meter here, but I swear the stupidity we're getting from the press is astronomical.
mall stores have higher markups than standalone, mall rents are way more.
When seeking to lower costs, the choice has always been between automation and cheap Third World labor.
The big question over the next twenty years will be: what happens to the populations of the Third World when automation finally becomes cheaper than what it costs to keep an unskilled Third World worker fed?
It usually takes a disaster and a reaction in the West, threats of boycotts fueled by the MSM and the Left, before Western companies start taking steps toward exercising some control over their Third World contractors. This is going to happen with Bangladesh, as it’s happened with China. Benetton has an egg on its face.
1. Retail labor (sales employees, management, etc.)
2. Facility costs (rent for retail space, maintenance, etc.)
3. Security personnel
3. Employee benefits
4. Taxes
5. "Shrink" due to loss of product, theft, etc.
6. IT and other administrative costs
You're also not factoring in the palm-greasing, back scratching and bribery of local government officials to overlook the building codes of the factories.
My grandfather was the overseer of the dye plant in Concord. If you ever had any Cannon sheets or towels the cotton was dyed by my grandfather's crew. He started there as an elevator operator when he was fourteen. Mercifully, he died before the plant was sold.
Um... Building codes? Bangladesh?
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