Do bargain hunters care about factory working conditions?
The hottest date at the global retail real estate conference that starts Sunday in Las Vegas is Uniqlo.
That’s because Uniqlo is one of the three “big hitters” in retail right now, says Faith Hope Consolo, chairman of Douglas Elliman Real Estate’s retail group, along with Sweden-based chain H&M and British brand Topshop. That has dozens of mall executives trying to get a meeting with the expanding Japan-based low-price clothing retailer, she says.
What this hot group has in common is that they are” cheap and chic,” she says.
The growing popularity of such chains, along with a discount mentality that’s outlasted the recession, is pushing them and other retailers away from China in search of even lower-cost Asian suppliers for the labor-intensive work of apparel making.
Bangladesh is an example: It has moved from eighth biggest garment exporter in 2005 to the fourth in 2011, according to the most recent data available from the World Trade Organization. Bangladesh accounted for 4.7% of all the world clothing exports in 2011, up from 2.5% in 2005.
But the pressure for lower costs has had a high price: factory fires and other disasters, including the April 24 Bangladesh factory collapse that killed 1,127 workers. In fact, fatalities have occurred in the largely unregulated Bangladesh factories producing apparel sold in stores in the U.S. for more than three years.
H&M, Gap, Benetton, The Children’s Place and Wal-Mart are among the names linked at different times to unsafe factories.
In the wake of the factory collapse, pressure has increased for the chains to take action. H&M, the largest clothing producer in Bangladesh, was one of the first international retailers to agree to sign a labor-backed proposal that requires the public disclosure of factory-inspection results and for companies to finance renovations and repairs, among other things.
Among U,S.-based retailers, Abercrombie & Fitch is the only one so far to have agreed to the plan. Gap said last week that it was close to signing. Retail trade groups have come up with an alternative proposal that many of the other U.S.-based chains appear to be rallying around. And Wal-Mart announced its own plan on Tuesday that includes inspections of the nearly 300 factories it uses and public release of the results.
A question, however, is how much consumers care about the issues, or whether price remains paramount in buying choices.
A consumer perception research firm YouGov survey found consumers’ “impression” of Wal-Mart started to drop right around May 10 when a rep said the chain wouldn’t comment about the Bangladesh incidents. Since then, YouGov’s BrandIndex shows their impression of Wal-mart has continued to drop.
When Wal-Mart singled itself out (by saying it would solve factory problems on its own terms), “it called negative attention to itself,” and consumers did not react favorably, says Ted Marzilli, global managing director for the BrandIndex.
But will such feeling about Wal-Mart and other retailers last after the high-profile disaster fades from the headlines? Studies and interviews show that while consumers care, their zeal for deals may outweigh that in the long run.
“It sounds good and makes good copy (for a retailer) to say if you pay 25 cents more, all the world’s problems would be solved, but it’s never that simple,” says Vinod Rangarajan, a sourcing and retail strategist at consulting firm Kurt Salmon. “Do you give up on your (profit) margin, or pass it onto the consumer? Is the consumer willing to pay more?”
It depends on the shopper. A 2012 study by Harvard University and Massachusetts Institute of Technology researchers looked at “fair-trade certified” clothing — apparel with a label certifying that certain labor and safety standards were observed during manufacturing. It found that someone looking for the best bargain on a package of socks is much less inclined to buy the slightly more expensive “fair labor” option, but someone buying a pricier item might spend a little extra for fair-trade certified clothing.
Rangarajan says it can be easier for smaller and higher-end niche retailers companies to shift away from very low-cost suppliers in countries such as Bangladesh. Mass-market and discount retailers often can’t get away with raising prices.
The children’s clothing website KinderStuff manufactures apparel in Germany and soon in the U.S., says director of operations Max Lotz. “We believe it’s time to move away from consumerism and buy less and buy better,” says Lotz. “That’s what we’re trying to do: Make great clothing at affordable price points that are made in responsible conditions.”
Philip Rooke, CEO of the custom T-shirt company Spreadshirt.com, says he can tell what conditions T-shirts are probably made under by the price — especially when some are sold retail for $1.50 and he can’t even get a shirt for that little wholesale.
“In the end, someone selling a T-shirt for $1.50 is taking big risks,” says Rooke. “It is not possible to do it ethically.”
People may love the low prices, but fail to realize “the impact of what they’re doing” when they pay that little, says Rooke. “Those factories have very poor workers’ rights or very poor safety.”
Sonya Sestito, 23, says she would pay a little more for the clothes at her favorite stores, which include Forever 21 and H&M, if she knew the companies were “socially responsible in the way that they gave their workers safe conditions and adequate pay.”
“I feel very badly now knowing that I have been shopping at H&M while they were treating their overseas workers so poorly,” says Sestito, who works in marketing in Princeton, N.J. “Pricing is important to me, but not so important that it overrides social responsibility and ethics.”
Still, Sestito may be an exception among bargain hunters.
Another study by the MIT and Harvard authors with a London School of Economics scholar showed a Fair Trade label alone can have a positive effect on sales. Sales of a popular but expensive brand of coffee rose 10% when it was labeled that way. Researchers found that customers who bought a cheaper brand of coffee, however, wouldn’t be willing to pay a 9% premium to support fair trade, but people buying the more expensive brand were willing to pay an 8% premium as long as the extra cost was directly associated with fair trade.
And some Gen Y consumers say they have to prioritize cost over ethics. Katrina Gardner, 20, primarily shops online to save money and says she lacks the ability to pay extra for fair trade products. “I have always felt bad for buying clothing made overseas, but I do not have the luxury of buying more expensive clothing,” says Gardner, a student at Central Michigan University.
Abby Armbruster, 25, says she would pay extra for fair trade clothing, but it’s not a factor in her choices. “I’m sad to say that I don’t pay attention to where my clothes are made,” says Armbruster of Wooster, Ohio. ” I look at it just out of curiosity, but it doesn’t affect whether I … purchase the clothing or not.”
That’s a common reaction among consumers, says Kit Yarrow, a consumer psychologist and marketing professor at Golden Gate University. Many consumers may be troubled by news accounts of unsafe factory conditions. But they regularly dismiss them, along with other things, like credit card debt, that argue against purchases.
“Denial is a pretty powerful thing if something is beautiful and you really want it,” says Yarrow.
As for Uniqlo, company officials did not want to comment on its sourcing. According to Japanese press accounts, the company formed a joint venture in 2010 with the Bangladeshi bank Grameen, which owns a knitwear company.
Uniqlo has seven U.S. stores now and already has said it plans to open more stores around their flagships in San Francisco and New York City.
But they won’t be sticking to the coasts for long, says Consolo. “In the middle of the nowhere they want Uniqlo,” she says. Mall and shopping center owners “learn a name, and they just keep saying it.”
The attraction for Uniqlo and others like it?
“It’s really throwaway fashion — like disposable clothing,” says Consolo. “It’s all about making the product the fastest and the cheapest.”