Ethics must stay high on the agenda

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New Look chairman Phil Wrigley called on the industry to make a greater effort in terms of ethics at last week's Drapers Fashion Summit 2008. Here is an extract from his speech.
Today, people do the right thing for all sorts of reasons. Sometimes people do compliance because they want to be seen to tick boxes or get recognition. Sometimes they try to do something about a situation because they really care about it.
Getting things done depends on how you behave, how you treat people and what you leave behind when you're gone. That is ethics to me. How do we source and buy product? How do we treat the people involved?
To get some idea of the scale of ethical fashion, clothing sales in the UK in 2007 accounted for 12% of all retail sales. Which meant UK customers spent nearly £40 billion on clothes. More than 95% of the clothing sold on UK high streets is produced overseas. Much of it is made in China, India, Bangladesh, Pakistan, Sri Lanka, Cambodia, Vietnam or Turkey.
In China, more than 15 million people work in garment factories. In Bangladesh, there are more than two million in clothing factories, and the wages they earn support another 10 million people. In Turkey at least three million people are cutting, sewing and finishing, and the textile workers' union estimates up to 200,000 of workers are children.
So this is an industry that has a perceptible effect on the world, and how we behave in it makes a difference. Most workers in producing countries are on a minimum wage rate. That is not the same as a living wage, sometimes it's a long way off it.
The Ethical Trading Initiative (ETI) and monitoring organisations such as Traidcraft and Impactt have carried out detailed work on rates of pay in producing countries.
For example, in Cambodia the living wage is estimated to be about £30 per month and the minimum wage is about £25 per month. If you compare that with Bangladesh, the living wage is about £35 per month but the minimum wage rate is only £12.50.
Looking at wages on an hourly basis, in Pakistan a clothing industry worker earns the equivalent of 23 US cents (15p) per hour. In China, the figure is 86 US cents (57p). In the US it is US$11.16 (£7.38) per hour.
We all know the cost of living in the developing world has risen dramatically in the past couple of years, with enormous hikes in the prices of fuel and food. The gap between the minimum wage and a living wage has widened and in some places the situation is pretty desperate.
Progress on making a living wage a reality in the fashion industry has been very slow. It is sad, because I don't know a lot of people who think a living wage is a luxury. But we have got caught in a loop where governments have been less than effective in establishing reasonable minimum wage levels.
There must be a few things we could do differently. I don't think governments should get off the hook. They pass laws and they enforce them. They set up regulation and they police it. They can't say that it is up to business to sort out legislation. Retailers should not do the job of governments.
The UK government did set up the ETI, which is an arterial route into government. It is a great framework. We could make a lot more use of it. One thing I would love to see is a more supportive attitude on the part of government. For example, how could business be incentivised to demonstrate (to the satisfaction of the ETI) that it is actually complying with a code of ethical conduct? A saving in duties payable?
And what about forms of recognition that exist already, such as the Investors in People standard? Could that be extended into the field of ethical trading? How could we use it to encourage businesses to trade ethically?
Last year, in the UK about two million tonnes of clothes were bought and just over one million tonnes were thrown away - mostly to landfill. Only 300,000 tonnes made it to charity shops. If we as retailers worked together with government, the ETI, charities and suppliers, we might find ourselves recycling clothes for use rather than waste.
I know some people in the ethical trading universe think productivity is a dirty word. They worry that it means getting underpaid people to work harder for the same or less money. There are probably circumstances where it could mean that. But they are unlikely to be efficient. Productivity is about working smarter, not working harder.
What it takes is experienced people who know about process engineering, plus lots of time, effort and goodwill. But it does get results.
In Bangladesh we worked with one of our key suppliers to introduce a trial line to see what we could do by untangling the production process in the factory. It involved 100 workers over a three-month period. Then it was rolled out to the whole factory over the next two months. Productivity rose by 33% and 50% per month. Total take-home wages for the lowest-paid worker increased by 24% for 46% less overtime. Workers went home two hours earlier, and the product got made faster. Now there is lower staff turnover in this factory than there was 18 months ago.
If you deconstruct the cost of making a garment, labour is a variable percentage of the whole - it can be as little as 10%.
If you pay your workers twice as much your garment doesn't cost double, that's for sure. Those higher wages could come out of a combination of duty incentives and productivity improvements. We have to get a proper view of the scale of this issue. Make sure we're paying the minimum wage - and take concrete steps to get that up to a living wage.
What we've observed, in a factory in Bangladesh that is close to paying a living wage, is that it is also getting close to paying for that itself. A higher wage drives significant productivity improvements. Lower staff turnover means higher skill levels and that means accuracy, fewer returns and speed.
Let's take a look at the effect of higher wages on margins - there is no need to pass them on to the customer and low prices in store should not mean low behaviour with suppliers.
Retailers cannot pass the buck to their auditors any more. We cannot just tick boxes. We have to take responsibility for verifying what is really happening and I am not fooled about how much work this involves and how long it takes because effective auditing does not come cheap.
Some retailers have stuck their necks out. Look at Marks & Spencer's Plan A initiative, which is a major public commitment from an iconic retailer. And look at the amount of work Gap has done on its supply chain.
This isn't about political correctness, these are savvy retailers making informed judgments about what their customers want. They think ethical trading is on their customers' agenda and I agree with that and I think it will become even more of an issue.
Our customers are not saying they don't care where our product comes from. They do. They expect us to source, produce and sustain fairly and off our own bat. In essence, what they are saying to us is that they have the right to assume we trade ethically. And they do not want to pay a penny more for that.
Fair trade should not be a hostage to the economic climate. Recession is not an excuse for suspending responsible behaviour. It is not a time to lock the factory gates and walk away from the people who have helped our businesses grow, but it is a time to work with them - to carry on from where we are now.
So what should we do? I would like to hold out two challenges. The first is to the government. Let's work together to devise positive incentives for business and consumers. The second is to retailers. When the going gets tough, good companies focus on survival but great companies have a broader agenda.
Chairmen and chief executives lead their teams with the aim of creating value. They also have a responsibility to create sustainable value. I believe they have a mandate for that from all their stakeholders.
What can we achieve together? For a start, we should make more use of the ETI. There are a number of agencies we can work with and we are happy to work with any retailer, either through the ETI or one to one.
You might think this isn't the moment. Customers are worried about making ends meet. True, but the more uncomfortable we become, the more aware we are of survival. It's not about a trade-off of money against people. If our industry's leadership focuses on the right things, that shouldn't put profits and performance at risk, it should enhance them.
So, ethical fashion - who needs it? It's your call.
— Drapers