‘The Game Is Up:’ Why Denim Needs a ‘Commercial Compliance Rider’ Now
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From China to Bangladesh to Mexico to Vietnam, denim suppliers are stressed, tired and bristling for change.
That much is evident from the Ethical Denim Council’s (EDC) inaugural “State of the Denim Supply Chain” study, which the year-old nonprofit says provides “overwhelming” evidence that brands and retailers are engaging in so-called “unethical” behaviors despite raking in record profits.
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The organization, which arose out of a 2020 Transformers Foundation report about badly behaving companies during the pandemic, sent a survey to more than 120 suppliers from nearly a dozen countries. In the end, 74 manufacturers, representing roughly 233,000 employees, responded, though not without some amount of effort.
“If pressed, suppliers will reply,” said Andrew Olah, founder of the Kingpins trade show and of the Transformers Foundation. “I would say 30 percent reply without a push, 30 percent with a little push, 20 percent with lots of push and 10 percent who don’t [reply at all].”
Olah, who spearheaded the formation of the EDC based on eight “ethical principles” that the Transformers Foundation drew up for purchasing jeanswear, including honesty, accountability, loyalty and respect, has fallen into the role of an unofficial industry ombudsman, though the council itself is poised to take a more formal position in dispute resolutions between buyers and suppliers.
Few things rankle him more than unfair behavior, chiefly from buyers. This includes changing orders mid-production, fully or partially canceling orders once they’ve been completed, asking for reduced prices on existing orders, delaying delivery dates and stretching out payment terms. But even worse is when brands and retailers frame any non-acceptance of those stipulations as showing a “lack of partnership.”
“Implicit assumptions are not stated but hover in the air—that not being a good partner is a relationship death sentence,” Olah said.
The council’s report found that supplier demand for some kind of compliance rider is “significant.” Of the manufacturers polled, 90 percent stressed the importance of having one. Some 73 percent even said that the absence of such a rider was unfair to suppliers, who shoulder nearly all of the burden of fair wages and safe factories.
But suppliers are now facing a “double whammy,” said Mark Anner, director of the Center for Global Workers’ Rights and associate professor of labor and employment relations at Pennsylvania State University, who served as an advisor. With global inflation remaining stubbornly high for many economies, they’re being squeezed on prices while receiving fewer orders.
The data bears this out: While more than 51 percent of respondents said that their production levels are “somewhat” or “much” less today than they were pre-Covid, a similar percentage saw a decrease of up to 30 percent in the free-on-board or cut-make-trim price of their main product.
“I just see all of this as these manifestations of the power asymmetries between large buyers and the suppliers,” Anner said. “And I see it getting worse over time as the industry consolidates and some of the smaller buyers go out of business.”
One problem, he noted, is that not everyone may see these behaviors as unethical but rather as simply operating within “the world of business.” As such, acknowledging that these practices have a knock-on effect on workers and the environment is an important step, since suppliers that aren’t paid enough are also unable to pay their employees or invest in carbon-cutting activities.
Indeed, most of the respondents (73 percent) said that it’s time for buyers to start putting together the link between how much—and when—they pay their suppliers and how much workers receive.
Suppliers say there’s often a disconnect with what’s required of them, sometimes within a single buyer. A brand’s compliance team might ask a supplier to achieve certain workplace standards even as its purchasing department demands the lowest possible price.
But they’re afraid to say anything because the power that brands and retailers wield over them has become the norm, making it harder to challenge, said Sharmon Lebby, principal of Blessed Designs Consulting and the author of the report. When factory owners protested the wave of canceled orders through their trade associations in 2020, it was because their “backs were against the walls.” But even that energy has subsided to more of a business-as-usual intensity. Manufacturers that whistle-blow are also likely to get the chop.
“The power imbalance that squeezed you is the same power imbalance that will cut you off and blacklist you if you speak out,” Anner added. “ So you’re getting squeezed and you’re robbed of the mechanisms that allow you to respond and articulate that.”
In the past six months, 73 percent of the suppliers surveyed said that they experienced delayed orders, while more than 61 percent dealt with cancelations. Some 63 percent reported longer payment terms averaging 77.5 days, more than double the industry norm of 30 days.
What the EDC is proposing is a simple two-page rider, one that states that the buyer realizes that canceling orders, delaying payments and other poor purchasing practices have a direct impact on the workers downstream and that recourse would be required. The organization is currently working with the Responsible Contracting Project at the Rutgers Center for Corporate Law and Governance to fine-tune the language, Lebby said.
“I think it gives suppliers just a little more power back as far as being able to say, ‘Hey, you agreed [to] this,” she said. “‘We just want our payment for what you asked for.’ It [gives them] more of a legal recourse because it is in writing, it is in their contract.”
Anner said that none of this is rocket science. Despite the lingering effects of Covid-19, 2022 was a banner year for retail, with sales in the United States alone hitting a two-decade high. At the same time, he said, buyers were playing suppliers off one another by threatening to move elsewhere if they couldn’t meet their price points. This has become more acute today as consumer demand continues to lag.
“With all the talk of partnership, the industry needs to honestly, sincerely move away from purely economic [considerations] and understand the implications not only for the factory owners, which are significant, but also for the workers who make the garments,” he said. “It could mean that the cost of business goes up but yeah, there’s a cost to sustainability and a cost to treating workers well.”
Olah said that brands and retailers will “absolutely endorse” the concept of the rider and “be happy” to enter into discussions about it. His worry, however, is that negotiations over the “nuances of each term” will take years, allowing their present bad practices to persist in the meantime.
“Let’s all agree that commercial compliance is as important as social compliance and let’s all make it work not in seven years but immediately,” he said. “We love our industry. Suppliers live and love to supply. All any supplier can ask for is that an order is an order and that suppliers should not be absorbing full risk and financial cost if there are reasons any order needs to be altered.”
While the EDC didn’t name and shame specific brands and retailers on purpose, Lebby said that it isn’t one or two bad actors that are involved but nearly the entire industry, making it the standard M.O. This, she said, is something that needs to change.
The EDC has also sent the names of the offenders to various universities, NGOs, industry associations and “other concerned parties.”
“I just want to say that the game is up, you know?” Lebby said.
