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Would Higher Wages Break Fast Fashion’s Business Model?


The protests started late in October. Thousands of garment workers in Bangladesh, one of the world’s largest apparel manufacturers, took to the streets demanding higher wages in demonstrations that turned deadly amid violent clashes with police.

The largely female workforce helps power the global fashion industry for minimum pay of less than $3 a day — an amount that hasn’t changed in five years and is increasingly inadequate to cover even basic needs thanks to relentless inflation in living costs.

On Tuesday, Bangladesh’s government announced it would increase the minimum wage for garment workers by nearly 60 percent to $113 a month — a significant hike, but still well below the $210 a month unions say is needed to lift salaries above poverty levels.

The protests didn’t stop. At least one garment worker was killed in clashes with police on Wednesday, the third since demonstrations started.

Major fashion companies that source from the country, including H&M Group, Zara-owner Inditex and Calvin Klein-parent PVH Corp, have been publicly supportive of a wage increase. But Bangladeshi manufacturers say that to meet workers’ demands, brands need to be willing to pay higher prices. Instead, over the last few years many have pushed for discounts amid weak demand in consumer markets and an uncertain global economy.

It’s a conflict embedded deep in the fast fashion business model: even as brands have stepped up commitments to fair wages and workers’ rights, the supply of cheap fashion that has propelled the sector’s growth for decades continues to rest on cheap labour.

Competitive Pressure

Though the modern apparel industry has helped lift millions out of poverty in sourcing hubs like Bangladesh, it also rests on a pyramid of exploitation with low-paid workers at its base. Brands squeeze factories to produce new trends as quickly and cheaply as possible. Factories in turn squeeze workers on wages. Historically, when prices rise, brands jump to another manufacturing location where costs are lower.

It’s been a “race to the bottom,” said Sheng Lu, an associate professor of fashion and apparel studies at the University of Delaware. “That fundamental market structure is still out there.”

Wages in Bangladesh are low, even for the apparel industry, which is why the country was attractive to brands fleeing higher-cost hubs in the first place.

Before this week’s proposed increase, which is set to come into effect on Dec. 1, only Myanmar had a lower minimum wage among key producers for fast fashion giant H&M Group, according to data published in the company’s annual sustainability report.

Though workers at H&M’s suppliers in Bangladesh were paid an average of $134 a month last year, 50 percent above the legal minimum, that’s still less than almost every other country the business sources from, bar Pakistan and Myanmar — a country where the company is phasing out production because of concerns over labour standards following a military coup in 2021.

In Cambodia, where the living wage required to support a family at a decent standard of living is comparable to that needed in Bangladesh’s capital of Dhaka, according to analysis by the Global Living Wage Coalition, workers at H&M’s suppliers earn an average of $293 a month, more than double the level in the company’s Bangladesh factories.

But low costs of production are what have given Bangladesh its competitive edge, helping to turn it into the world’s second-largest apparel producer. And if wages rise, someone has to be willing to pay for it.

Power Plays

The issue is particularly fraught at the moment because of the gloomy global economic backdrop and a tense run-up to national elections in Bangladesh early next year. The garment industry accounts for 16 percent of the country’s GDP and manufacturing and politics are tightly bound. Last month, the country’s apparel exports fell 14 percent compared to a year earlier, according to data from the Bangladesh Garment Manufacturers & Exporters Association, reflecting weak demand in key Western consumer markets.

In a letter sent Wednesday, the BGMEA called on brands and retailers to raise prices from December to support the wage increase that’s been agreed. Meanwhile, police have continued to crackdown on protests.

This week, the streets of Dhaka’s industrial suburbs looked like “a Hollywood movie,” said Worker Rights Consortium’s director of international advocacy Thulsi Narayanasamy, with police bristling with automatic rifles and riot gear stationed outside factories. Dozens of people have been hospitalised, many employees of factories supplying major Western brands, according to local media reports. Several factories have also been damaged and vandalised in the protests. One of H&M’s suppliers has filed a police complaint against 800 unnamed workers, according to information gathered by WRC, opening the way for retaliatory arrests against those who protest. Others have filed similar complaints, said union leader Kalpona Akter.

Major brands have indicated through statements from trade groups and multi-stakeholder initiatives that they’ll use their purchasing power to support higher wages. Historically, that’s not how things have worked.

Following a visit to Bangladesh in May, the UN’s special rapporteur on extreme poverty and human rights noted that international brands “are overwhelmingly responsible” for low wage levels in Bangladesh, pointing to buying practices that have systematically pushed for factories to cut down on expenses, especially wages.

The report concluded that there is room for price increases that would support better salaries; worker pay still only accounts for a relatively small proportion of production costs, making up one to two percent of a garment’s total retail price, according to Lu. Materials, marketing and retail are much more significant.

But wage hikes can only be effective “if the buyers are held responsible, and their purchasing practices are more closely monitored,” the UN’s report said.

In other words, high wages wouldn’t break the fast fashion model, but it would need to bend, redistributing the balance of power and profits along the value chain.

Earlier this week, Mostafiz Uddin, the owner of a denim business in Bangladesh, posted a poll to LinkedIn asking whether people believed buyers would increase prices to reflect the wage increase.

Out of 335 respondents, 70 percent said no.

THE NEWS IN BRIEF

FASHION, BUSINESS AND THE ECONOMY

Richemont creates new beauty division.

Richemont sees growth easing as economic worries rise. Shares in the Cartier-owner fell 6 percent after first-half profits missed forecasts. The company reported a six-month operating loss of €0.7 million in its “discontinued operations” unit comprising Yoox Net-a-Porter (YNAP).

Coach owner Tapestry cuts 2024 sales view on slowing demand. Shares fell 1.7 percent before the bell despite its profit exceeding market expectations. The company expects 2024 revenue in the range of $6.7 billion compared to a prior forecast of close to $6.9 billion.

Shein targets up to $90 billion valuation in US IPO. This valuation far exceeds how the fast-fashion giant is valued in private trades, where its valuation has dropped below the $66 billion that was announced in May, according to people familiar with the matter, reports Bloomberg.

Adidas gets €350 million ($373 million) Yeezy boost amid turnaround push. Beyond Yeezy, the German company said currency-neutral sales increased 2 percent in the quarter for the rest of its offerings, driven by demand for classic sneakers like the Samba and Gazelle.

Ralph Lauren beats sales estimates on steady demand. Shares were up 1 percent in choppy pre-market trading, after it also projected current-quarter sales below market expectations, citing caution around wholesale demand.

Pandora raises sales forecast after third quarter profit beat. The company reported a smaller than expected drop in third-quarter profit as more shoppers came to its stores. It raised its full-year sales outlook, sending its shares up.

De Beers diamond sales slump. The company sold the fewest diamonds since halting sales altogether during the height of the global pandemic, as the industry struggles with weak demand and too much stock.

Watches of Switzerland Group Plc says it will double sales by 2028. The top seller of Rolex watches in the UK said it was “stronger than ever,” even as sales of £379 million ($467 million) in its fiscal second quarter missed analyst expectations.

The RealReal shares skyrocket after profitability update. The luxury resale platform’s stock soared 30 percent after analysts pointed to its gross margin improvements, as well as its adjusted EBITDA loss of $7 million, down from a $28.2 million loss in the same period last year.

As luxury softens, Swarovski bets on Fifth Avenue and Kim Kardashian. The company expects sales growth to remain relatively unchanged or even to decline, from 10 percent in 2022 to “low or mid-single digits” this year, amid a global slowdown in luxury consumption.

Under Armour cuts revenue forecast on North America concerns. The company sees revenue falling between 2 percent to 4 percent, down from the previous view of flat to up slightly, but maintained its profit guidance of 47 cents to 51 cents a share thanks to the strength of its second-quarter earnings.

Warby Parker’s profits slip amid store and category expansion. The company’s profit margins dropped to 6.5 percent from 8 percent a year earlier, but revenue jumped 14 percent to $170 million in the third quarter of the year.

Allbirds sees a continued drop in sales and profits. Sales dropped 21 percent year over year in the third quarter as it continues to discount items and sells fewer goods. The company’s restructuring efforts have included discontinuing some of its apparel offering and opening fewer stores.

M&S regains crown of UK’s top womenswear retailer as profits jump. The company reported a better than expected 56 percent increase in profits. The retailer also confirmed it would pay out almost £20 million ($24 million) to shareholders in January in its first dividend since 2019.

More than half of consumers say they’ll trim holiday spending. Consumers are delaying holiday purchases for discount shopping events such as Black Friday or Singles Day, and more than half plan to reduce spending to save money, according to a study from Ernst & Young.

THE BUSINESS OF BEAUTY

Babies in terrycloth robes with Dior skincare products.

Dior launches a $230 fragrance for babies. The scent is created by famed perfumer Francis Kurkdjian and released under the Baby Dior line. A three-piece skin care range aimed for babies has also debuted.

Shiseido slashes profit forecast on Fukushima water release. The Japanese cosmetics company now expects core operating profit of ¥35 billion ($231 million) in the year ending Dec. 31, a 42 percent reduction from the previous estimate.

Coty raises annual core sales outlook as fragrances and cosmetics drive demand. The company’s shares rose about 3 percent after the bell as it also beat first-quarter revenue expectations. Coty also posted sales growth in the Americas and Europe after an initial slowdown.

Olaplex’s sales continue to plunge. The bond-building leader reported a 30 percent decline in net sales. The company’s specialty retail channel was hit the hardest, reporting a nearly 42 percent drop in sales compared to the same period last year.

India’s Nykaa posts slowest revenue growth since listing amid stiff competition. Consolidated revenue from operations grew 22.4 percent to 15.07 billion rupees ($181.17 million) in July-September, its slowest year-on-year percentage growth since the company went public in November 2021.

Oddity Tech raises full-year growth outlook. The company reported $94 million in net revenue in the third quarter. Oddity’s stock rose 9 percent in after-hours trading.

Coty confirms that Burberry Beauty will return. The line is relaunching next month with a boutique inside Selfridge’s. When Coty took the reins in 2017, it primarily focused on fragrance, this marks a new step for the once-beloved beauty line.

Unilever Ventures invests $2.5 million in Indian personal care line. Wishcare has raised 20 Rs crore (about $2.5 million) from Unilever Ventures in its first funding round. Through its corporate venture capital arm, Unilever is making a play for a stake in the Indian market, considered to be one of beauty’s biggest emerging markets.

PEOPLE

Davide Renne, the newly appointed creative director of Moschino, has died.

Moschino’s creative director Davide Renne has died. Renne succeeded Jeremy Scott at the creative helm of Moschino on Nov. 1. Previously, he held the role of head of womenswear at Gucci. He was 46 years old.

Hailey Bieber’s Rhode sees leadership shakeup. Melanie Bender, the first CEO of Hailey Bieber’s skin care brand Rhode, has left the company. She was brought on by Bieber to scale the emerging brand after its June 2022 launch.

MEDIA AND TECHNOLOGY

The exhibition will explore themes of nature and use technology to 'reawaken' the Institute's archive collection.

Sleeping Beauties: Reawakening Fashion is the Met’s Costume Institute’s spring 2024 exhibition. The exhibition will explore ideas of rebirth and renewal through nature, and will feature items from the Costume Institute’s archive. It will run from May 10 to Sept. 2, 2024. The Met Gala will take place on May 6.

G/O Media shuts Jezebel’s editorial operations. After failing to find a buyer, the online publication is shutting down, resulting in the 23 staffers, including editorial director Merrill Brown, leaving the business.

China’s biggest winner in Singles Day Bonanza may be PDD. PDD’s US-listed shares have soared 22 percent since July, outperforming key rivals. This reflects PDD’s stronger sales as it steals market share at home and continues to win fans among US consumers as well.

Amazon allies with Meta for shopping via Instagram and Facebook. The initiative will involve asking consumers to link their Amazon accounts to their social-media profiles. The tie-up could make Meta more attractive to advertisers and let Amazon attract more shoppers from outside its web store.

Klarna returns to profitability as more shoppers borrow. The Stockholm-based fintech company reported an operating profit of 130 million Swedish kronor ($12 million). It’s the firm’s first profitable result since the second quarter of 2019.

Affirm shares surge after quarterly results beat estimates. The company’s stock rose as high as $27.16, its highest level since September last year. Affirm expects gross merchandise value to reach between $6.7 billion and $6.9 billion in the current quarter.

Compiled by Yola Mzizi



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