#WeSeeYou: COVID-19 and the Fashion Retail Industry

We need due diligence requirements through global value chains to fix a business model that is inherently flawed, writes Laura Basagni. Laura is Program Manager, Mediterranean & wider Atlantic at the German Marshall Fund of the United States in Brussels.

Image: Shutterstock

The economic crisis brought by COVID-19 has again underscored the unethical business culture which pervades the fashion retail industry. This is particularly true for so-called fast fashion brands, as they have proven reluctant at best and often failed to take responsibility for their production chains and to protect workers in both retail and supply. It has also shown that voluntary due diligence requirements can only go so far, and that mandatory rules are needed to ensure respect for human and environmental rights in global value chains (GVCs) while ensuring clarity and a level playing field for companies. How these companies have responded to the pandemic reveals the urgency for new rules in the event of future disruptions.

Traditional fashion business models are not passing the COVID-19 test

Fast fashion brands outsource not only production, but also risk, by employing contractors rather than owning the factories where their garments are produced. These contractors are paid once the work is completed in full, leaving the factories to shoulder all the production and social security costs in advance. Amidst the COVID-19 emergency, some fast fashion brands immediately stopped paying their contractors, refusing to meet their obligations for orders that were completed, but seemed unlikely to be sold due to the plunge in demand (for up-to-date information on this see the Workers’ Rights Tracker). According to Business & Human Rights’ COVID-19 Action Tracker, 40% of brands among the 35 surveyed made no public commitment to pay for all completed orders. 

“While it is understandable that companies are focusing on the needs of their local staff, clothing retailers must accept that if they choose a business model that relies on the labor of millions of garment workers overseas, then these people are their workers as well” said Scott Nova, executive director at the Worker Rights Consortium, part of the Clean Clothes Campaign.

This is not a new problem. Fashion retail brands have long ago moved their production processes from developed to developing countries, starting in the late 1970s, when Asian countries first entered global supply chains (GSCs), and increasingly faster from the 1990s thanks to the ICT revolution. Relocation has interested brands from luxury to high street, and followed a similar pattern to other industries: moving production processes from the global North to the global South (particularly Asia), has allowed companies to take advantage of cheaper labor, relaxed or absent labor laws and worker protections, and the outsourcing of environmental risks and costs. 

On top of the general patterns of globalized production, fast fashion brands have adopted a business model which pushes the culture of consumerism and single-use behavior to the extreme and leverages it to create profit. The average collection turnover of a fast fashion brand is 2-3 weeks: they create profits through quantity rather than quality. Their profitability is highly dependent on the overall number of low-cost items they manage to sell, thus requiring a consumer base that is always ready to purchase. To engineer the consumer behavior necessary to make their business model work, fast fashion brands produce garments that are extremely cheap, deteriorate fast, and go out of fashion even faster. Moreover, the profit margin is kept sufficiently high by cutting costs on production, and through the employment of cheap materials and labor, thanks to outsourcing. 

Consumer awareness is key for more ethical fashion

Movements such as #WeSeeYou and #PayUp launched by the Clean Clothes Campaign, as well as annual events such as Fashion Revolution week are essential to increase visibility of this issue as well as accountability in the fashion retail industry. They help raise awareness and educate consumers, granting them the choice to exercise their purchasing power mindfully and to change or break with brands. Since the collapse of the Rana Plaza factory in Bangladesh in 2013, where 1137 garments workers were killed and many more injured, there has been a growing mobilization across society to improve the business models of fashion retailers and guarantee protection to the 40 million workers that participate in their global value chains. Yet the COVID-19 crisis shows that despite the strong shift in branding and marketing strategies of brands including fast fashion ones, this does not necessarily reflect actual change in business behavior. The role and work of watchdogs thus remain critical. 

Pressure from the public eye also helps push the global community to regulate and ensure due diligence in global supply and value chains. Currently there is no general obligation for companies to conduct due diligence for their human rights and environmental behavior in most jurisdictions globally. The 2017 French Duty of Vigilance Law is the only legislative example to date: the law obliges French companies to publish annual public vigilance plans assessing the impact of their own activities, but also of any companies with whom they have established commercial relations, including suppliers and subcontractors. The law also empowers concerned parties to bring issues before a court and envisions fines up to €10 million.    According to a study commissioned by the EU to explore possible regulatory options, two thirds of business respondents – out of 334 surveyed – do not undertake comprehensive due diligence, and those that do include first tier suppliers only. When asked about the primary incentives to undertake due diligence, most businesses and industry organizations involved in the study listed “reputational risks; investors requiring a high standard; and consumers requiring a high standard.” These findings underscore once again the power of social activism and consumer choices.

The behavior of fast fashion companies amidst the COVID-19 crisis has been harmful and insufficient at best. This is a reminder that regulations and oversight are needed to fix a business model that is inherently flawed. Introducing mandatory due diligence as a standard of care will be an important step to provide companies with guidance, increase clarity and ensure a level playing field. It will also help reconcile businesses with the constituency they affect throughout their GVCs, their consumers included.  

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