The Fashion Industry and Covid-19

Published on April 1, 2020

The fashion industry is a fond adopter of the linear consumption paradigm. If there is an obstacle, the system finds a way to overcome it, through a technology or an organisational jump.

One could quote many examples. When pollution of production processes had become unbearable, appropriate technologies and measures to minimize environmental impact where implemented; when consumers started to connect worldwide and grew in number and purchasing power, luxury brands (originally artisanal businesses for relatively few people) created global supply chains to serve more and more people and, at the same time, created extremely efficient channels of dialogue with them.

Recently, when the internet changed consumers’ habits, the industry started migrating online, developing new platforms. This approach can be summarized in one sentence: manage any change in such a way as to not change direction but keep on going.

The business model resulting from that creates value by spreading production activities worldwide to leverage comparative advantages of different countries and reduce the costs of all inputs. This has allowed fashion brands to have incredible operating margins – percentages comparable to those realized by successful tech companies. At the same time, the industry has been able to access the minds of consumers, enabling them to use fashion to build their own identities in a globalized world, where traditional social belonging and markers evolve and change. To a certain extent, we could say this industry is now able to efficiently produce consumption, not simply products.

With the arrival of Covid-19, the cost-benefit equation on which all the above is based may be not valid anymore. On one side, the same globalized world helped the virus to spread all over at an unprecedented path. On the other side, the global supply chains are disrupted, with dire consequences for an industry that has grown accustomed to scarce inventories and short lead times, thanks to the interaction of international networks of producers.

But there is something deeper than that. This pandemic seems to be accelerating change that was ongoing under the apparently quiet surface of fashion seasons and production to retail cycles.

First of all, it impacts on fashion weeks and seasonality (in the sense of business seasons: two mains seasons – autumn/winter and spring/summer – with ancillary shorter seasons: the so-called resorts) as we intend them today. More and more people see them as part of an approach which no longer makes sense. Large numbers of people who travel the world and congregate physically just to see products during “fashion weeks”, which afterwards will be mainly seen and bought by consumers online. Extinction Rebellion’s fashion arm, XRFA, has well highlighted this absurdity. Does fashion seasonality have the same meaning in a world of climate change, with changing weather patterns and with phenomena such as vineyards that seem to grow better in Switzerland than in some regions of Italy?

Most importantly is the globalized division of labor on which those global supply chains are centered.

Production needs to take place in low wage countries, in the so-called Global South. Which, for workers means (1) poor health and safety conditions, (2) workers living in high density settings, (3) weak public health-care systems, (4) labor rights that are not fully enforced, and (5) low wages often too little to cover the basic needs of existence.

Now let us couple the above with COVID 19. Factors 1 to 3 make mitigation measures against contagion difficult: people working and living in close quarters and in unsanitary conditions face a higher risk of contagion. At the same time, absence of effective public health facilities make testing and treatment difficult. Factor 4, on the other hand, makes the nature of employment uncertain (lots of contingent workers!) especially in moments of sudden change. Lack of a living wage sufficient for all basic needs plus a monetary amount for health and pension expenses, makes this emergency impossible to manage.

This is the current business model of the industry. In normal times, it creates margins by minimizing production and thus labor costs to increase the operating margin. In bad times, it simply cuts these costs by cancelling orders and “killing” suppliers. This is why operating margins in income statements across the industry are huge for fashion companies and small for suppliers, while workers hardly make a living.

Said plainly: the social and human fabric of whole communities in less fortunate settings is set to be literally wiped out, as orders are cancelled and reliable supply chains grind to a halt. The alarming consequences in socially and politically fragile countries are likely to include increases in illegal and informal migration, a surge in terrorism, and more drug trafficking.

In a nutshell: the main impact of this pandemic will likely fall on people and society as a whole.

Yes, the industry has already sought to mobilize itself with donations, i.e. charity. Good, no doubt. Many commendable examples: Armani, LVMH, Kering, Adidas and many others. However, in the long run, what is really required, is a complete change in the way in which the industry does business. This means moving towards a circular business model, with attention to recycling of inputs and long life spans for products. We already see signs of this. But the main step will be engaging in continuous investment in people and also in supply chains, so that they can grow in skills and productivity. Workers must be paid living wages, along with stability of employment. The global supply chains would thus become a factor of stabilization and social cohesion in many realities of the world.

At the Ethical Fashion Initiative we say there is not only a moral case (which should already be more than enough) to offer good working terms to suppliers in the global South, but also a very direct and practical interest for our global societies. A first step would be that of minimizing the impact of this pandemic on people in supply chains by adopting some straightforward measures:

  1. Negotiate changes in lead times with suppliers and check the impact of the pandemic on their work force.
  2. Agree on payment terms that enable suppliers have the cash flow to pay their people.
  3. Offer advice and, if needed, support (including financial, also the charity mentioned in the article) so that suppliers can implement mitigating measures in factories and communities.
  4. Plan changes in orders with suppliers so as to minimize the impact on their structures and define forecasts to restore production levels once the pandemic is over.

Here at the EFI, we simply request that the industry starts considering suppliers as stakeholders of their business. This would be a great step forward in creating value beyond the level of shareholders, for the whole globalized community in which we live

Simone Cipriani founded and manages the Ethical Fashion Initiative, a flagship program of the International Trade Centre, a joint agency of the United Nations and of the World Trade Organization. Simone has made it his mission to build a more responsible and sustainable fashion industry, by transforming it into a vehicle of poverty reduction and of empowerment of women, throughout the developing world. The Ethical Fashion Initiative (EFI) is a large supply chain that enables artisans who live in marginalised conditions, in Africa (Burkina Faso, Mali, Kenya, Ethiopia, Uganda and DRC), the Caribbean (Haiti) and Asia (Afghanistan and also in Tajikistan and Uzbekistan), to become regular suppliers of international fashion and lifestyle brands, thus reducing poverty and empowering large numbers of women artisans.

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