May 17, 2024


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Would Higher Wages Break Fast Fashion’s Business Model?

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.



Would Higher Wages Break Fast Fashion’s Business Model?

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Compiled by Yola Mzizi