Brands and their consumers aren’t the only ones who pay the price for tariffs.
Fashion’s focus has rarely been on workers first. Those who hold up the supply chain have long been seen as a means to an end that often prizes profit above all. But when tariffs enter the scene sending prices higher, costs must be cut somewhere, and it’s rarely ever coming out of the brand’s budget.
This particular bout of supply chain uncertainty has resurfaced the imbalance of power between brands and suppliers, and while Avedis Seferian, president and chief executive officer of Worldwide Responsible Accredited Production (WRAP), believes things have certainly improved over the last decade, there are still red flags to watch for on both sides of the aisle if fashion’s going to keep its commitment to compliance.
HGI: When brands talk about tariffs, it’s usually about costs and margins. What does that conversation look like on the factory floor—how are workers being impacted?
Avedis Seferian: In the practical execution of that concern over tariffs, it often means and involves looking at shifting suppliers, shifting entire supply chains, and that’s obviously where the rubber hits the road for the factory itself, where the pain begins. When you have an impending tariff waiting for you a few weeks out, there is the risk and reality that production schedules are accelerated so you could get the product sailing before that tariff deadline, and that also obviously has an impact on the factory floor.
HGI: How different is the effect of tariff uncertainty now compared to what happened to supply chains during the pandemic?
AS: In many ways, this is not repetitive per se but reminiscent of some of the Covid challenges. We had this massive supply chain disruptor that had to be dealt with and much of the same things happened: trying to push production through to get stuff in before things shut down, or shifting the supply chain from a country that had imposed more stringent restrictions to one that had less, and all of it being done on a dime and without really any forethought or planning because it came out of the blue. This time around, there is some good news—if I may be so bold—and that’s that this isn’t an entirely novel experience, there is some history to call upon.
HGI: So, what are some of the risks factories and workers are facing now?
AS: The idea that a brand or retailer is having to shift their supply chain quickly or having to really accelerate an order, these are challenging decisions that will have implications beyond costs and margins. There’s the reputational risk you run by cutting out a factory that purchased raw material, for example, and is holding it for you or has begun production and now you’re canceling or accelerating a timeline unreasonably. That’s the kind of thing that forces excessive overtime hours or illegal subcontracting or, God forbid, something even more pernicious, like having them bring in workers they haven’t quite vetted and you end up having somebody in there that didn’t have the right to work for whatever reason. These are the kinds of pains that we have some benefit of history to know are out there, but ground realities being what they are, some brands and retailers run the gauntlet with this and are motivated by market pressure more than anything else.
That’s not news but it is the challenge we’re seeing, and many factories out there are dealing with it. On the flip side, factories, too, have learned some lessons from the past, and have perhaps been a little bit better able to understand the need for resilience and for flexibility, and have been able to help out a little bit better or faster or just more this time around than they during Covid. But the power differential remains. It’s a lot harder for a factory to push back on a brand or retailer than it is for the brand or retailer to put pressure on the factory. And so the challenge remains, much as it was, with just perhaps a better understanding of it this time.
HGI: When budgets get squeezed, what’s the first thing to slip out of the frame of focus? Is worker safety ever still a casualty, even if unintentionally?
AS: I do believe we have crossed that rubicon where worker safety is not something that’s considered compromisable. Twenty years ago, when companies still thought of social responsibility as a luxury, budget squeezing would sometimes lead to squeezing that out. I think we’re past that. Where you are compromising is on things like upping overtime, I think that’s the first resort. Beyond that, you’d be looking at hiring more workers or cutting costs in other ways. On the brand side, for example, sometimes it’s simply a question of delaying payments. I am happy at least that, when we have seen pressured factories or harried brands, the instinctive first move has not been to sacrifice social responsibility or worker safety or otherwise doing right by the individuals making the product. They’re looking for other ways to squeeze, which can have knock-on effects that do impact working conditions, but it’s certainly not where the squeezing starts.
HGI: What are some of those sacrifices that have knock-on effects for workers?
AS: I think a common enough scenario is one that begins with the extending of payment terms as the first move on the part of the buyer, which leaves the factory in a tight spot because they’ve already bought the raw materials and so are cash strapped, and now have to pay the workers on a payroll that was razor thin to begin with. So maybe they then have to go out and get a loan on less than favorable terms, which then starts to create pressure. So now they have to say, “Well, what else can I squeeze in to generate some extra cash so I can now cover this spread?” Then you start wandering into pushing overtime a little bit more than they otherwise would be comfortable doing, or bringing in some extra workers when they don’t have the time to go through the normal vetting process. Then maybe they’ll use an outside agent to hire those workers and hope they’ve got their act together, when perhaps they might not. That’s the kind of knock-on effect that might end up putting a factory in a tight spot, and by extension and consequence, the buyer that engaged with that factory ends up in a regrettable position as well.
“I am happy at least that, when we have seen pressured factories or harried brands, the instinctive first move has not been to sacrifice social responsibility or worker safety.”
—Avedis Seferian, WRAP
HGI: Are there red flags that signal a factory may be starting to compromise on compliance?
AS: There are several you ought to be keeping an eye out for. One is if you’re seeing as the buyer, for example, obvious signs of capacity strain at the factory. And this is a hard one to recognize, I acknowledge, because typically a buyer is not going to be more than some small percentage of a factory’s capacity, and even if it is double digits, it’s going to be on the lower end. So it may look like the factory can produce 10,000 units and your order is only for 4,000, let’s say. But if they’ve also got three other clients for whom they’re making 4,000-unit orders, then there’s a challenge there on the capacity front. Understanding that is a very good place to start because that’s the kind of stuff that will have the knock-on effects we’re discussing. Another one that is also hard to determine—though factories that have a relationship and trust with a buyer should be able to—and it’s perhaps the most reliable indicator, is payroll pressure. A lot of these factories run payroll to payroll, they’re not really building up much in reserves. But if you’re hearing a factory tell you, “Hey, I’m going to have trouble making payroll,” I think that’s a real red flag. If you’re seeing signs that there are cash flow challenges at a factory, then you are being warned that things could unravel if not addressed properly.
HGI: What do you think will be the game changer that could finally shift the relationship between buyers and suppliers to one that leads with trust?
AS: That’s the million-dollar question isn’t it? I think one unfortunate thing is that the softer side of the relationship, the social responsibility piece, historically got off on the wrong foot. When we got started back in the mid to late ’90s with the whole Kathie Lee [Gifford] stuff, it generated this adversarial sort of setting. Brands felt like they had to protect themselves and that the factories were on the other side of that. There was an us versus them mentality. That meant audits were seen by factories as something of a policing function, right? So factories were like, “Well, I guess I better show them what they want to see,” rather than “This is a chance for us to have a open and truthful conversation and improve together.” It’s very unfortunate.
Too much of our supply chains operate on a transactional basis, making these kinds of conversations really impossible because there’s no basis for trust. Inevitably—and this was true during the pandemic and, I would submit, remains true today—the folks that come out of this least scathed, if not unscathed, tend to be the ones that have established, long-term relationships. They can lean on each other a little bit. If you don’t have that basis then you’re going to run into more challenges. And there are enough challenges as it is.
HGI: If brands are still pushing for lower prices and more compliance and they’re not coming to the table with more money, are they avoiding accountability for being part of the problem?
AS: Brands that do that aren’t realizing they are part of the problem. But I would submit that it isn’t quite so simple. First of all, brands understand—or at least are getting better at understanding—that the price conversation isn’t simply about a figure. There’s so much else that goes into what it costs them to make that product. Some of this is, in many ways oddly enough, helped by the tariff drama because they’re understanding that landed cost is very different from what you thought you had when you made the negotiation. And by extension, externalities that need to be factored in include some things you haven’t traditionally put dollar figures on. So that’s one. Secondly, I think factories have to play a larger role in the conversation. Historically, one consequence of the power dynamic differential was, I don’t want to say a sense of helplessness, but a sense of, “Well, I kind of have to take this because if I don’t, then my neighbor will.” But that’s also changing. I think we recognize that factories are better informed, better educated and more willing to say, these are the facts and figures.
HGI: If you could flip the script, what’s one thing brands should be doing differently right now to shield workers from any fallout over tariffs?
AS: I wish I could flip the script. If I could, I think the answer is probably, simplistic as it may sound, just a matter of building that trust. For that, I think the starting point is, when you have that relationship, imbue it with as much transparency as possible. If the factory has more insight into what your pressures are as a brand, when your margins are being squeezed or whatever it is you can share, that makes them understand why this is where you’re coming from. And in turn, the expectation would be that the factory is more open with its books. No one’s going to share everything, that’s not how commerce is transacted, we understand that. But if I am aware of what some of your limitations are, where there’s just no give, then I can maybe find a way around that. To the extent you are able to have open dialogue and open sharing of pain, as it were, you’re going to be able to imbue that relationship with transparency, which is the foundation for that trust. And once you have that trust, pretty much anything is possible. A factory with a trusting relationship with a brand can say, “Hey, we have a problem. Because of the time pressure that you were under, which caused you to have me deliver sooner than I wanted to, I had to hire a bunch of workers and it turns out the agency I used doesn’t vet them properly. So here’s what happened: Somebody came along who was three months shy of the minimum age, I’ve let them go for now, told them that they have a job here if they want three months later, hired their older brother for the balance…” I’m just stringing things along here but this is a conversation that becomes possible when you have that trust. And when that’s possible, workers get protected, brands get protected, the whole thing just works better.
It’s hopelessly romantic but not impossible. I’ve seen it happen. It’s not the rule; it’s just the exception these days, but it used to be impossible. Slowly, it will become less of an exception and, hopefully, it will eventually become the rule.
