By Christina Passariello, Tripti Lahiri and Sean McLain
Cheap garment-factory labor doesn't always equal cheap
clothes.
The availability of low-cost workers has sent mass-market
clothing labels of all stripes--H&M, Gap, Wal-Mart, Zara and
others--into Bangladesh's $20 billion garment industry.
But designer brands including Giorgio Armani, Ralph Lauren and
Hugo Boss also have outsourced manufacturing to Bangladesh, where
worker safety has become a huge issue following several fatal
accidents. Indeed, high-end labels often use the same factories as
their discount peers.
Giorgio Armani last year received shipment of 21,600 pounds of
T-shirts and underwear made in a factory in the port city of
Chittagong, according to the shipping records. A nearby factory
supplied women's pants to Michael Kors.
Armani said the Italian fashion house produces a "relatively
small number of items" in Bangladesh. "The commonly held assumption
that all manufacturing conditions there are inadequate is not a
fair reflection of the reality of the situation and does that
country a disservice," Armani said.
A Michael Kors spokeswoman said it has sourced from Bangladesh
"very sparingly."
Fashion's most basic item, the T-shirt, highlights the high-low
incongruity.
At shops in London, a Bangladesh-made T-shirt from
designer-denim brand G-Star Raw has a price tag of 60 British
pounds ($91.25)--15 times the GBP4 Wal-Mart's Asda chain charges
for one of its basic men's white Ts, sold under the George label.
Bangladesh-made Ts cost GBP35 at Replay, an Italy-based chain
specializing in casual clothes in distressed fabrics. Simple gray
printed Tommy Hilfiger Ts cost $39.99 on Amazon.com.
The array of prices for clothing made in Bangladesh exposes how
far-removed a garment's retail price is from its production
cost--and how small a sliver goes to the factory that makes it.
Though there are small differences in what goes into a T-shirt,
the biggest determinant of its price is its brand name, experts
say.
"Brands like Tommy Hilfiger, Calvin Klein or Giorgio Armani have
a price point that is higher because the brand has a reputation and
that makes a difference," says Ralston Fernandez, senior
vice-president for operations at ZXY Apparel Buying Solutions, a
Bangladesh buying house that places orders for retailers at local
factories.
Retail prices include other costs, such as advertising, rent on
the boutique and salaries for the salespeople.
With a T-shirt, at least half of the production cost comes from
the raw material, says Bakhtiar Uddin Ahmed, the general manager at
Fakir Apparels, a T-shirt factory with clients such as H&M
Hennes & Mauritz AB (HM-B.SK), Primark, Puma SE (PMMAF, PUM.XE)
and G-Star Raw. Fakir Apparels buys a kilo of Bangladesh cotton for
$3.80, enough for four shirts.
Some high-end brands opt for long-fibered Pima cotton, grown in
the U.S., because it can survive more washing. A kilo of Pima costs
about $5.50, says ZXY's Mr. Fernandez.
Adding in polyester or viscose can help lower the cost. Yet some
of the cheapest T-shirts made in Bangladesh are 100% cotton, such
as GBP4 Tesco Corp. (TESO) and Wal-Mart Stores Inc. (WMT) items,
while the GBP35 Replay shirt is a blend of cotton and viscose.
After cotton comes the labor. The government in Bangladesh,
facing pressure to improve working conditions following a factory
collapse two months ago that killed more than 1,100 people, has
committed to raising the minimum wage, which is currently $38 a
month, a quarter of China's. Doubling it would add about 10 to 12
cents to the cost of making a basic T-shirt, according to Abby
Jamal, managing director of ZXY Apparel, the Dhaka-based buying
house. Retailers such as H&M have said they would absorb higher
labor costs.
To be sure, high-end shirts are more likely to have little
extras, and each embellishment adds a few cents to the cost. The
pocket on the GBP60 G-Star Raw T-shirt likely requires two or three
more workers in the production line, estimates Mohammad Zulficar
Ali, executive director at the Bangladesh office of global buying
house Synergies Worldwide.
He also points out the high-quality contrast piping that covers
the neck seam, as well as two stamp-sized labels--one in
leather--adorning the shirt, and a black price tag attached with a
string. "These tags are very expensive tags," he says.
Quality differences are also seen in printing processes.
Observing a GBP6 gray Primark T-shirt with a black Iron Man design,
Mr. Ali describes it as "a very cheap rubber print," which could
cost 10 to 12 cents apiece to add. The orange print on a $39.99
Hilfiger Denim T-shirt is higher quality and could cost twice that,
says Mr. Ali.
Mr. Ali, who didn't source any of the T-shirts, estimated that
the Primark shirt cost $1.60 to produce, the Hilfiger shirt $5 and
the G-Star Raw pocket tee $6 or a shade more. Primark and G-Star
declined to comment on their production costs. Hilfiger didn't
respond to requests for comment.
In Bangladesh, high-end labels often end up paying the factory a
fraction more for their order than mass-market retailers because
they order fewer items. The factories prefer the larger orders,
because it makes their production schedules more predictable.
Fakir charges H&M about 20% less for a basic T-shirt with no
pocket or special finish than an equivalent G-Star Raw product.
"That is mostly due to volume," says Fakir Nafizuzzaman, the
factory's director.
It isn't just designer T-shirts made in Bangladesh. Shipping
records show Ralph Lauren sources a variety of clothes from there,
including polo shirts, lamb's wool sweaters, $35 neon skinny jeans
for girls and a $110 quilted child's jacket. Ralph Lauren declined
to comment.
Hugo Boss AG (BOSS.XE) said it began sourcing T-shirts and
bodywear in the country a year ago because it was facing capacity
constraints in its European factories. The German fashion house
said it doesn't derive a cost benefit yet because it is investing
in its relationships with four factories.
Fakir, which makes 130,000 T-shirts a day in its Narayanganj
factory, is moving away from basic T-shirts for H&M to clients
such as G-Star Raw because it has improved its ability to do better
trims and finishes. There is less competition at the higher end,
says Mr. Ahmed. However, G-Star said it hasn't placed an order at
Fakir since last year.
Factory owners in Bangladesh say their profit margins tend to be
the same, regardless of the customer. Mr. Ahmed says Fakir's profit
margin doesn't top 2.5%. "Customers are always pushing down costs,"
he says.
For the seamstress making the T-shirt, wages depend on her
skill, and have nothing to do with whether she is sewing a designer
or discount label.
A top sewing machine operator may get $100 a month, not counting
overtime, while a worker one grade below may earn around $80, says
ZXY's Mr. Fernandez--about enough to buy one of the high-end
designer Ts.
Write to Christina Passariello at christina.passariello@wsj.com,
Tripti Lahiri at tripti.lahiri@wsj.com and Sean McLain at
sean.mclain@wsj.com
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