After fresh revelations of holes in its supply chain ethics, Primark is working overtime to stitch its reputation back together

 

After fresh revelations of holes in its supply chain ethics, Primark is working overtime to stitch its reputation back together

Primark is battling to save its reputation after more revelations of illegal labour practices and poor working conditions in its supply chain emerged in January.

One of Primark’s UK suppliers was found to be employing illegal workers and paying staff less than the minimum wage. The authorities are investigating the incident, which happened at Manchester-based knitwear factory TNS. Primark is having to explain itself also to the Ethical Trading Initiative (ETI), the UK body set up to improve supply chain working conditions, which it joined in 2006.

The incident came just months after it emerged that Primark clothes were being made in India by factories using child labour. Primark sacked three suppliers in Tirupur that had subcontracted the work to the factories using children after the news came out in June last year.

Now the cut-price retailer must address the labour challenges that evidently exist in its supply chain. The brand, which recorded an 18% rise in sales in the fourth quarter of last year, is starting to improve the way it sources products. But convincing the public that its low-cost items are not sold at a human cost is proving hard.

In an interview with the Daily Telegraph newspaper in February, Marks & Spencer’s executive chairman, Stuart Rose, took a swipe at discount retailers, saying: “How can you sell a T-shirt for £2 and pay the rents and pay the rates and pay the buyer and pay the poor boy or girl who is making it a living wage? You can’t.”

Primark says it shares 98% of its suppliers with other UK high street brands. Primark sources from a handful of the same suppliers as M&S, and some of its clothes are made in the same factories as M&S items. In these factories at least, the workers making a £2 T-shirt also make clothes that sell for significantly more. “We are in the same factories as other people, we are just doing things differently further up the supply chain,” says Geoff Lancaster, spokesman for Primark’s parent company, Associated British Foods.

Primark puts its cheap prices down to short lines of management, slick distribution and good buying. Lancaster says: “If you talk to people in our business, merchandise is king. It’s about getting the right stuff, at the right quality, at the right time.”

To illustrate the company’s frugality, he says Primark does not do television, outdoor or print advertising. The company spends about £200,000 a year on marketing – a paltry sum compared with its rivals – which just about covers local radio announcements of new store openings.

But labour rights campaigners are not convinced that Primark’s model is squeaky clean. Labour Behind the Label campaigner Samantha Maher says: “We are not saying that Primark’s business model is significantly worse than anyone else’s. But that model of buying clothes, and convincing consumers that clothes are that cheap, is damaging.” The fast fashion model of incredibly short lead times, low prices, and pressure on factories to hit order targets, has had “a detrimental effect on workers’ rights”, she says.

Worse for Primark’s reputation is the reactionary way that it has responded to revelations of poor working conditions at its supplier factories, Maher says. “Their approach is a bit 1990s. We wish they would stop being so defensive,” she says, referring to the way that Nike and other brands responded to the first allegations about sweatshops in Asia. By insisting that it is an ethical company, Primark appears to be denying that problems exist in its supply chain, Maher says, adding that such a stance tends to grate with campaigners and invite further scrutiny.

Its reputation may be taking a beating, but behind the scenes Primark is ramping up investment in ethical trade. The company admits it is starting from a low base. To date, Primark has not employed a permanent, full-time director of ethical trade at group level. This role is currently performed by external consultant Henrietta Lake, who has worked for 10 years with other major brands on labour issues in their supply chains.

Lake has only been working with Primark since November 2008, succeeding another external consultant who had worked with the chain for more than a year. Ultimate responsibility for ethical trade within Primark rests with company secretary Paul Lister, and his deputy, Rosalyn Mendelsohn, who is credited with driving internal efforts to improve Primark’s record on responsible sourcing. But the day-to-day work of directing the retailer’s ethical supply chain programme is done by Lake. She vets and reviews supplier performance against the company’s ethical standards with the buying team; oversees the factory auditing programme, working with third-party auditors; and attends meetings with stakeholders and other members of the Ethical Trading Initiative on Primark’s behalf.

New commitment

This month Primark will end the unusual situation where it is publicly committed to ethical trade without having a director committed full-time to overseeing the brand’s work in this area. Primark has appointed its first director of ethical trade who will start in early March.

Primark is also busily recruiting to expand its ethical trading management in major sourcing countries. It is hiring two new ethical trade managers in China, one in Shanghai and another in Shenzhen, taking its team in the country to three. It is doubling the size of its Indian team, based in Delhi and Tirupur, from two to four. And it is recruiting a new ethical trade manager in Bangladesh. At least two of the new arrivals come from major retail firms. The new team will mostly be in place when the new UK-based ethical trade director takes over this month.

The hiring will not stop there. By June, the company hopes to hire two more ethical trade staff in China; two more in India; one more in Bangladesh; a first manager in Turkey; and an associate in Vietnam. The search to fill these roles has already started. And the new director is likely to make appointments for the group ethical trade team from March.

The investment in ethical trade staff shows that Primark now understands that simply hiring external auditors to check factories is not a robust responsible sourcing strategy. The retailer sees it must have representatives to build relationships and train suppliers on improving working conditions. But auditing remains the central plank of the company’s strategy for tackling ethical risks in its supply chain.

Primark is ploughing money into auditing its suppliers, although it continues to play catch-up to many leading high street brands. “This year we will audit, re-audit and work with 100% of our top-tier suppliers,” Lake says. At present, the retailer has about 800 top-tier suppliers – those it buys from directly – although their number will drop this year. The company currently audits 418 suppliers, and it expects the number of audits to increase this year. In 2008, it averaged 25 audits a month, but in January 2009, it conducted 55 audits. The idea is for factories that have been audited to receive a follow-up audit within six months – or sooner if problems have been found.

Primark’s auditing programme was small and unsophisticated when it joined ETI in 2006, the company admits, at a time when leading high street retailers had already spent years investing and improving their monitoring of supply chain working conditions. When auditing, the chain now prioritises its biggest suppliers, or those suppliers where it is a major customer, or products and countries where ethical risks are high. Lake says: “We’re looking at key product lines, and just making sure that that we are confident in the performance of our suppliers.”

Lake adds: “Price is not driving problems. It is oversimplifying the issue to say it is about price. Primark’s buying model is not driving the problem. We’re talking about huge volumes here, and there are other factors involved.” She points to one internal study the company has done to investigate whether it is buying at a level where suppliers can be profitable. Its supplier’s margin, in this case, she says, was “more than enough”. Among major suppliers to the UK industry, she says: “Primark is known for being tough on prices, but no more so than any other buyers”. But, she adds, Primark always pays within 30 days, and does not change orders as frequently as other buyers – two things that make life a lot easier for suppliers.

Despite being criticised for dropping suppliers in India after the child labour scandal, Lake says: “In Tirupur right now we are one of the only buyers increasing orders and staying in there. We’ve heard that many other buyers are pulling out.”

While fiercely arguing that its model does not drive down standards, Primark knows that, like all other retailers, it has problems in its supply chain. What’s more, it realises that traditional auditing methods, where auditors go into factories and tick off supplier compliance against a checklist of ethical standards, are not enough to detect bad practice. It is now looking at alternative auditing methods.

Primark uses auditing firm TRN to inspect factories in China and Europe, and SGS in the rest of the world. But it is now setting up pilot projects using non-governmental organisations to build up supplier capacity to protect workers. The company is partnering with an NGO, NUK, in Bangladesh to provide intensive remediation training for owners and supervisors of factories where problems have been found. It is also looking at ways of getting workers more involved in audits, a favourite suggestion of campaigners, through an ETI working group.

Intensive supplier audits, training and follow-up reports can cost up to £2,000 per factory over six months, Lake says. But if the pilots work, she believes the company will invest more in them. Primark currently pays for all supplier audits, something that is not always the case in the garment industry, where factories may have to cover audit costs. But traditional monitoring will remain a major part of Primark’s auditing for the foreseeable future, Lake says. Primark has no plans to jointly audit or share data with fellow buyers, she adds. Some brands do this informally at present but most continue to double up audit costs for fear of rivals finding out commercially sensitive information.

Primark is also investing in a supplier database where buyers, auditors and suppliers themselves can view the performance of factories against the company’s ethical trading standards. The software is being developed by BSI Management Systems, which is setting up a similar system for Levi Strauss, the US clothing brand that has a well-established ethical sourcing programme. Primark’s database should be fully functional by the end of the year, and should further professionalise its approach to responsible sourcing, the company says.

Training buyers

Making buyers aware of ethical risks in the supply chain is another area where Primark has lagged behind its competitors. This is now changing. Since last year, Primark buyers have had to get sign-off from Lake before they can order from new suppliers. In January, for example, Lake says she had to turn away a number of suppliers because they did not meet the company’s standards.

This month, Primark is giving all 100 buyers an intensive one-day training session on ethical trade – another first for the company. The idea is to make buyers aware of the ethical risks of changing orders at the last minute, or placing orders that are too big. “We don’t want to turn our buyers into auditors,” Lake stresses. But as they are most in contact with suppliers, and frequently visit factories themselves, they can be “another set of eyes and ears” for spotting ethical risks, she says.

For ETI director Dan Rees, making buyers aware of how their demands affect the lives of workers in their supply chain remains the biggest challenge for ethical trade. He says: “Brands must be vigilant that they pay enough to allow suppliers to employ workers in decent conditions and take account of that in purchasing.” That means ordering products in volumes and to timescales that factories can manage. He explains: “Shorter and shorter lead times are driving excessive overtime. And they do appear to be a driving force behind unauthorised subcontracting. These are conditions that brands really need to address. These are the ethical litmus test of good buying.”

Primark faces many ethical tests in its supply chain, which the brand has only recently started to address. Now the company is finding, just as Nike did in the 1990s, that it pays for successful brands to be prepared for media scrutiny of their suppliers. Primark’s predicament shows that even budget retailers cannot afford to scrimp on ethics.

UK sweatshops uncovered

Primark was stung in January by an undercover BBC investigation that found one of its UK supplier factories, TNS, was employing illegal workers and paying some staff just £3.50 an hour, well below the legal minimum wage of £4.77 for those aged 18 to 21 and £5.73 for those over 22.

When the story broke, Primark was in the process of auditing TNS, a Manchester-based knitwear factory. Auditors had visited the factory twice, in April and December 2008, and had put in place a corrective action plan.

Auditors found that the factory had copied some workers’ right-to-work documents, but not all workers had the right documents copied; for example some had passports copied but not visas. Auditors also suspected that staff were lying to them about working hours, although they had no evidence to prove this.

Primark is now helping UK authorities with their investigations. Immigration authorities have visited TNS several times since mid-January. But getting the right information to suppliers about employing foreign workers is difficult because UK law in this area is complex, says Henrietta Lake, consultant to Primark on ethical issues, and because the problems of an illegal workforce are widespread. “We suspect that there will be many factories that will be unknowingly employing workers with high quality forged documents,” she says.

Primark itself has re-audited all of its UK suppliers – about 20 factories. And they are not the only ones, Lake reveals. “I was in UK factories [in January] and some major brands were there too. A lot of them are concerned about conditions in UK factories, many of which we share with them,” she says.

The incident has thrown the spotlight on the UK’s sweatshops. Most high street retailers source from Asia, but many depend on a small number of UK factories for replenishment – small amounts of goods to top up shelves that have run out of stock faster than expected. The TNS case suggests that UK authorities are no better at policing the garment industry than their counterparts around the world.

Dan Rees, director of the Ethical Trading Initiative, says: “Governments universally are not doing enough to enforce labour law. They are not doing the job that government should be doing.”

Rees argues that when the UK government does get its act together, it can deliver fantastic results for domestic and foreign workers. He highlights the Gangmaster Licensing Authority, which regulates suppliers of migrant labour to the food and agriculture industry, as a model to follow.

This approach should now be extended to other sectors, such as construction and hotel and catering, Rees says. More cases like TNS and the UK garment industry could be next on the list.

Mixed fortunes with NGOs

Primark has started to engage with campaigning NGOs in meetings brokered through the Ethical Trading Initiative. NGO members of ETI include groups such as Cafod and Save the Children.

The company is having less success engaging with its more vocal critics. Geoff Lancaster, spokesman for Primark’s parent company Associated British Foods, has met representatives of Labour Behind the Label, the UK-based advocacy NGO, and had “a very frank and open exchange of views”. But their fledgling relationship has since broken down, he says.

Labour Behind the Label campaigner Samantha Maher says: “We would be happy to meet with Primark if they emailed or phoned us.” But the campaigner would have to be convinced that the brand genuinely wanted its input.

Advocacy groups such as Labour Behind the Label and War on Want have refused to join ETI. Maher points out that Labour Behind the Label does have close links to NGOs that are part of the initiative, such as HomeWorkers Worldwide and Women Working Worldwide, which are both in its network.

Henrietta Lake, ethical trade consultant to Primark, says of advocacy NGOs: “I think they play an important role. They keep everyone on their toes.”



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