The true cost of a garment – something that will make you go bananas
The analogy of the banana
Two years ago, when I was getting ready for my volunteer trip to Nicaragua (to read more about my trip click here), the group whom I was traveling with and I were given seminars on the vicious circle of poverty. One of them was to give us visibility and teach us about the different intermediates within the traditional banana production chain. If you take a look at the diagram to the right, I “sliced” the banana into pieces reflecting how much money every stakeholder is making for a $1 worth of bananas.
- Worker – central America – earns 2%
- Landlord – USA – earns 8%
- Forwarder agent -USA – earns 10%
- Importer – USA – earns 10%
- Wholesale agent – USA – earns 10 %
- Transformer – USA – earns 10 %
- Distributor – CAN – earns 10 %
- Retailer – CAN – earns 40 %
Do you see the issue here? Someone in this process is getting a bigger slice than the others. I’m pretty sure that if I had two kids and I had given a bigger piece of the cake to one of them, the other one would get mad and eventually throw a tantrum. As adults, we just take a deep breath and shut up.
Now, this is happening for the reasons below:
- There are too many people involved in this production chain resulting in profits being split under too many levels – leaving the most vulnerable with the least.
- Only a handful of companies control the market and keep pushing for low costs resulting in shitty work conditions for the people involved on the very top of the process. The question is, why are the workers the ones coping with the least income? Truth is, it’s because we live in a jungle ran by threatening lions and we all know what the law of the jungle states: only the strongest will survive. It’s common practice in a capitalist economic model to negotiate the lowest cost possible. Why can’t we negotiate the FAIREST cost possible? These small businesses in underdeveloped countries can only feel threatened to lose the only income they depend on. This being said, they have no other choice but to accept the unreasonably low revenues – it’s either this or nothing.
How much are you really paying your garment?
Let’s breakdown together the elements of who and how much money is each stakeholder earning in the making of a basic garment. Surprisingly enough, it’s very similar to the banana commerce.
If you take the most basic garment – it could be a t-shirt, a blouse, shorts and even pants – the cost of fabrication is normally around 5$ if made in China. Profit margins from the retailers are determined by the brand (many factors are taken into consideration to determine the margin percentage – like admin fees, salaries, etc. and this is variable for every brand). The retail price a garment will be sold at takes into consideration that profit margin but also how much the customer is willing to pay depending on competition and judgment of value. Profit margin can also vary depending on the quantity ordered. Companies like H&M make their money on quantity, therefore, can afford lower margins per style and lower retail cost. In many cases, you can still be looking at 75% profit margins, so if you purchased a top at 35$, the retailer is making around 26$ of profits. Now is this even fair to you as a customer?
Retailer profit margin
Within these $5, the cost of the fabric is responsible for around 30% to 50% of the total cost. The remaining includes trims (buttons, zippers, etc), hang tags, packing fees, transport AND labor cost. Therefore, out of $5, around only $2 are going into the making of that garment. This sum is then split between multiple workers since the work process is divided between sewing, pressing and packing for example. Let’s say we split $2 equally into 3 – this would mean that each worker is paid around $0.66 per garment – now this is just an approximate number considering that they are paid per garment. Although, it’s hard to get an exact number since salary wages are different depending on the city and the factory’s policies. Depending on the worker’s efficiency and the difficulty of the garment the revenue differs. Therefore, a worker you be paid much less for a T-shirt then for a blazer which requires more technicalities.
Aside from the low salary wages, come the working conditions. Some factories in China and mostly in poorest countries like Bangladesh and Pakistan, workers deal with inhumane working conditions on a daily basis. From insane amounts of work hours to handling toxic dyes and chemicals without protection and not even air conditioning in extremely hot weather, it’s frankly shocking. I highly recommend you to watch the documentary The True Cost which gives full visibility on this matter.
By Tareq Salahuddin from Dhaka, Bangladesh – DSCN1647, CC BY 2.0, Wikimedia
In the past few years, competition has been so fierce that even Chinese manufacturers cannot compete with cost. The new generations are not interested in factory working but instead are aiming for a better education that would land them office jobs. On top of that, during Chinese New Year, workers go back home to their native cities and families (most factories are situated outside the city which obliges employees to leave their families for work) and eventually don’t come back to work because they find jobs closer to home. In consequence, factories now need to pay higher wages to keep their employees. Even worse, some factories are now outsourcing their own production to poorer countries like Cambodia or Africa! Eventually, when there won’t be any ”poorer” countries left, what’s going to happen? Prices are bound to go up because the way things are done right now is clearly unsustainable.