Fashion trends come and go. As apparel companies have learned to accelerate the fashion cycle while driving down costs to reduce prices, consumers have had an increased interest in what fashion brands are doing to be more sustainable with their supply chain operations.
Why Are Fast Fashion Retailers Facing Backlash?
With the fashion industry being the second largest consumer of water and accounting for approximately 2-8% of global carbon emissions, fast fashion retailers like SHEIN and PrettyLittleThing (PLT) have come under heavy scrutiny due to concerns of unsustainable business practices.
The general consensus is that fast fashion is extremely harmful to both humans and the environment. As a result, fast fashion retailers have lost trust with many consumers over time. This is why a recent SHEIN influencer trip sparked backlash over the company purportedly exploiting marginalized influencers to push propaganda. Likewise, Naomi Campbell was criticized for her recent collaboration with PLT, a Boohoo-owned company, also accused of unsustainable business practices.
According to a BCG study, fashion companies are heavily relying on digitization to predict demand head on to quickly rollout high fashion trends at affordable prices. But with such agility comes to question social and environmental impact.
SHEIN
SHEIN is on target to achieve $60 billion revenue by 2025 boosted by founder Chris Xu’s marketing brain power, the company’s ability to hedge import taxes, and near-shoring its manufacturing capabilities in close proximity to China.
Supply Chain Ethics. According to the company’s 2022 Sustainability and Social Impact Report, the fast fashion retailer is reportedly making progress towards enhancing sustainability throughout their end-to-end product lifecycle by sourcing responsible products and materials, decarbonizing their supply chain, and protecting biodiversity and animal welfare, among other key priorities under their ESG roadmap. Yet, their track record for human rights violations has yielded unwavering controversy among many socially-conscious consumers that has left a perpetual stain on the fashion brand, as evidenced by recent backlash from a recent influencer trip.
While they’ve committed to investing $15 million to improve labor conditions after admitting that two of its factories were found to be in violation of Chinese labor laws, journalists, activists, and trade groups have been incessant in their pursuit to uncover more damnatory evidence of ongoing human rights violations in an effort to enforce greater accountability on the retailer. In reference to labor and management relations and occupational health and safety, SHEIN has adopted a multitude of code of ethics policies in which every SHEIN employee must undergo training and agree to adhere to such policies while employed with the company. In 2022, the company reported that they held 52 training sessions with 3,206 staff members from offices in Shenzhen, Nanjing and Guangzhou.
Supply Chain Sustainability. The company also disclosed that they leverage technology and their flexible supply chain to enable forecasting accuracy to meet demand all while minimizing excess inventory waste. But by leveraging this technique to produce items on-demand, they’ve in turn omitted an absolute 9.17 million tCO2e to the environment in 2022. The company stated that they are at the beginning stages of implementing decarbonization programs to address their 9.15 million tCO2e Scope 3 emissions due to their production volume increasing to 57% in 2022. On the other hand, they emitted 3,781 tCO2e in Scope 1 and 19,505 tCO2e in Scope 2 emissions in 2022.
Because more than 99% of their emissions are Scope 3, this is an area of opportunity for them to implement and enforce better supply chain policies to manage their Tier 2+ suppliers more effectively. So far, they’ve entered a new partnership with Apparel Impact Institute (Aii) and Brookfield Renewable Partners to promote renewable energy use and efficiency. Through this partnership, they will be investing $7.6 million in Aii programs to begin aligning their supplier network with their decarbonization program targets.
PrettyLittleThing
Boohoo Group PLC (parent company to PLT) reported USD $2.2 billion (1.77 billion GBP) revenue across its brand portfolio in FY2023. Targeted reinvestment of supply chain savings from their tightly managed inventory that has been declining 36% YoY, an optimized freight strategy, and near-shoring have led to enhanced supply chain lead times and free cash flow.
Supply Chain Ethics. With 18 million active customers, the global fashion e-commerce group has reportedly made progress on their overall sustainability strategy across its brand portfolio while also acknowledging that they are aware that inappropriate, unethical, or illegal practices can go undetected which could lead to investigations from regulatory bodies and may cause reputational damage. Their approaches to mitigating reputational risks associated with supply chain ethics have been to:
- Implement responsible purchasing practices that are incorporated into brand buying practices
- Enforce modern slavery, anti-bribery, and ethical compliance training programs and plans across the group
- Engage Bureau Veritas as a third-party audit partner
- Manage non-compliance correction processes through a UK ethical compliance team.
Supply Chain Sustainability. The group also disclosed an 8% reduction in their market-based carbon footprint from 852,370 tCO2e to 781,146 tCO2e since the previous reporting year, driven by their transition from air freight to road or sea freight and a reduction in fabric purchased. On the other hand, their operational location-based Scope 1 and Scope 2 emissions have increased from 4,161 to 5,150 tCO2e as a result of a 71% increase in gas consumption across existing and new properties and a 32% increase in electricity consumption. Their total absolute market-based and location-based emissions amounted to 1.57 million tCO2e in 2022, emitting 1,095 tCO2e in Scope 1 and 4,353 tCO2e in Scope 2 emissions across their UK and offshore companies. With Scope 3 also accounting for 99% of their emissions, the Boohoo Group will be working with their suppliers who produce 50% of their volume to complete a Higg Index Facility Environment Module (FEM) with a minimum of 10% verification.
By 2030, they plan to achieve carbon reductions across their value chain aligned with science-based targets equivalent to a 52% reduction in emissions relative to their growth, according to the group’s climate report. Their full ESG Progress Report is also included in their Annual Report & Accounts 2023.
How To Build Trust Through ESG
A company looking to build out an ESG initiative, especially when reputational damage has already occurred, must realize that this is an enduring endeavor that requires intentional top-down leadership to drive success in building consumer trust, strictly adhering to regulatory laws, enforcing responsible sourcing activities, and reducing carbon footprint through robust carbon accounting mechanisms.
1) Sustainability is important—so what to do about it?
Develop an ESG roadmap that encompasses between 3-5 strategic imperatives. Then, clearly define your supply chain and sustainability standards as well as measures your company will take to ensure that your suppliers and your supplier’s suppliers are being held accountable to these standards.
2) Supply chain complexity can be an issue.
Strategic suppliers typically have high profit impact and high supply risk. They will also usually have long-term contracts and high visibility with executive leadership. For these reasons, determine who your strategic partners are through supply base segmentation and consolidate as necessary to reduce complexity. It is also beneficial to identify alternative suppliers to create redundancy in your supply chain. Additionally, nearshore or reshore manufacturing capabilities among your strategic supply base where feasible to boost scale, speed, and manufacturing efficiency.
Next, create a baseline category summary encompassing each supplier’s annual spend profile, price evolution over the past three years, applicable 3rd party regulation requirements, and risk profile. Then, work with your strategic supply base to fully document their supply chain standards and train them on mutually agreed upon expectations to ensure alignment with your company’s supply chain and sustainability standards on a semi-annual or annual basis. Some key expectations can include maximizing material and energy efficiency to reduce waste from material and energy usage across factories or shifting to a 100% renewable energy model. When misalignment has been identified, it is necessary to place the supplier on a corrective action plan with a target date for when they are expected to be in compliance with established supply chain and sustainability standards.
3) Supply chain visibility is needed to map out nth-tier suppliers.
As seen above, more then 95% of carbon emissions reported by retailers come from Scope 3 emissions, which are CO2 emissions that are not directly controlled by the company, but rather, can occur in upstream or downstream activities of an organization. Clear visibility into Tier 2, 3, and 4+ suppliers is needed to drive a successful sustainability initiative in order to hold your supplier’s suppliers accountable to supply chain and sustainability standards as well.
Therefore, leverage digitization tools to enhance end-to-end supply chain visibility. For example, a digital twin enables a company to identify where flow and capacity constraints can occur in the supply chain by creating a digital replica of a physical asset or process. It can also be used to map out nth-tier suppliers through real-time monitoring. Additionally, other technologies like IoT, AI, and ML can help establish and measure sustainability targets within an entire supply chain network while also predicting new demand based on changing business requirements.
Aside from mapping out nth-tier suppliers and tracking energy consumption and optimization metrics, these technologies can also be used to ensure employee safety. Some use cases include floor condensation detection to mitigate slip and fall hazards, PPE validation, and no-motion detection to help ensure lone worker safety.
In fact, many fast-fashion retailers are already using enhanced digital capabilities like AI to enable intelligent push, fast-fashion pull, and on-demand digital DTC tactics. With a new targeted focus on sustainability, fashion retailers can utilize technology to also reshape the fast fashion narrative to ensure sustainability and build consumer trust.
4) Consumers want to trust retailers to make and source products the right way.
Be transparent and stay abreast of new global regulations. Regularly publish sustainability results to shareholders and downstream customers, informing them of sustainability practices and progress made against baseline metrics.
However, a common of pitfall to avoid is greenwashing. In 2021, a European Commission report found that 42% of companies participated in greenwashing tactics. With a new EU anti-greenwashing legislation made into effect Jan. 1, European companies will now be required to provide verifiable information on CO2 emissions related to “products or services, from the initial manufacture, through to the removal of the product or its eventual transformation through recycling”. For companies operating outside of the EU, a voluntary eco-label that states how the garment was produced and certifies by a third-party that it was produced in a sustainable manner can help counter greenwashing suspicions.
Another pitfall is gaslighting. As seen with the SHEIN influencer trip debacle, consumers felt that they were being shown a staged facility, misrepresenting actual working conditions of its factories. While leveraging marketing tactics can help increase brand value, data driven insights into supply chain and sustainability standards will help to boost the integrity of a company’s ESG program. This can be achieved by creating a comprehensive ESG operational dashboard and source of truth to automate ESG data and calculations to drive Scope 3 accuracy and track meaningful metrics related to labor practices, occupational health and safety, and code of ethics trainings to communicate to downstream customers.
Can Fast Fashion Be Sustainable?
Ensuring supply chain ethics and sustainability is a concerted effort that takes intentionality to reshape the fast fashion narrative. Companies must be flexible to respond to supply chain issues that could yield unsustainable and unethical results while also finding ways to increase supply chain circularity. By establishing an ESG roadmap, leveraging innovation to navigate supply chain complexity, increasing end-to-end supply chain visibility to ensure accountability throughout the entire supply chain, and informing consumers through transparent and reliable data, fast fashion retailers can help shift the fast fashion paradigm to build and keep consumer trust.
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