Many consumers are much more aware of the fashion industry’s working conditions and global links with fierce cost pressure since the 2015 documentary The True Cost evidenced the human and environmental cost stitched into the fabric we put on our skins.
Covid-19 has put Leicester, a city of a third of a million population in England in focus. With its long and proud history of garment manufacturing and textile trading, it came under enormous strain during covid-19 and went into a second lockdown. Similar to fashion capital Milan in Italy where the outbreak originated in Europe, the working conditions in German meat processing plants mandated an additional lockdown and cast a light on practices, structures and interlinkages which benefit outbreaks and highly unhealthy conditions. Social distancing, cleaning, resting and keeping one’s immune system strong require resources that can be deemed costly – this is what these industries lacked and what made them hotspots in the pandemic.
Leicester-based Boohoo Group PLC encountered severe damage resulting from supplier risk that caused reputational risk and resulted in a stockprice slump. Corporate ties were cut, companies like Asos, Zalando and Next decided to terminate the cooperation which means Boohoo’s clothes will no longer be sold via those partner sites. A detailed report outlines the fraud schemes, the slavery-like conditions and worker’s abuse and denial of statutory rights, payments and protection. Also the corporate set-up – the opening and closing dozens of companies, a malpractice called phoenixing – that enabled VAT fraud, and abuse of government aid during the pandemic are important points.
The report provides insight into practices which illustrate how valuable experienced risk assessment is and remains and how limited automated systems are. They are in increasing use and relied on in the financial sector, government agencies and Know-Your-Customer/Counterparty (KYC)/Due Diligence processes in corporations themselves, but urgently need to improve and coupled with meaningful qualitative yet independent assessment. Cost-cutting pressure may be tempting but the risks of non-compliance and reputational damage are higher.
Simply relying on a run through public databases – which indeed had shown the large number of companies set up and closed down – does not mitigate nor address such risks per se. Only building more complex algorithms and asking the right questions, for instance an assessment of the supplier risk policy frameworks and reports of past spot checks, protective measures in place etc that will require human qualified assessment, may. A further step would be the linking up of databases and more transparency of checks, controls, red flags etc in order to permit and encourage public scrutiny based on factual data.
The most important outcome of the report is though that consumers and third parties need to become more aware and educated in these questions as workers in such conditions may not be relied on or even expected to blow the whistle due to fear of retaliation, and that corporations may simply be under even more profit-making pressure and shareholder expectations post-covid-19.