Next Steps:
Building on the Four pillars of a good living wage initiative

In LCUF 2008 we laid out the four pillars that underlie a meaningful living wage initiative: using a collaborative approach by working with other companies, trade unions and labour rights groups; supporting worker organising and participation; examining commercial factors throughout the supply chain and creating a clear road map to implementing the living wage for all workers. It is clear from this year's responses that a number of brands and retailers have accepted this framework at least in terms of reporting on their work over the last year. However only a very small number of retailers (Next, Gap, Monsoon) appear to be conducting work that contributes to the strengthening of all four pillars, leading to inevitability uneven results.

1. A collaborative approach

A number of companies raised concerns that we were unfairly prejudiced against those companies who had chosen not to join the Ethical Trading Initiative. We acknowledge that ETI membership in and of itself does not guarantee the quality of, or even commitment to, work aimed at improving wages. Asda, a long standing member of the ETI submitted one of the most disappointing responses and, given its size and influence should be doing a lot more. Tesco and Sainsbury's seem to still be content to rely on a ETI living wage project that has still not got off the ground. Debenhams and River Island have nothing of interest to say.

However a review of general trends in the 2009 report confirms our assertion that membership of a multi-stakeholder initiative is the most effective means of pursuing a collaborative approach. As projects have developed over 2009 it becomes more apparent that those brands and retailers developing the most interesting projects are also those who have been engaged in the ETI.

Not all of these brands (GAP, M&S, Monsoon, New Look) are carrying out living wage projects through the ETI, but all appear to be using learning gained in that forum. Its clear that their understanding of the complexities involved is considerably more developed than those companies (Matalan, French Connection, Clarks) that have no multi-stakeholder experience.

Next and Arcadia report on projects in Bangladesh and Mauritius where collaborative work between their brands is being done, and as such would probably expect to receive similar profiles and grades. However it's clear that NEXT are developing a more systematic approach to the issue than Arcadia, whose work aside from that done with NEXT offers no long term strategy and is somewhat limited to training of their UK staff. That said, Arcadia should learn from the fact that their best work is coming out of a collaborative project and consider how much this could improve through more institutionalised collaboration with other brands, NGOs and trade unions.

Finally, where a retailer decides to step up its game, membership of a multi-stakeholder initiative can help it to develop more convincing programmes. For example, last year Primark submitted an unconvincing and disappointing submission to this report that reflected its lack of engagement with the living wage issue. This year we saw a significant improvement and, although they still have a long way to go, should be commended for raising the standard so quickly.

2. Worker organising

Freedom of Association and Collective Bargaining are enabling rights. If workers in the garment industry were properly organised, we might not need corporate responsibility projects or consumer campaigns – workers themselves would be involved in setting wage levels that not only covered their basic needs but that reflected the real value of their work.

In every Clean Up Fashion report so far we have emphasised the need for brands and retailers to be engaged in work to promote and support the right of freedom of association and collective bargaining within their supply chain. Last year we set out some examples of actions brands could take to support these rights. This year we set the grades in such a way that only those retailers properly engaging with freedom of association could move beyond a 3.5. No-one made the grade.

True, more responses this year did attempt to address this issue in their submission. A number of retailers stated their acceptance that freedom of association needed to be addressed and their preference for a negotiated living wage level. Some are even starting to talk to international trade union representatives as part of their projects (Gap, Next).

In most submissions worker involvement, if freedom of association work existed at all, it was limited to interviewing workers about wages (Tesco, Arcadia) and setting up focus groups or workers committees, (M&S, Aurora Fashions). For years we have been emphasising the difference between an independent trade union – an organisation that is set up by workers, with representatives elected by workers, mandated to bargain for demands defined by workers – and a workers' committee – established by and often including factory managers, which aims to provide a forum to 'consult' with workers rather than negotiate. Workers committees cannot and should not replace trade unions in the workplace. The presence of workers committees in a factory does not indicate freedom of association is being respected. In fact, the establishment of a worker committee can be used to deny freedom of association if it is used to replace trade unions in bargaining.

We recognise that freedom of association is a thorny issue. We know that employers are likely to resist the exercise of this right more than any other. We've seen the myriad ways in which this right can be denied to workers by employers and governments alike. We are aware of the challenges we face in removing the barriers of fear, misunderstanding and persecution that prevent the vast majority of workers from joining and participating in trade unions. But without it, improvements to wages and conditions will be at best patchy and difficult, if not impossible, to sustain.

3. Paying the cost

"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. I don't care what anyone says about margin structure, about the efficiency of the business, or about a low-cost business.....” - Stuart Rose, Marks and Spencer

Wages represent only a small percentage of the retail price – normally 0.5 - 1.5 per cent. This very small price increase could easily be absorbed by global buyers paying higher prices to suppliers.} Not all retailers were adversely hit by the credit crunch in 2008/9. Some, Tesco and Primark to name just two, took advantage of the economic crisis to promote their particular model of high volume low price fashion. As the competition struggled to survive, these fast fashion retailers saw a steady increase in profit.

The increase in profit doesn't just come from a higher demand for cheap fashion here. The garment industry has been through a drastic restructure which has intensified the race to the bottom. Prices being paid to suppliers are decreasing fast. At the same time suppliers are faced with rising fixed costs, such as fabric, transport and energy, and are facing difficulties in obtaining the credit needed to bridge the gap between production and payment.

Brands and retailers themselves acknowledge the impossibility of producing and retailing cheap clothing in a way that is compatible with their commitments to pay a living wage, yet they continue to pressure suppliers to continuously cut prices. In Bangladesh for example, where production costs are among the cheapest in the world, suppliers reported that buyers were demanding drastic decreases in price. In April 2009, M&S, Tesco and H&M were reportedly among 50 other brands and retailers calling on Bangladesh exporters to reduce their prices if they wished to stay competitive. (Reuters, Dhaka, April 2009)

It is noticeable that this year we saw less brands willing to acknowledge the need to address pricing as part of a strategy to increase wages. In fact more than ever there seems to be a desire to promote the idea that wage increases can be funded through productivity improvements alone (see below). Monsoon were one of the only brands to acknowledge the role of fair pricing in ensuring living wages are paid, but then went on to add “increased costs provision will primarily have to be driven by productivity improvements.”

Of course its not just about price. Changes in productivity at the supplier end and other purchasing practices at the buyer end can all make a difference. But if brands and retailers are serious about improving workers rights they cannot continue to ignore the impact of price competition on wages and conditions.

4. Rolling it out: route-maps for sustaining a living wage

Last year we emphasised the importance of brands setting wage targets that corresponded to a living wage figure. Such targets could be developed through national or regional bargaining, factory-level bargaining or through research of a calculation of needs and would provide an end point against which success could be measured. A number of brands including Next, Monsoon, Gap and Arcadia did carry out wage surveys as part of their work. However, such surveys are taking too long and by the time workers see the benefits, any real gains have often disappeared with inflation.

For wage projects to be successful there needs to be a clear standard which everyone is working to, ideally based on negotiations with workers and one which updates regularly to take inflation and other factors into account. Even though everyone agrees on the definition of what a living wage should cover, the benchmarks used by brands and retailers vary drastically.

Take Bangladesh as an example. We suspect M&S are still working to a Bangladesh wage of 3000tk - which they say they are continuing to assess. New Look refer to a figure of 3,200tk - although its unclear if they take this to mean a living wage. Arcadia and Next decided to go with 5,333, a figure developed by War on Want for their Fashion Victims II report (2008). Trade unions broadly agree with this and are talking about figures of around 5500, although most admit that the need to call for a figure that seems 'realistic' plays a part in setting this amount. The Asian Floor Wage figure (see below), which constitutes a combination of negotiation and formula, is over 10,000tk, more than 5 times the value of a minimum wage and double anything the brands are working towards.

We also emphasised that a route map must look at ways of including the most marginalised workers, including home workers, in plans to increase wages. Living wages must be provided to ALL workers and must be earned over a standard working week. Most retailers seem to have accepted this point, although too many are still using benchmarks that include overtime hours albeit within legally acceptable levels.

A number of brands and retailers (Matalan, Monsoon, Primark) made mention of homeworkers in particular in their living wage work. We are encouraged to see that the inclusion of this particularly vulnerable group of workers is now a priority for so many brands. However it is clear that this work has a long way to go: even the most advanced work on improving homeworker wages has yet to achieve legal minimum wages for these women workers – a level nowhere near living wage levels.

Two companies, Arcadia and Next also mentioned work to increase wages for migrant workers, but again the focus was not on increasing wages as such but reducing illegal deductions for recruitment, levies or accommodation.