Thursday, July 25, 2024

How to fix fast fashion

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The American TV comedy show Saturday Night Live recently ran a skit sending up a fast fashion company called “Xiemu” that sells $3.99 tank tops that it claims are, amazingly, made with “minimal lead” and no “forced labour.” Hollywood star Jake Gyllenhaal played a US shopper who is suspicious of the sell but, when forced to square principles with cheap prices, cheerfully opts for the latter.

The sketch cuts at the heart of the global trade bargain. Rich countries send jobs to places with lower labour costs and environmental standards, and get cheaper stuff in return. If that involves pollution or child labour, just “don’t worry about it!” as the SNL satire chirps. 

Mostly, we don’t. Despite all the talk of re-industrialisation and buying locally, American consumers still snap up fast fashion on platforms such as Amazon as well as its Chinese peers Shein and Temu. Inflation has only exacerbated the trend.

But while consumers like cheap stuff, politicians worry about the impact on domestic industry and jobs. That is one of the reasons that Shein is aiming to do its listing in London rather than New York. The threat of more sanctions and tariffs against China has become a major disincentive to stay in the US. 

Can you have both affordability and morality? What if American consumer demand itself could bridge that gap? It’s a question that both businesses and US policymakers interested in more resilient local supply chains are asking.

Consider one new product collaboration between the country’s largest retailer by sales, Walmart, and American Giant, which makes a high quality line of sportwear in the US.

AG’s T-shirts typically go for $45. But on July 4, Walmart will begin selling an all-cotton AG T-shirt for $12.98, just a few dollars more than the cheapest polyester blend shirt it carries. The hugely lower price required some margin sacrifice but still provides a very profitable product for both manufacturer and retailer, according to AG. It was made possible by the sheer scale of Walmart, which is purchasing not thousands, but hundreds of thousands of products per year, for multiple years.

This project is part of a $600bn commitment by the retail giant to purchase goods made, grown or assembled in the US, that started in 2013. It’s a broad definition: assembling something locally is quite different than making it from start to finish in the US (the company wouldn’t release the volume of 100 per cent American-made goods, which is likely minuscule).

Still, given that 86 per cent of Walmart’s customers say they want more such goods, there’s a business case for it. “The closer you are to the customer, the better off you are in terms of speed to market and in the case of things like produce, freshness,” Walmart says. The company has, for example, made a large investment in hyperlocal vertical farming.

Putting products where the customers are cuts transport costs and emissions. Beyond that, US business clearly sees the political writing on the wall. Whoever is elected in November, there will be a continued public sector push for re-industrialisation.

Beyond offering scale, Walmart, which runs a supply chain boot camp for new partners, worked with AG’s suppliers to increase productivity in ways that also supported lower prices. “There’s a lot of scepticism about whether you can actually re-industrialise and build up more supply chains at scale in the US,” says American Giant chief executive Bayard Winthrop. “What gets rid of that is a purchase order.”

Textiles are a low-margin industry, with most production moved to China over the past two decades. But in some ways, that makes the industry a perfect case study in what’s possible in terms of reshoring. The answer: more than you might think. I watched during the pandemic as US textile makers drove the price of an American-made face mask down from 50 cents to between 25 and 30 cents, thanks to a strong demand signal from government. Unfortunately, that signal went away after lobbyists toned it down at state level.

Since then, 17 textile factories in the US have closed, according to the National Council of Textile Organizations. Without more domestic purchasing, they can’t compete with fast fashion retailers able to leverage “de minimis” loopholes for small international package shipments under $800. These loopholes also open up the possibility of products made with, say, forced labour or banned substances entering the US.

The president could close them. But in order to make the textile industry — or any other US industry — truly competitive for the long term, you need more than tariffs or executive orders. “Demand signal incentives are what it’s all about,” says Christopher Gopal, a member of the Defense Business Board, which works with the US Department of Defense to explore how consumer demand might be harnessed to make more strategic industries — say semiconductors or clean tech — competitive again.

Trade officials in the US have long complained about how easily countries with cheap labour can gain access to the largest consumer market in the world without giving much in return. The push to leverage the American consumer to support re-industrialisation raises an interesting question: will US consumers pay a few dollars more to support local jobs? The shape of America’s economy may depend on the answer.

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