The factory fire: Global commerce, local tragedy

In the charred bones of the Tazreen Fashions Ltd. factory, the labels and logos — sewn and printed in scarlet and royal blue — beckon from the ashes. Even in ruins, there’s no missing that these T-shirts and jeans were intended for U.S. stores and shopping carts, designed as bargains too good to pass up, or stocking stuffers just in time for the holidays and in just the right size.

But a week after the blaze outside Bangladesh’s capital killed 112 workers, a glaring question remains unanswered: How, exactly, did brands worth fortunes end up in such a place? And what does the odyssey that brings them to market across thousands of miles say about the everyday economics most consumers take for granted?

Retailers and marketers whose clothes were found in the embers, including Wal-Mart, Sears and Disney, are carefully vague in explaining why that was the case. But piecing together the information they provide with records and the insight of apparel and sourcing experts reveals a complex and ever-morphing supply chain, in which Tazreen was just an interchangeable link.

It is a chain whose combination of ultra-low labor costs, maximum flexibility and delegated authority offers undeniable advantages. But it is also comes with considerable risk.

“A lot of people go into the store and see ‘Made in China’ or Bangladesh or India or whatever and it’s almost like this magical thing, that somebody said I want to make some shirts and it shows up the next day,” says Vinod Rangarajan, who advises apparel companies on product development and sourcing for consultant Kurt Salmon. “But it is a lot more involved than people would imagine.”

In fact, there is no single answer to how and why so many branded garments from Tazreen found their way to U.S. consumers, because that is precisely the advantage of the global supply chain: It never has to be one size fits all.

Some big retailers buy clothes directly from scores of such factories, searching for the production capacity to meet the demands of the coming season’s fast fashions. Others work through supply chain managers, independent suppliers or in-country agents. Still other so-called “vertical manufacturers” produce much of their product line in-house, but turn to a factory like Tazreen to handle specialty items that fall outside their line of expertise.

“There are lots of companies who exist between brands and factories and their job is really to just take technical specifications on an order and turn around and make sure that there is a poly-bagged, perfectly folded item that comes with a SKU (stock-keeping unit) number and a price tag,” said Kevin O’Brien, a partner in Ethix Ventures Inc., a Massachusetts distributor of “ethically sourced” apparel.

That explains why paperwork found in the shell of the burned out factory and its parent bare the names of clothing companies all but unknown to consumers. They include businesses like NTD Apparel Inc., based in Montreal, which sells T-shirts and other goods printed with licensed characters like Hello Kitty and Angry Birds to J.C. Penney, Urban Outfitters and other merchants. It was identified as the recipient of a 2011 auditor’s report deeming Tazreen a “high risk.” Or M.J. Soffe LLC of Fayetteville, N.C., which makes items including cheerleaders’ outfits and fleece tops, and was identified by an order book photographed inside the factory. Both companies were also named in shipping records, compiled by trade platform Panjiva, showing they received orders from Tazreen or its parent.

NTD executives did not return phone calls or take questions. In an email from the president, Michael Eliesen, the company said it was not working with Tazreen at the time of the fire. NTD said it hires auditors to ensure factories who make its clothes comply with local health and safety laws. “Any violation is dealt with according to the sensitivity of the issue and in consultation with our audit partners,” NTD said, without explaining how it had dealt with hazards found at the fated plant.

Robert Humphreys, CEO of Soffe parent Delta Apparel Inc. said he had never heard of Tazreen and did not know what his company had made there. That points both to the complexities of the apparel business, he said, and the fact that Delta, whose own factories in North Carolina and Central America focus on items that change little from season to season, normally only outsources work for the fringes of its product line.

“Maybe we make 80 percent of what we … sell and then you have outlying products that maybe are just for the season or a fashion run,” said Humphreys, whose plants turn out 3 million pieces of clothing a week. “This is why it gets so complex and there’s so much misinformation. But the apparel industry is a very big, complex marketplace.”

That complexity means there are secrets behind every label that moved through Tazreen, sewn in by workers earning the equivalent of 27 cents an hour, 6 days a week, packed between rows of sewing machines stacked on floor after floor of a building with exits locked or blocked.

Such conditions were also common in the U.S. until a fire achingly similar to the one in Bangladesh killed 149 workers at New York’s infamous Triangle shirtwaist factory 101 years ago. But today, the globalized economy allows retailers and consumers in First World countries to turn to Vietnamese or Honduran or Bangladeshi workers to do those jobs, a role largely overlooked until a system that runs with formidable efficiency is upended by tragedy.

“You have to remember that there is a problem which we face in a globalized economy, which is that if one country enacts really strict safety guidelines that raise the cost of manufacturing, buyers have the option to take their business elsewhere and, thus far, have demonstrated a tendency to do so,” said Josh Green, CEO of Panjiva Inc., an online data platform used by international marketers and producers.

The supply chain’s flexibility makes it particularly well suited for the clothing trade’s repeating cycle of design, order, production, shipment and sale. Apparel companies begin laying plans for new lines of clothing a year before they arrive on store shelves. But creativity quickly gives way to number-crunching, as executives set sales targets and try to figure out which producers can deliver within their required profit margins, Rangarajan said.

Producing overseas requires building in transportation time, usually 6 to 8 weeks for shipments of thousands of pounds of garments to reach the U.S. from Asia. So orders for the next summer season go out in late fall, allowing 6 to 8 weeks to produce cloth and other materials, and another 6 to 8 weeks for production. That explains why the products found in the wreckage at Tazreen, days after Thanksgiving, included T-shirts, children’s floral shorts, and women’s pants in bright pastels.

Competition for those orders seeds intense pressures. When U.S. Ambassador Dan Mozena spoke to Bangladeshi garment manufacturers in June, he recounted a late-night call from the CEO of a big clothing company, anxious that publicity about repeated fires and poor work conditions at factories where his goods are made could defame his brand.

“He said his company would gladly pay more for a Bangladeshi product if it were Fair Trade; his company’s reputation is worth more than saving a few cents per shirt,” Modena told the group.

But the pressures at work in Bangladesh, which has climbed to second place behind China among the world’s largest exporters of apparel, continue because it is part of a global production economy with interchangeable components. Making clothes requires relatively low-skilled labor and equipment that is easily relocated or replicated, making it “uniquely susceptible to geography hopping,” Green says.

That gives big buyers of clothing significant leverage. When a major retailer buys a garment, roughly 50 to 60 percent of the costs are for raw materials, 15 to 25 percent is for labor, and the rest is split between transportation, overhead and expenses like import duties, Rangajaran said. But except for the labor, the other costs are largely beyond buyers’ control.

“Continually chasing low-cost labor is one of the big levers you have to pull,” he said.

The result is a production system that has rapidly bypassed long-ago ways of doing business, when most clothing companies owned the factories where their goods were made and the workers were on their own payrolls. Now, a company like Wal-Mart or Sean John does not have to own a single factory, and the plants they rely on can change from year to year. The shifting creates the new challenge of keeping tabs on conditions where the work is being done.

That could explain some of the confounding answers that have come this week from companies that produced at Tazreen.

Wal-Mart said Tazreen “was no longer authorized to produce” its merchandise at the time of the fire, although the factory was approved until early this year.

“A supplier subcontracted work to this factory without authorization and in direct violation of our policies,” said the world’s biggest retailer, which would not identify the supplier.

Sears Holdings, which also owns Kmart, said it discovered only after the fire that its merchandise was “being produced at that factory without our approval,” leading the retailer to cut ties with a supplier it said was responsible, International Intimates. The chief operating officer of the New York-based lingerie company would not comment. Tazreen’s owner also declined to answer questions.

Critics say such responses are inexcusable, that companies are hiding behind links in the supply chain to duck their responsibility for working conditions in the plants that produce their goods.

“Wal-Mart has little incentive to lay down the law to the factory owner because the factory owner has produced the good at a price that Wal-Mart wants and that (retail) price requires,” said Robert Ross, a professor at Clark University who has written extensively on labor abuses in the global apparel business. That “constrains them to use practices that are either abusive, or exploitative or sloppy.”

Apparel makers, anxious to ensure quality and protect their images, are well aware of the risks. Since 1996, when an expose showed that clothes sold under celebrity Kathie Lee Gifford’s label were being made in Honduras using child labor, companies have worked hard to prevent a repeat scandal centered on overseas factories. The apparel industry launched Worldwide Responsible Accredited Production, a Virginia nonprofit that certifies factories meeting its standards. Most major retailers now require that auditors visit the plants that make their products, to ensure the owners comply with their codes of conduct.

The Tazreen factory was audited at least twice by Wal-Mart in 2011. Its parent company, Tuba Group, posted a long-expired WRAP audit certificate for one of its other plants on its website.

But WRAP’s president and CEO, Avedis Seferian, said audits, alone, won’t eliminate risk. He noted that when the group opened an office in Bangladesh in early 2011, its first project was starting a Factory Fire Training Program, hoping to prevent a recurrence of a 2010 blaze at a plant that made clothes for The Gap which killed 29 workers.

But the complexity of the global supply chain helps create a dynamic that allow factories like Tazreen to continue operating, Green said.

“All of these layers, which I think represent rational decisions at an individual level, result in a system that is pretty irrational, where you have a real lack of transparency about exactly what is going on,” he said. “And when you have a lack of transparency, you have a lack of accountability.”

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