We do not own or operate factories and Arcadia Group is rarely dominant in an individual factory. We have strong working relationships with our network of international suppliers, 48% of which have been with us for three years or more. Arcadia brands work with around 700 suppliers that manufacture our goods in approximately 1060 factories. The top 20 suppliers provide 44% of our goods.
This year Arcadia products were made in 46 countries worldwide, although our top ten sourcing countries accounted for 90% and the top five for 72% of the goods we sold. These top five countries remain as China, Romania, Turkey, Mauritius and India. Our support of UK manufacturing continues with 47 factories currently producing our goods.
In terms of the BHS supply chain, the brand works with around 550 suppliers, the top 20 of which supply 34% of their goods. This year BHS products were made in a similar number of countries to Arcadia and the top five accounted for 75% of the goods sold. These countries were China, UK, India, Bangladesh and Vietnam.
Fostering a socially and environmentally sound approach to doing business also makes good business sense, as our experience is that driving improvements in these areas enhances performance across the board.
This year we have set more exacting standards within our ethical audits of suppliers’ factories. To support that work, our Code of Conduct Guidebook is set to be translated into more languages and made available online.
We are starting to see positive early signs from a number of ongoing projects, including our involvement in the Responsible and Accountable Garment Sector project to improve management systems adopted by garment manufacturers. Change such as this is incremental but we remain committed to long-term advancements.
Working with other stakeholders continues to be an essential component of this pillar. Our joint endeavours with other retailers will pool expertise and resources and reduce the repetitive strain placed on suppliers created when we work solo.
Our ethical trading work is wide ranging, multi-layered and involves many different stakeholders. We have a number of ongoing areas of activity, the vast majority of which have seen progress this year.
- Code of Conduct Guidebook
- HR Management Systems
- TOPSHOP and TOPMAN’s ARC Programme
- Strategic Labour Priorities
- Sand Blasting
- Uzbek Cotton
Under our ethical audit programme our brands must submit a third-party factory ethical audit (see audit process opposite) no less than a year old to receive a grading for a new factory set-up. In order to help reduce audit fatigue we accept audit reports from most recognised initiatives and audit bodies as long as they are independent and non-modifiable.
We grade these audits on a scale of red, orange, yellow and green. If the audit is graded red, we will not allow the brand to use this factory until it can demonstrate that the problems have been resolved, irrespective of whether it is a new or current factory. ‘Red flags’ include serious breaches of our Code of Conduct and local laws, such as non-payment of minimum wage or locked fire exits.
Towards the end of this year we tightened some timescales within which suppliers must provide us with feedback on progress or with another audit. Green graded factories now must send us annual audits rather than every two years, yellow audits now have nine months for follow-up instead of one year. Orange grades stay the same at 3 months. Red grades remain unacceptable and factories must implement corrective actions before we continue to give them business or set them up if they are a new factory.
We anticipate that our Code of Conduct Guidebook will continue to be useful in accelerating the resolution of problems identified during audits. Internally we have introduced a new monthly update of audit statistics that is reported to all brands, providing regular communication aimed at further improving our position in this area. This has encouraged greater focus on the business we place with factories that are overdue an update or have received an orange grading.
Against this background, we have seen some good progress this year. For example, last year we reported that we had refused to set up 33 new factories due to red grades and that this had increased due to a new, stricter grading system for Bangladesh and Pakistan. This year this number has dropped to 26. There has been a reduction in the overall orange grades given to audits this year to 34% from 38% last year and 45% in 2010. Whilst this is a step in the right direction and means we have met the target we set, we also aim to encourage suppliers and brands to give more orders to factories which have recent yellow and green graded audits. With this in mind, although overall business with factories that are graded green is the same as last year, 46%, orders through orange graded factories have reduced to only 18%, with 29% going through yellow graded factories.
Overall this year we reviewed 1038 ethical audits, which is a similar number to last year and affects approximately 324,000 workers. Since our current audit programme began in 2007, of the audit reports reviewed, 1193 were follow-up audits. Of those 44% improved, 38% stayed the same and a further 18% deteriorated (in which case we expect the supplier to progress their corrective action plan).
Although this work is the foundation of our ethical trading programme, we acknowledge that this is not enough to drive long-term change. This is why we also work on the projects we outline below.
We are into the second year of our involvement with the Benefits for Business and Workers Programme (BBW). The project is led by industry consultants, Impactt and funded by the UK Department of International Development’s Responsible and Accountable Garment Sector (RAGS) fund and five other leading retailers. The programme focuses on strengthening the capacity of garment manufacturers in Bangladesh and India and enabling them to provide better jobs for workers by:
• Ensuring workers can communicate their views;
• Increasing pay packages;
• Reducing excessive hours worked.
The first phase of this project (November 2010 to February 2012) consisted of building management skills and improving working conditions in ten pilot factories in both countries. From March 2012, the second phase has seen training and implementation support scaled up to 50 factories, with the goal of reaching 70 by the end of 2012.
Feedback from both factory owners and workers has been very positive. One worker told our reporting partner: “I was the supervisor of the pilot line and through the project I was able to improve my line a lot, so I was promoted to an in-charge. This makes me more responsible. It feels great!”
Meanwhile, this year’s outputs are also encouraging. We have seen a 21% increase in efficiency in the factories taking part in Bangladesh and a 10% increase in efficiency in those in India. Absenteeism has been reduced by around a quarter in both countries. There has been a 23% increase in hourly pay rates in the Bangladesh project and the average take-home pay in the Indian factories has increased by 2%. The HR Manager from one of the factories working with a supplier to Arcadia said:
“We feel that we will really get the benefit for many years, in terms of workers’ motivation and the reduction of worker grievances. I feel that we can do a lot in the future, because we are getting good independent feedback through the RAGS programme and it is a really good thing for the organisation.”
Our Code of Conduct Guidebook extends practical guidance to suppliers and factories on how to improve labour standards based on our Code of Conduct.
This year key suppliers producing in the UK and China were issued with copies in English and/or Chinese. This will be circulated to more suppliers in the coming year and, following positive feedback, we have decided to have the Guidebook translated into Hindi. As these different language versions are developed we will offer them for download via our supplier online resources centre.
We continue to build on our Code of Conduct Guidebook by further developing Part Four: Human Resources Management Systems. We have now expanded this to cover all areas of traditional and strategic Human Resources Management Systems. This includes five key elements: Company Rules, Employee Handbook, Worker/Management Dialogue, Grievance Procedure and Disciplinary Procedure. In summary, Part Four now covers:
1. The link between worker engagement and a successful business
2. How to reach these benefits
3. The role of the HR department
4. Examples and templates of practical tools and how to implement them.
Management systems are often in place for production but can be inadequate for areas such as employment and worker welfare. A simple example is a proper contract for employees. Part Four of the Guidebook will now include examples of practical tools such as training slides and trainer notes, policy statements and template contracts and handbooks, so that factories can use these as a guide to creating their own versions.
Underpinning all areas are the following fundamental drivers of worker engagement, which all organisations should develop:
• Leadership that clearly transmits vision and values – this means being transparent and including workers in leadership’s goals;
• ‘ Engaging managers’, i.e. managers who facilitate and empower rather than control and restrict their staff, showing appreciation, respect and commitment to developing and rewarding capabilities;
• Workers’ voices: an effective way for workers to voice their views and concerns; and
• Behaviour throughout the organisation that is consistent with stated values leading to trust and integrity.
This year we tested the contents in three factories. The templates have also been used as part of ARC; for more on this see the following section. This work is in the process of being published. We then hope to explore options of how to roll this out further, such as partnering with key suppliers and collaborating with other retailers.
ARC is TOPSHOP and TOPMAN’s ‘beyond auditing tool’, which seeks to empower workers, managers and factory owners to create a fair working environment and reduce audit fatigue (repeated auditing of factories by numerous brands and retailers).
We have continued to push the programme forward this year, working with a Turkish supplier’s factory, going beyond the assessment and remediation elements of ARC. At this factory, worker representatives have been trained, including enabling them to lead participatory discussion sessions with all workers. The outcome of this is a grievance procedure, disciplinary procedure, company rules, an extensive employee handbook and a working negotiation procedure between the workforce and management. Further training will take place on rights and responsibilities for all workers.
We have embarked on a strategic programme with two other major high street retailers. Building on our joint experience, the programme uses a sustainable and replicable methodology with the goal of replacing auditing as a way of achieving code compliance.
The initial programme will be a collaborative process in several factories with a focus on putting in place mature systems of industrial relations and building the factories’ productivity, establishing the first steps towards building a wage ladder.
The project includes phases for communication, training and changes to existing processes and procedures which will take us beyond the end of this reporting year. We will provide a further update in next year’s report.
This work is also being used as the framework within which we can roll out the new Code of Conduct Guidebook Part Four: HR Management Systems (see previous section).
a. Living wage
b. Freedom of association
c. Purchasing practices
d. Vulnerable workers
a | LIVING WAGE
While our major focus in this area currently is as part of RAGS (Responsible and Accountable Garment Sector Challenge fund), our overall position has not changed. Arcadia supports the position that all workers in our supply chain, including piece rate, subcontracted, informal, home and migrant workers, should always receive sufficient wages to meet their needs for nutritious food, clean water and other needs (shelter, transport etc) as well as a discretionary income, which is now a generally well accepted definition of a living wage.
The work of campaigning groups such as Labour Behind the Label and the Asia Floor Wage Campaign influence our activities. Indeed, TOPSHOP and TOPMAN’s ARC project has been developed around LBL’s four pillars: collaboration; worker organising and freedom of association; purchasing practices and developing a route map to a living wage. More on the latest developments in this area is covered in our section above on ARC. There are many practical difficulties to agreeing and implementing a living wage. We believe the most effective solution would be for governments to increase the minimum wage, which would create a level playing field for all parties.
b | FREEDOM OF ASSOCIATION
We believe worker representation and dialogue with management is fundamental to empowering workers to improve their working conditions. Ensuring freedom of association is enabled continues to be a significant challenge, with just 8% of the factories our suppliers use (excluding BHS) known to have trade union presence. China is entirely excluded from this picture as independent trade unions there are illegal.
However, we continue to communicate with suppliers and factories about the benefits of freedom of association and as a minimum we expect our suppliers to ensure that factories give workers the right to organise.
We have produced a ‘Right to Organise’ (RTO) guarantee template, drafted with the help of the International Textiles Garment and Leather Workers’ Federation (ITGLWF). This is included in our Code of Conduct Guidebook and we have asked suppliers for it to be translated, posted on notice boards, explained and given to all workers twice yearly with a pay slip. When visiting factories we request to see this and when speaking with workers we ask them if they have had this guarantee communicated to them.
Next year we plan to create versions of this RTO in the languages of our top sourcing countries. Freedom of Association is a key part of worker/management communications within the Code of Conduct Guidebook Part Four: HR Management Systems we have produced (see our section on this above).
c | PURCHASING PRACTICES
We believe that by improving the way we design and buy goods and by raising awareness amongst our teams of the potential effects on factory workers, we can have a positive impact on how suppliers’ factories manage their people, their production and their working environments.
An important element in this area is the development of training for all appropriate staff (everyone in design, buying and merchandising).This continues to be work-in -progress and we hope to have trained all relevant employees by the end of 2012.
Alongside this training sits ‘supplier 360o reviews’ that allow suppliers to identify challenges they have experienced. Brands have adopted this approach and developed key performance indicators. Suppliers have been more forthcoming with feedback and the working relationship has improved, in turn this has helped streamline the supplier base and reduce ‘churn’, creating greater stability.
d | VULNERABLE WORKERS
Our work in this area comprises:
(i) home workers;
(ii) migrant workers; and
(iii) contract workers.
Home working involves carrying out tasks on products at home. When managed properly this provides a way for individuals to balance their work and home life and we support factories that provide this option. However, the lack of visibility of home workers, combined with their complicated employment status, has made them a vulnerable worker group. This is why we have been working on improving our understanding of the incidence of, and conditions for, home workers in our supply chain.
TOPSHOP and TOP MAN have continued their work this year with Next plc and an independent consultant based in India. This year has seen another major retailer join the collaborative project. Following work to help us map out home workers in our supply chain, we have seen factories take more responsibility for home workers in line with guidelines we have drafted for them. These guidelines encourage factories to use purchase orders, providing home workers with a written contract.
The document directs suppliers to use the mapping tool that provides insight into three layers of our supply chain, capturing the details of any home workers employed in each tier. Passbooks are issued to home workers, itemising the date of delivery and collection, the piece rate for the work, date of payment and the nature of any deductions.
The National Group on Homeworking (NHG) has established training for suppliers that will further support in this work.
TOPSHOP and TOPMAN are now working with six suppliers/factories in the National Capital Region of Delhi to implement the guidelines and next year will introduce the scheme in southern India.
(ii) Migrant/Contract Workers
In recent years Arcadia has been active in the area of improving the recruitment and working conditions of migrant workers who travel from one country to another for employment. This migration is generally beneficial but the people involved can be in a vulnerable situation, and can be exploited by unscrupulous agents, for example.
This is why we developed our Migrant Workers’ Guidelines which are available in Part 4 of our Code of Conduct Guidebook.
TOPSHOP and TOPMAN are now reviewing the situation for contract workers in India. This includes registration of contractors with the local labour departmentin Delhi and agreements between factories and contractors about statutory benefits, i.e. wages, benefits and working hours.
Collaborating with Next plc, we have developed a model contract agreement to provide guidance in this area, which would ensure all relevant benefits are being paid. We are looking into what help workers need in order to open a bank account, which would provide transparency on wages but we are mindful that workers should not be charged high rates in interest or bank charges. It is essential that contract workers participate in decision making processes inside the factories, by involving them in worker committees, which will protect their fundamental rights such as Freedom of Association.
A key goal of this work is to develop best practice guidelines on how to manage contract labour. To ensure the best practice guidelines are practical and achievable, gaining feedback from the suppliers and their factories will be key.
Concerns about exploitation related to Sumangali schemes have been recognised this year. The scheme involves young female migrant workers in poor rural areas of India taking up residential contracts to work in fabric mills and less frequently, garment factories. Arcadia was among the international retailers represented at a conference hosted by the Ethical Trading Initiative (ETI) in India in March this year. ETI seeks to play a role in the issue by channelling the resources and buying power of brands to support local political and business sector engagement.
Under a Sumangali scheme workers are attracted by the prospect of paid work, safe accommodation and a final lump sum payment (often used to pay for a dowry, which remains general practice despite being prohibited in India). Non-governmental organisations have reported that some of these schemes involve excessive working hours for minimal pay, pressure to stay on to the end of the contract period and withholding of the lump sum payment at the end. We remain committed to the elimination of such labour rights abuses and support the approach identified at the ETI conference. This involves working on three key areas:
• Grassroots outreach with local business and communities;
• Supplier engagement, including garment factories and spinning mills; and
• Support for a local government regulation, inspection and services model.
We announced in last year’s report that we had banned the process of sand blasting in early 2011. Workers face serious health risks carrying out this process, which is used to give denim a worn or faded look and involves workers firing sand under pressure at jeans. As part of the technique, sand particles break down into fine silica particles and, if inhaled, can cause the fatal lung disease silicosis.
This year we carried out unannounced audits at our top nine denim suppliers’ factories in Pakistan, Egypt and Turkey to ensure our ban was being upheld. We are pleased to report that none of these factories was carrying out or had the facilities to carry out blasting.
Fairtrade sales during the annual Fairtrade Fortnight suffered this year because the event was held concurrently with London Fashion Week and, therefore, lost out in terms of publicity. TOPSHOP and TOPMAN sold 15,000 garments this year, significantly down on the previous year. Dialogue with the Fairtrade organisation is ongoing and we will support their efforts to improve traceability in order to scale up production.
We banned the use of Uzbek cotton in 2008 due to concerns about forced and child labour in Uzbekistan during cotton harvests. We ask our suppliers to provide proof of where they source their cotton to verify that they do not source from Uzbekistan. The project involves all areas of our business, mapping our cotton sources to origin.