We do not own or operate factories ourselves and Arcadia Group is rarely dominant in an individual factory. We have strong working relationships with our network of international suppliers, 54% of which have been with us for three years or more. Arcadia goods are manufactured in approximately 983 factories through 757 suppliers. The top 20 suppliers provide 43% of our goods.

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This year Arcadia products were made in 46 countries worldwide, although our top ten sourcing countries accounted for 91% and the top five for 75% of the goods we sold. These top five countries remain as China, Turkey, Romania, Mauritius and India.

In terms of the BHS supply chain, the departments work with approximately 632 suppliers, the top 20 of which supply 36% of their goods. This year BHS products were made in a similar number of countries to Arcadia and the top five accounted for 79% of the goods sold. These countries were China, UK, Bangladesh, India 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.

Our ethical trading work is wide ranging, multi-layered and involves many different stakeholders. We have a number of on-going areas of activity, many of which have seen progress this year.

  1. Ethical Audit Programme
  2. Country Risk Assessments
  3. RAGS - the Responsible and Accountable Garment Sector Project
  4. Joint Turkey Project
  5. Strategic Labour Priorities
  6. Code of Conduct Guidebook
  7. HR Management Systems
  8. Prohibited Activities

1. Ethical Audit Programme

Under our ethical audit programme our brands must submit a third-party factory ethical audit no older than a year to receive a grading for a new factory set-up. In order to help reduce audit fatigue we accept audit reports from the majority of 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 the issues 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.

We anticipate that our Code of Conduct Guidebook will continue to be useful in accelerating the resolution of problems identified during audits. A monthly update of audit statistics is sent to each brand, including to Brand and Buying Directors. The report continues to focus on out-of-date audits and orange-graded audits as well as the proportion graded green.

We continue to work towards fewer factories with out-of-date audits and 100% of our factories operating with a green or yellow rating. We have made progress against our targets. We now work with fewefactories with out-of-date audits and 82% of our factories were graded green
or yellow.

Overall this year we reviewed 1,401 ethical audits for all Brands except BHS (see BHS update below), which is a similar number to last year and affects approximately 436,000 workers.

Since our current audit programme began in 2007, of the audit reports and evidence reviewed, 1,703 or approximately 22% were follow-up audits. Of those, 36% improved, 37% stayed the same and a further 27% deteriorated (in which case we work with the supplier to progress their corrective action plan).
Overall this year for BHS we reviewed 1,811 ethical audits. 24% improved, 45% stayed the same and 31% deteriorated in which case we work with 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 work on the projects outlined below.

This year we have rolled out our new ethical audit database, Valid8, to all our brands. Valid8 is a smarter and more transparent system to store and manage our factory ethical information. The online database replaces the previous manual system of factory set up and has been designed to be more efficient, robust and transparent.

The benefits of Valid8 are already being felt, with the system being used to set up factories, upload, store and archive audit information, manage corrective actions and validate the supply base.

To support the rollout of Valid8 we have trained more employees across our brands and held training sessions for our suppliers at our Head Offices.

 

2. COUNTRY RISK ASSESSMENTS

Last year, in the wake of tragic events suffered by garment workers in Bangladesh, we signed the Accord on Fire and Building Safety in Bangladesh. We continue to take this commitment very seriously.

As outlined in the Accord, we are committed to the goal of a safe and sustainable Bangladeshi Ready-Made Garment (RMG) industry in which no worker needs to fear fires, building collapses or other accidents that could be prevented with reasonable health and safety measures.

As one of several retailers who have signed the Accord, we agree to establish a fire and building safety programme in Bangladesh for a period of five years. This programme will:

  • scope categories that will define the level of response from suppliers, such as inspection, remediation and training;
  • establish a framework for Governance, including an Advisory Board and Steering Committee and dispute resolution systems;
  • appoint an independent, qualified Safety Inspector who will oversee safety inspections with all factories covered by the Accord to be inspected within the first two years of the agreement;
  • define approaches to remediation, including the protection of workers’ employment relationships during any factory closures while renovations are carried out;
  • enable an extensive fire and building safety programme; and
  • oversee regular publicly available updates on key aspects of the programme.

Meanwhile, our team visits Bangladesh regularly as part of our standard ethical trading programme. We remain mindful of the need to carefully prioritise, monitor and respond to issues in all sourcing countries.

3. RAGS

Last year saw the completion of both phases of the Benefits for Business and Workers (BBW) project, part of the Responsible and Accountable Garment Sector (RAGS) Challenge Fund, set up by the Department for International Development (DfID), the UK agency for international aid.

Arcadia was one of six initial retailers (others were Marks & Spencer, Mothercare, New Look, Sainsbury’s and Tesco, subsequently joined by Ralph Lauren and Varner Group) that part-funded the project, which focused on improving the management systems of garment manufacturers and ‘for responsible and ethical production to become the norm in the garment manufacturing sector supplying the UK’.

Led by industry consultants Impactt, the aim was to improve the business practices of garment manufacturers as well as the day-to-day lives of their workers.

Working with factories in Bangladesh and India, the project aimed to demonstrate the business benefits of providing better jobs through:

  • establishing a more stable and satisfied workforce;
  • enhancing workers’ pay;
  • avoiding excessive hours worked; and
  • improving productivity and quality in the longer term.

73 factories took part in the programme including nine Arcadia Group factories and the results have been promising, benefitting over 106,000 workers. While there was wide variation in the pace at which factories adopted the new approaches, those where there were both high levels of buy-in from business owners and stable industrial engineering saw the greatest benefits.

The tools and learnings from this project are now ours to share with factories and we are continuing to work with suppliers on the good progress already made by this project.

4. JOINT TURKEY PROJECT

The Joint Turkey Project (JTP) is TOPSHOP and TOPMAN’s programme to move beyond the traditional auditing model while achieving compliance with retailers’ codes of compliance. It seeks to empower factory owners, managers and workers to create a fair working environment while reducing audit fatigue (repeated auditing of factories by numerous brands and retailers).

The JTP is a collaborative project in partnership with other high street retailers. Together we share the common goals of establishing mature systems of industrial relations and building the factories’ productivity to support a wage ladder.

The JTP is defined as follows:

‘To develop and implement a strategic and holistic programme that will improve factory productivity, workers’ conditions, working hours, earnings and worker management dialogue. This will utilise proven processes of communication, training and industrial and other forms of engineering. The programme will benefit the workers, suppliers, factories, and retailers.'

This year TOPSHOP and TOPMAN have moved from the assessment phase of the programme to the implementation phase. A review of the first phase was successfully carried out in September 2013, gathering the learnings for the next stage.

Free and independent elections for worker representatives were held in the factories where the project is underway. Training on social dialogue for worker representatives, supervisors and management was nearly complete at the end of this reporting year. This training was devised and led by the programme’s external stakeholders – global union IndustriALL and Turkish non-governmental organisation Social Development and Gender Equality Centre (SOGEP).

In one of the factories the agreed industrial engineering organisation of the programme (REFA) has carried out an assessment and training has taken place to enable the factory to start to implement greater productivity and efficiency. This work has included informing the workforce of the project’s progress and keeping worker representatives fully informed. The next stage is implementation of the learning in the first factory and the start of assessment and training in the next factory.

A signed agreement with the factories outlines that the profit from improved productivity in the workplace will be shared equally between increased workers’ wages and the factory. This element of the programme will be implemented during the next reporting year.

Currently the factories are undergoing training on best practice human resource policies, enabling them to review current practice and put in place any appropriate improvements. This work has involved the management and worker representatives and will result in a comprehensive employee handbook and a robust HR management system.

Discussions are underway to undertake an impact assessment of the programme, which will start next year factory-by-factory and is due for completion by the end of 2015.

5. STRATEGIC LABOUR PRIORITIES

a. Living wage
b. Freedom of association
c. Purchasing practices
d. Vulnerable workers

a) LIVING WAGE
Working with other retailers and expert consultants in the field, we have signed up to an agreement on Enabling Principles on wages in supply chains this year.

These Enabling Principles aim to provide clarity on concepts, roles and responsibilities of all stakeholders to achieve a wage that meets workers’ basic needs, includes some discretionary income and is negotiated through a fair process.

Our overall position on the living wage 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 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 (LBL) and the Asia Floor Wage Campaign influence our activities. Indeed, TOPSHOP and TOPMAN’s JTP 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.

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 guaranteed continues to be a significant challenge, with a small percentage of the factories our suppliers use known to have trade union presence.

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 produced a ‘Right to Organise Guarantee’ (RTO) template, drafted with the help of the International Textiles Garment and Leather Workers’ Federation (ITGLWF), now IndustriALL. This is included in our Code of Conduct Guidebook

We have had the RTO translated into Bangla, Hindi, Romanian, Turkish and Urdu, to add to our Chinese version, and continue to distribute it in these languages. These are also made available on our website and the extranet that we use to communicate with suppliers.

We have asked suppliers for the RTO to be 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.

Freedom of Association is an important part of worker/management communications within the HR Management Systems Portfolio we have produced (see our section on Management Systems) and of the Joint Turkey Project (see 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.

We remain committed to ensuring that our product teams are acutely aware of the buying impacts from a supplier perspective, and ethical training is always part of our overall learning and development agenda.

This year we have provided training to support the introduction of our Internet Based Fit Log (IBFL), an online tool used by our product teams to record the fitting and sealing of all products supplied. The website records each stage in the product fitting and approval process from first submission to production approval or rejection. It is proving effective in terms of efficiency and speed while it is also reducing sampling and, therefore, waste.

d) VULNERABLE WORKERS
Our work in this area comprises:

(i) home workers;
(ii) migrant workers; and
(iii) contract workers.

(i) Home 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 TOPMAN drive the home worker programme and continue to employ home workers via their suppliers. This source of output is valuable as it gives us a point of difference in terms of the products they make. The brands continue to use an independent consultant to advise in this area.

TOPSHOP and TOPMAN have been working with two suppliers this year using our home workers guidelines, primarily focusing on transparency and mapping the supply chain and its complexity.

Reducing the suppliers we are working with has given us the opportunity to gain an understanding of the intricacies, bandwidth, skill and nature of the home worker supply chain, along with the many veins of distribution.

We have found that the most effective way of engaging with the contractors has been to arrange face-to-face sessions to communicate our and our supplier’s responsibilities. The toolkit and guidelines we have developed for this purpose will continue to evolve as the project progresses and we will continually map the supply chain.

(ii) Migrant Workers

In recent years Arcadia Group 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.

We continue to liaise with those suppliers to verify that the best practice standards remain in place, what challenges remain and what further work we need to do in the recruitment process as this is the first key step that migrant workers take.

This year we revisited suppliers in the United Arab Emirates (UAE) to review their progress and compliance against the Guidelines. Work is underway to re-assess the current state of the factories and, once complete, we will work with factories and suppliers to help and support them where necessary.

We also intend to review the Guidelines to ensure they are suitable for use in the UK and start to work with our suppliers and factories here.

iii) Contract Workers

We have been able to focus on contract labour with the help of one of our large suppliers in India, covering two of their factories and testing our guiding principles.

We have worked with a cross-section of contractors, contract labourers and factory management. By doing this we have been able to understand the reality and complexity of contract labour in our supply chain.

We have been able to obtain first-hand information on hiring practices from a range of different contractors, forming relationships with them and their employees.

We believe we have started to bridge the gap between regular and contract labourers with dialogue underway on the incorporation of methods for fair employment practices, including rights for regular employment and ensuring payment of minimum wages. We have also started dialogue to encourage freedom of association.

A number of specific employment issues have been addressed and some are on-going. For instance, we have identified a lack of awareness around legal contracts and appointment letters, which has been addressed. Other improvements around understanding of payslips have also been delivered. We have also run medical camps within the contract labour project and these have been a great success. Further training and resulting progress is expected in the coming reporting year.

6. CODE OF CONDUCT GUIDEBOOK

Our Code of Conduct Guidebook provides practical guidance to suppliers and factories on how to improve labour standards based on our Code of Conduct.

Key suppliers producing in the UK and China have been issued with a copy in either English and/or Chinese. In line with our plans, we have extended the different language versions to include Hindi and have begun the release to relevant suppliers.

Work is underway to update our Guidebook in line with new guidance from the Ethical Trading Initiative. Once this review is complete, we will issue the revised version to all suppliers.

Our Code of Conduct Guidebook can be found at: www.arcadiagroup.co.uk/fashionfootprint/code-ofconduct- and-guidebook

7. HR MANAGEMENT SYSTEMS

We continue to build on our Code of Conduct Guidebook by further developing Part 4: Human Resources Management Systems. We have tested this updated element of the Guidebook this year and work has started to roll it out to suppliers.

This follows the work completed in 2012 to expand the Guidebook to cover all areas of traditional and strategic Human Resources Management Systems.

This involves:

  1. The link between worker engagement and a successful business;
  2. How to achieve these benefits;
  3. The role of the HR department; and
  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 includes 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:

  1. Leadership that clearly transmits vision and values – this means being transparent and including workers in leadership’s goals;
  2. ‘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;
  3. Workers’ voices: an effective way for workers to voice their views and concerns; and
  4. Behaviour throughout the organisation that is consistent with stated values leading to trust and integrity.

The HR Management Sytems have been written and tested in two factories (one in Bangladesh and one in India). It is now an extension of Part Four of the Code of Conduct Guidebook while the templates within it have also been used as part of the Joint Turkey Project.

8. PROHIBITED ACTIVITIES

There are a number of activities that Arcadia prohibits. This list includes policies to prohibit the sandblasting technique, use of Uzbek cotton, mulesing of sheep and policies to protect animal welfare. All these bans remain in place and our online ethical audit database, Valid8, is improving our verification process to ensure that factories comply.

Sandblasting – a process used to give denim a worn or faded look – was banned in 2011 due to the potential health hazards faced by workers if they breathe in the fine silica particles used. Uzbek cotton was banned in 2008 due to concerns about forced and child labour in Uzbekistan during cotton harvesting. Mulesing refers to a sheep husbandry practice used in the Australian wool industry to remove skin from sheep (often without anaesthetic) to prevent flystrike.

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