Field of cotton © 123RF
Field of cotton © 123RF

Cotton On puts focus on supplier relations

Australian fashion business Cotton On is growing impressively without compromising its ethics, according to a report on worker exploitation.

The company was the highest-rated non-fairtrade company in last year’s Australian Fashion Report on worker exploitation, conducted by Baptist World Aid Australia. Cotton On achieved an A- grade, all in the midst of yearly sales growth of over 20% since 2009 and a 2015 sales forecast of AUS$1.51 billion.

One of few Australian retailers to expand internationally, the Cotton On Group (COG) has more than 1,300 stores in 17 countries, showcasing eight brands, having entered Brazil, Thailand, the Philippines and the Middle East in recent years. Around 600 more stores are planned globally by 2018, alongside a target to lift online sales to AUD250m (£123m). COG remains undaunted by the forays into Australia of colossuses H&M, Uniqlo, TopShop and Zara.

“What's made them such a success is they're a supply chain business and a property business,” says Ferrier Hodgson’s head of retail James Stewart. “They bring quality products to the market at the cheapest possible price and their supply chain and sourcing strategies are critical to them being able to offer [their] value proposition… Their stores are relatively inexpensive to put together, so the capital investment is not very high and their pay-back period is very fast.”

How does COG keep such a lean supply chain so clean? Personal, longstanding, and concentrated supplier relationships are part of the answer. Founder Nigel Austin recalls placing double-digit orders with Chinese suppliers he had personally selected at the turn of the millennium, when the company eschewed wholesalers – including Austin’s dad – in favour of direct sourcing and vertical integration. Many of these suppliers are still working for Cotton On, now churning out runs in the thousands.

COG sources 87% of its orders from China and 10% from Bangladesh, with India, Hong Kong and Myanmar providing the rest. But the company says the important statistic is that 65% of its product comes from its top 20% of suppliers, providing greater confidence in compliance with the COG code of ethics.

Though direct sourcing and the link to Bangladesh caused Cotton On some reputational damage following the 2013 Rana Plaza factory collapse, a 2014 study by the Center for Business and Human Rights of the Stern School of Business of New York University confirmed the benefits: “In the broader supply chain, buyers adopting [direct sourcing] tend to be those that are most concerned with brand reputation, quality, research and development, and stability in their supply chains.”

COG has auditors on the ground in China and Bangladesh, and also uses independent auditors. In 2014-15 it expected to complete 700 factory inspections, including ethical sourcing audits. New suppliers are pre-audited, and the company policy stipulates sub-contractors must also comply.

Cotton On’s code is based on 14 rules to trade, eight of which focus on workers’ rights, with a ninth excluding the use of banned raw materials, such as cotton produced by forced labour. The code states the company’s zero tolerance on slavery, and includes the threat of suspension and blacklisting for non-compliance with the code. The Australian Fashion Report credited the group with following up and making compensation when child or forced labour was discovered.

“While many companies demonstrated commendable codes, the Cotton On Group not only has a strong code of conduct addressing core ILO standards, it also makes the specifics of this code…  and all of their policies towards ethical sourcing publicly available on their website,” said the report. “Details of the company’s policies addressing subcontracting, audits, supplier compliance, responsible purchasing practices and multi-stakeholder initiatives are all publically available, allowing consumers to make informed decisions about their purchases.”

As with most companies studied by the Australian Fashion Report, COG’s grades begin to slide towards the raw-materials end of the supply chain. But Cotton On is taking steps towards extending its cosy relationships to raw materials suppliers thanks to an initiative in Kenya in partnership with Business for Millennium Development. COG is growing its own cotton in partnership with smallholders, with the aim of connecting them to world markets, effecting social and economic advances locally, and gaining full trust in the roots of its supply chain.

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