Fashion Retail’s Latest Challenge: Tracing Ethical Sourcing

As international clothing manufacturers investigate their sourcing matrices and respond to recent bans imposed by government agencies such as U.S. Customs and Border Protection on most of China’s cotton crop, brands and retailers are coming under scrutiny by shoppers who want ethically sourced fashion. This is about more than just delivering quality products at low prices; it's also about taking a hard look at labor and social justice issues. At the same time, cotton prices are rising.

The bright light here, according to The Global Ethical Fashion Market Report, the demand for sustainable, ethically sourced clothing is expected to rise by 6.8 percent in 2021. In addition, the recent report Sustainability in Fashion Retail showed that more than half of fashion consumers want the industry to implement sustainable practices.

In aggregate, all these factors create several challenges for brands and retailers. Consumers demand transparency to trust that the products they buy are sustainable and ethically sourced.

Dealing With Enforcement Challenges

First announced in January 2021, U.S. Customs and Border Protection (CBP) will detain all imports of cotton products, wholly or in part, from Xinjiang. Brands and retailers must prove the products are free of forced labor. If they cannot, they have three options: export the merchandise to another country, abandon the merchandise, or destroy the merchandise.

This requires brands and retailers to remove the opacity from their supply chains and provide visibility into all tiers of their supply chain while working with the CBP to ensure that enforcement is targeted, effective and transparent.

Although brands and retailers can sever direct relationships with suppliers located in Xinjiang, it's extremely difficult to ensure that all suppliers involved in the chain of custody are not using cotton from Xinjiang.

A 2020 Fashion Industry Benchmarking Study found that 85 percent of U.S. companies track only first- and second-tier suppliers, 25 percent track third-tier suppliers, and only 5 percent delve into the workings of fourth-tier providers. True compliance requires transparency and traceability from every supplier up and down the supply chain.

How Consumers Are Likely to Respond

Recent research has shown that 95 percent of consumer purchasing decisions are made at the emotional level. However, emotional appeal isn't enough. Consumers concerned with sustainability expect transparency and commitment to engender trust. The styling of sustainable clothing is an issue for consumers as well — it must have the same attributes as other options available in the market. Right now, the emotional appeal of ethical sourcing is high, and brands and retailers can tap into these tailwinds to soften the effect of price increases.

The challenges are not to be underestimated. Brands and retailers have been upended by the blacklisting of 20 percent of the global cotton supply, and supply chain transparency can be difficult to achieve. However, to meet changes in consumer behavior and government regulations, brands must implement a traceability process, roll it out to their suppliers, and share the results with all relevant stakeholders — including government agencies, investors and consumers.

Mark Burstein is the executive vice president, industry principal, Logility, the supply chain leader entrusted by the world's leading brands to deliver a digital, sustainable supply chain that powers the resilient enterprise.