Arcadia briefing notes, Nov 2005

Arcadia and sweatshop exploitation - a guide for activists

The Arcadia Group – who are they:
‘With over 2000 outlets throughout the country, Arcadia Group is the UK’s largest clothing retailer, reaching customers through seven brands in the UK and a growing number of international stores. There is hardly a high street or shopping centre that isn’t host to one or more of Arcadia’s eight celebrated brands – Burton, Dorothy Perkins, Evans, Miss Selfridge, Outfit, TOPSHOP, TOPMAN, and Wallis.’

The fashion business in the UK is dominated by seven companies who account for 40% of the market - Arcadia Group, C&A, Next, Storehouse, Sears, River Island, M&S. In this briefing we will look at the Arcadia Group.

Arcadia is a privately owned by the family of billionaire entrepreneur Philip Green, who also owns the BHS chain and Etam UK group which he bought and started to break up earlier this year. Arcadia Group’s holding company Taveta Investments Ltd (No 2 Ltd) is controlled by Philip Green’s wife Tina. Tina (crucially a Monaco resident, unlike her husband), benefits from tax savings of £150 million on the £460 million dividend Arcadia reportedly paid out last year to the family, solely due to her Monaco residency.
EC 96 Sept/Oct 2005

Finances
Bought in 2002 by Philip Green, the company is no longer floated on the stock exchange. Green and his family own 92% of Arcadia Group and announced, in October 2003, a profit increase of 96% on sales which only rose by 3.3%. Such impressive profits were the result, said Green, of better buying and of turning over stock more rapidly. Buying and stock management issues have been identified as priorities since Green bought Arcadia. Analysts have also quoted cost efficiencies and margin improvements as accounting for such growth. Top Shop is the best performing of Arcadia labels and grew by 10% in the same year. Arcadia garments are produced by some 750 suppliers - in countries which include Romania, Bulgaria, Latvia, Greece, Poland, Turkey, UK, Spain, China, Taiwan, Bangladesh, Cambodia, India and Hong Kong. Although the company's supply chain is not as visible as that of international brands, a picture is nevertheless emerging of working conditions which are a far cry from the dream factory we read about in the fashion pages and from the standards stipulated by the company's code of conduct and the International Labour Organisation.

Everyone loves a bargain
High Street guru Philip Green is well respected for his ability to turn loss making businesses around, and fashionistas everywhere love his brands and rave about Topshop. So what’s wrong with Arcadia Group? The relentless deflation in clothes prices has meant that retailers look for cheaper and cheaper places to produce clothes. Companies frequently change production from factory to factory, country to country, searching out the nest prices. This makes supply chains complicated and worker’s rights difficult to monitor.
The UK campaign group Labour Behind the Label has claimed to have found examples in Arcadia’s supply chain of: wages too low to live on; excessive working hours; job insecurity; verbal and physical abuse by supervisors; unpaid or underpaid overtime; targets set too high; poor health and safety; and union repression.
Source: Ethical Consumer 96 Sept/Oct 2005

History of Arcadia

 1900 - Montague Burton borrowed £100 to set up his own menswear store. Within 10 years, the business had expanded to a chain of 14 shop, and had introduced the bespoke tailoring operation that was to make Montague Burton a household name.
ï‚· First World War - gave Burton the opportunity to expand by supplying uniform clothing for nearly a quarter of the armed forces.
ï‚· Mid-1940s - Burton was estimated to be clothing one-fifth of the British male population. When Sir Montague Burton died in 1952, his company was the largest multiples tailor in the world.
ï‚· 1946 - Burton made its first move into the womenswear market.
 Mid-60s ‘TOPSHOP’ was launched. The Group also acquired Debenhams, the largest department store in the UK, which it later demerged from in the late 1990s.
ï‚· 1990s - saw numerous further brands joining the group including Wallis, Miss Selfridge and Outfit.
ï‚· 2002 - Arcadia became part of Tavesta investments, owned by Philip Green and his family, making them part of the largest retail group in Europe.

Today, Arcadia is comprised of 7 brands, namely TOPSHOP,TOPMAN, Evans, Miss Selfridge, Dorothy Perkins and Burton and has over 2000 stores in Asia, Europe, the Middle East and Chile. Each brand targets distinct market segments and many of the brands operate with leading positions in their respective markets. Outfit extends the Group’s portfolio with its out of town format, offering a range of Arcadia and external brands.’

Arcadia: a profitable business
Commenting on the financial results for the 52 weeks ended 27 August 2005 Philip Green said:
‘I am delighted to announce that our third year, since acquiring the business in October 2002, has again produced an excellent set of results for the Arcadia Group. Under the leadership of our Brand Directors the business continues to grow, reflecting the passion, commitment and loyalty of all thirty thousand of our staff.

The operational movements, especially around speed to market and stock control, have enabled us to generate in excess of £400 m of cash. This performance has given us the confidence to both pay the dividend and more importantly to continue the high level of investment in the business.

In the year to August we have added 95 standalone stores, including those acquired with the purchase of Etam, creating 1,500 jobs. The cost of this investment, together with our refurbishment programme across the existing portfolio was some £65m.

It is our intention to continue to invest in our world class brands with a further 48 standalone stores planned for the current year, creating a further 1,400 jobs. This commitment, together with the ongoing refurbishment programme, demonstrates our confidence in the long term development of the business.

The market remains challenging and extremely competitive, turnover since the year end is 3% above last year, but I believe our mix of brands will enable us to compete at the highest level.’

Arcadia’s financial report, August 2005, states:
 Operating profit of £328.1 m up 10.1 % from £296.3 m.
 Total sales up 6.8% at £1,7697. M from £1,657.4 m. Like for like sales up 1.3%
ï‚· Gross margin up 1.3 percentage points
ï‚· Operating margin up 0.5 percentage points from 17.9% to 18.4%
 Net cash inflow generated from trading activities $404.0 m up from £364.8 m
 The Board has declared and paid a dividend to shareholders of £1.3 bn in the current financial year.

Arcadia Around the World

Romania
During 2003, Labour Behind the Label investigated working conditions in a Romanian factory supplying Dorothy Perkins, Evans and Topshop. Workers in the factory reported earning less than they needed to live on. They were earning $90 a month, including overtime, less than 30% of an estimated living wage of $315 for a family of four. Workers were being paid the legal minimum wage, but in Romania this is very low and is not enough, in winter, to cover the cost of heating as well as food and other housing costs. Targets were set so high at the factory that workers couldn’t reach targets without working extra unpaid hours. Overtime was compulsory and unpaid. In Romania there is high unemployment and workers are frequently willing to accept almost any conditions in order to keep their jobs.

Bangladesh
In Dhaka during September 2003 the National Garment Worker’s Federation found unacceptable working conditions in a factory producing goods for Burton. Management were found to have abused workers verbally and sometimes physically, the factory didn’t have clean drinking water or adequate ventilation, workers didn’t have a contract or letter of appointment so didn’t have job security, and there was no trade union in the factory to represent the workers. Working hours were from 8 am until 10 p.m., including compulsory overtime of 4-5 hours. Workers were regularly required to put in additional night shifts. Wages at the factory were the equivalent of 2200 taka per month for a senior operator and 1400-1600 taka per month for a junior operator for a basic 8 hour day. The legal minimum wage was equivalent to 930 taka per month, but it was set in 1994 and the price of basic food goods has more than doubled since then.

India
In early 2002 the Democratic Worker’s Union (DWU) alleged that M/S Reliable Exports, a garment manufacturer based in Mumbai and producing for Topman, had used physical assault, harassment and intimidation of union members in an attempt to break the union, and had reduced working hours for union members. The DWU also reported compulsory overtime being paid at the normal hourly rate; no record-keeping so workers had no proof of their service to the company, and that benefits to which the workers were legally entitled had not been allocated. Arcadia told Labour Behind the Label at the time that it would look into the allegations and would provide LBL with an update. LBL have not yet received further information on the situation from Arcadia.
Source: Ethical Consumer 96 Sept/Oct 2005

Cutting prices in the UK

The company has a well thought-out code of conduct dealing with specific ILO conventions. However, in November 2002 No Sweat, with the GMB, found sweatshops operating in London's Whitechapel area creating clothes for shops including Topshop.

The area is home to dozens of small workshops. In one producing for Top Shop, workers were found to be working in freezing temperatures, with dust and rubbish littering the working space. The building's only fire escape was padlocked shut, ventilators were blocked and live wires hung from the walls. The workers, who were stitching Top Shop jackets retailing at £50 in the high street, were earning below the legal minimum wage.

The workers of another UK factory producing for Burton and Top Man were found working in premises without heating. In winter, you have to put a scarf on and an extra jumper. If [you] want to work, just don’t think about the cold, just think about having a job to go to.

Workers did not get minimum wage, safe working conditions or acceptable hours. Arcadia's Sue Fairly, however, impressed the GMB by her quick response and willingness to work with the Union to improve conditions. While Arcadia were commended for having a system in place to monitor working conditions Martin Shaw, a GMB organiser, did have reservations that they had discovered the transgression so easily.

Arcadia owner Philip Green was "shocked to discover what was going on and added that the supplier [would] not be used again as he had broken the code of conduct of the company". Arcadia, added Mr Green, had no idea of the conditions in which the goods were being produced. At the time, Arcadia was sourcing 15% of its goods in the UK. In 2003, in the course of interviews conducted with UK suppliers to the high street, a factory owner who had previously produced for Burton and Top Man revealed that that year, he had refused the contract. "We were working for nothing" he added.

Ethical Policy of Arcadia – Code of Conduct

‘When customers buy our goods we want them to be confident that they have been produced under acceptable conditions. That means the goods must have been produced:
ï‚· Lawfully, through fair and honest dealing
ï‚· Without exploiting the people who made them
ï‚· In decent working conditions and
ï‚· Without damaging the environment

In this code, the ‘supplier’ means the supplier, the manufacturer of any other person involved in supplying goods to our companies. We have asked our suppliers to follow this code. The code is backed up by a process of self evaluation and independent inspections. It is designed to be fair, achievable, easy to check and to promote the ongoing development of our suppliers.

Legal Requirements
At all times, our supplier must meet the legal requirements of the countries in which they are working.

Employment - Wages, working hours, entitlements and deductions
Suppliers must meet the local laws on conditions such as minimum wages, hours of work, overtime and deductions (International Labour Organisations (ILO) Conventions 1, 23, 95, 131 and recommendation 86). If no laws apply, the conditions for workers must be at least as good as the usual terms for workers in the area doing the same type of work. Suppliers must give workers wage slips that they can easily understand. Any deductions must be at a rate that is fair and reasonable by local standards. Overtime must be voluntary.

Employing children
Suppliers must not employ children, other than as stipulated by ILO Convention 138 and recommendation number 146, which define a child as a person younger than 15 years old. Apprenticeships and education-related work are acceptable as long as the child is not being exploited, and there is no risk to the child’s health, education and development, and parental permission is obtained (Article 32 of the United Nations Convention of the Rights of the Child). Suppliers must check every worker’s documents to confirm their date of birth. If no official documents are available, suppliers must take all reasonable and appropriate steps to check the child’s age.

Forced labour
People must not be forced to work by threatening them with a penalty (ILO Conventions 20 and 105). Suppliers must not use forced labour, prison labour or bonded labour.

Discriminatory practices
Suppliers must not use or threaten their workers with physical punishment or any form of mental or verbal abuse.

Discrimination
Suppliers must employ and deal with all their employees fairly and without discrimination (ILO Convention 111 and Recommendation 111). Suppliers must treat everyone fairly, regardless of their race, religion, sex or disability.

Freedom of expression
Suppliers must not prevent workers from joining legal associations, (ILO Conventions 87 and 98).
Health, Safety and Welfare
Under ILO Convention 155 and Recommendation 164, suppliers must provide a safe place to work and must meet all the local laws relating to health, safety and welfare in the workplace. This also applies to any accommodation provided for workers.
Suppliers must appoint a senior manager who is responsible for health, safety and welfare of employees, and suppliers must do all they reasonably can to prevent accidents and injury. Suppliers must prepare health and safety procedures and regularly train their workers in these procedures. Suppliers must regularly test these procedures. There must be satisfactory lighting and ventilation. Clean drinking water must be provided. There must be satisfactory toilet facilities.

Environment
Suppliers must dispose of all the waste that is created in their factory in line with local laws, or in a way that they will not harm the environment or the local population.

Monitoring and inspecting
Suppliers are responsible for making sure that everyone in the supply chain know about and complies with this code of conduct.
Suppliers must keep record to show that they are carrying out regular reviews and checks. Arcadia Group staff or representatives may visit factories without warning to carry out inspections. Suppliers must provide all the information we ask for to check that the code is being followed. Arcadia Group will keep this information confidential.’

(Ed. They care about their code of conduct so much that they have not even bothered to check the spelling or grammar! We have helped Arcadia out by correcting the more obvious mistakes!)

Problems with Arcadia’s Code of conduct:
The code states that is to be backed up by a process of self evaluation and independent inspections, but it does not specify how this will happen. Arcadia Group staff or representatives can visit factories without warning to carry out inspections, however there is no indication of who will be conducting these inspections and to what extent they are independent from Arcadia. Also, the Arcadia Group intend to keep any information about suppliers confidential, which does not allow for the business to be independently accountable nor transparent. There is no way of knowing whether suppliers adhere to the Code of Conduct.

Nor is there any information as to what steps Arcadia intend to take in the event that a supplier does not comply with the Code, nor who will enforce the changes. There is a concern that companies in this situation have a tendency to cut their ties with the supplier in question rather than work with them to improve the conditions in the factory.

Suppliers must meet the local laws on conditions such as minimum wages, hours of work, overtime and deductions. If no laws apply, the conditions for workers must be at least as good as the usual terms for workers in the area doing the same type of work. This is problematic as some countries do not have a minimum wage or if it exists, it is not in line with inflation. Furthermore, where no such law exists, leaving the supplier to determine what standards to set according to local conditions may not necessarily mean a basic minimum standard of care for the workers.
NB 18/11/05

Code of Conduct
Labour Behind the Label has complained that the implementation of Arcadia’s code of conduct is not transparent, as there is little engagement with stakeholders. Arcadia is a notable absentee from the Ethical Trading Initiative (ETI). High Street retailers Debenhams, Gap, M & S, Monsoon, Mothercare, New Look and Next are all members. Labour Behind the Label, No Sweat and Tearfund have all called on Arcadia to improve its worker’s rights. No Sweat awarded Topshop the 2005 Golden Arse award for being ‘bottom of the league for worker’s rights’ and Tearfund created a petition from care labels out of the clothes sold.
Although Arcadia Group has a code of conduct displayed prominently on the company’s website, it does not commit suppliers to paying a living wage, only the local minimum wage. Though it binds suppliers to allowing freedom of association, it does not mention collective bargaining and it does not hold suppliers responsible for ensuring that working hours are not excessive. By joining the ETI Arcadia could commit to improving worker’s rights in its supply chain.
Source: Ethical Consumer 96 Sept/Oct 2005

Positive comments made on the Code by CAFOD:
A good code and a big improvement on its predecessor, the Burtons Sourcing Policy. The only code to make specific reference to the main ILO conventions on labour standards.

Sources:
Clean Clothes
Ethical Matters

Cut and Run
Campaign groups encourage companies who discover worker’s rights abusers in their supply chains to engage with their suppliers and improve the working conditions at these factories in a an open manner. Too often companies don’t take worker’s rights seriously and they are just viewed as just another PR problem. But dumping suppliers abandons communities and leaves workers unemployed, whilst doing nothing to improve the prevailing working conditions in that society. While public companies often find that poor supply chain management leads to bad press, brand damage and subsequently falling share prices, large private companies are relatively immune to such pressure.

According to newspaper reports, the DTI is believed to have expressed concern that a growing number of large companies, taken private in recent years, are exempt from publishing details of their social and environmental policies. The DTOI has argued that there may be competition issues, with large public companies is a sector being forced to disclose information which private rivals are not. From April 2005 the Operating and Financial Review will mean that all quoted (public) companies have to consider sustainable development issues alongside financial information. In tandem the Accounts Modernisation Directive ‘will introduce requirements for large private companies to report on environmental or employee matters to the extent necessary for an understanding of a company’s development, performance or position.
Source: Ethical Consumer 96 Sept/Oct 2005

What is Arcadia doing to improve such conditions?

Arcadia Group does not respond adequately and seriously, in spite of claims to the contrary, to calls for making specific or general improvements to working conditions in its supply chain. The company has never clarified how it implements the commitment spelt out in its code of conduct, and is not, to our knowledge, involved in any initiative to improve standards in its supply base. Indeed Arcadia s response has barely varied over the years: it consists of the company s code of conduct, and an assurance that Arcadia Group and/or Philip Green take the issue of workers rights extremely seriously.
For instance:
ï‚· when Arcadia was urged by Labour Behind the Label to commit itself to living wages being paid to the workers producing its goods, it responded by sending its code of conduct. When asked for details of how Arcadia monitored its code of conduct in relation to wages and what was its strategy where the legal minimum wage was set below what is needed to live on, Arcadia responded with: "we would remind you that Arcadia Group requires all its third party suppliers to sign up to its code of conduct". (March 2001). The rest of the reply also ignored specific questions on the issue of wages.
ï‚· when, following an urgent appeal sent out in spring 2002 at the request of Indian workers, LBL called on Arcadia to press the supplier concerned to respect workers' rights and stop its policy of repression against union members, the investigation and update promised never materialised. It is not known whether Arcadia still uses this supplier.
ï‚· when, in November 2002, campaigners publicly exposed breaches of workers rights in a London factory supplying Arcadia, the company reacted by threatening to 'cut and run', i.e. never using the supplier again. Labour Behind the Label calls on retailers, in such situations, to face up to their responsibilities and work instead with suppliers to improve conditions. The risk of Arcadia 'cutting and running' explains why the factories and workers featured here cannot be named.
ï‚· In 2003, a Tearfund campaign called on Arcadia to ensure that workers producing their goods do so in decent conditions and receive living wages, and to work towards this by joining the Ethical Trading Initiative. Again, the response told nothing about how the company implements and monitors its code of conduct and what action is taken when breaches are identified: "The Arcadia Group takes its supply chain responsibilities seriously and the concerns you have raised are addressed in our Supplier Code of conduct. The code forms part of our Trading Conditions with suppliers and each purchase order is subject to these conditions... Any breach of the code would be taken very seriously by Philip Green". A further letter requesting details about implementation and monitoring procedures remains unanswered.

It has become clear over the years, that strategies formulated by garment retailers at an executive level - for cutting costs and minimising risks - are leading to more and more aggressive practices on the part of buyers. Buyers are reported to be pushing prices down, asking for shorter and shorter delivery times and placing smaller and more frequent orders to reduce warehousing costs and forecasting risks. The resulting pressures on suppliers lead them to cut labour costs in any way they can and to lengthen the working day to meet increasingly tight deadlines. These pressures are passed on to workers - including workers producing for Arcadia.
Source

Labour Behind the Label calls on Arcadia to:

ï‚· ensure that Arcadia's purchasing practices are compatible with implementing the demands made by Arcadia's code of conduct - in particular pricing and lead times;
ï‚· ensure that workers are able to protect their internationally-recognised rights by joining a trade union of their choice, as specified in Arcadia s code of conduct;
ï‚· make monitoring systems more effective so conditions such as the ones exposed here can be identified and remedied;
ï‚· provide ways in which workers can safely report violations of their rights;
ï‚· work with suppliers and share with them the responsibility of improving working conditions;
ï‚· work with other relevant stakeholders, such as trade unions and NGOs, both locally and internationally;
ï‚· acknowledge consumers right to know in what conditions their clothes are produced, and therefore the need for independent verification of working conditions.

What You Can Do:
Write to Philip Green at:
Arcadia Group plc,
Colegrave House,
70 Berners Street
London W1T 3NL

Natasha Bailey, 18/11/05