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Transparent Pricing; Upping The Ante On Compliance

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In a WhichPLM exclusive article, originally running in our Annual Review 2014, Ben Hanson continues the publications’s insight into global supply chain and sourcing practices (and the regulations and brand management factors that affect them) by highlighting the possibility that current ethical and environmental standards may be far from the last word in compliance.

BenIrrespective of what you make and where you make it, today’s shoppers want to know what went into your products. Labour, materials, ecological impact – consumers in 2014 demand a great deal of insight into the products they buy. And although domestic manufacture is increasingly being touted as a selling point, this doesn’t mean that offshoring – still the norm for most apparel retailers and brands – is going anywhere. Indeed, the current business models of some of the world’s largest brands simply won’t allow that paradigm to shift too suddenly.

A number of experts have analysed the kind of data that market forces (and increasingly legislation) require organisations to collect from the supply chain partners elsewhere in this publication, so I wanted instead to emphasise the fact that what we see today is far from the last word in compliance.

To demonstrate this, I’m going to refer to one particular brand – Everlane, based in San Francisco’s Mission District – that is trying something even more radical. And although this kind of holistic transparency isn’t widespread, this article should serve as food for thought for any retailer or brand who intends to continue working with supply chain partners and factories in emerging economies.

Everlane describe their concept as “radical transparency”, and it can best be described as complete openness across the product lifecycle.

Virtually every style the company offers has its materials, labour, transport, hardware and duties (where applicable) individually itemised, then listed as the “true cost” right on its product page.

Everlane’s markup is then shown, and contrasted against the much higher figures added by traditional retail channels. The differences can be stark. A gulf of $30 for a simple t-shirt, and $80 for a more complex jacket – all accounted for by low overheads, strong supplier partnerships, and relentless focus on a small collection of essential pieces.

The brand calls this “a new way of retail”, and it’s one that appears to be taking off. The bulk of Everlane’s orders come from the retail Mecca of New York City, where shoppers are accustomed to looking at things a little differently, and where brands can live or die on the basis of word of mouth and consumer interaction.

Those latter factors are something Everlane – and a host of other brands – is acutely aware of. And although these companies’ sourcing strategies are usually described as stemming from closely-held personal beliefs, we should remember that no business goes into business for itself alone. Every retailer or brand has the consumer firmly in mind.

Indeed, Everlane go out of their way to promote this concept with the Twitter hashtag #KnowYourFactories, and place “factories” as prominently in their e-commerce site’s menu bar as they do “men” and “women”.

The company also maintains a journal documenting its visits to supply chain partners and factories in the USA, Europe and Asia – a kind of assessment that goes beyond typical first or third-party inspections and actually invites the potential shopper or brand advocate to become a part of the auditing process.

And I use the word “invite” literally: Everlane recently welcomed a group of Instagram celebrities into its Los Angeles partner factory, allowing them free rein to document what they found. The result is a rich story, and the kind of publicity money can’t buy. Instead of waiting for the court of public opinion to come to them, Everlane and brands like it are opening their doors in unique ways.

Make no mistake, though – these tactics require a great deal of work to achieve, and require a comprehensive customer engagement policy and absolute transparency, underpinned by consistent and contemporaneous access to bullet-proof supply chain data.

This approach works for Everlane – and indeed for smaller organisations like social media company Buffer, which made the headlines by publishing the salaries of all of its employees, right up to the C-level – primarily because they are a small, online-only brand, and one that trades in only a slim collection of products. But the principles are sound and, I believe, ripe for extrapolation to larger enterprises. And I predict the first multinational apparel retailer to really tackle the concept will realise significant value in doing so.

Rolling Abstract

The shift in expectations when it comes to transparency is already being felt in other industries. McDonald’s, for example, openly published a video of its Supply Chain Manager charting the journey from raw materials to products in the case of its Chicken McNuggets. The resulting footage, created to dispel rumours that the chain uses suspicious “mechanically recovered meat”, has attracted 4.5 million views and won McDonald’s plaudits for tackling an issue head-on that previously might have gone unacknowledged.

Done right, then, transparency can be an extremely compelling prospect for consumers and brands alike. Brand engagement opportunities are at an all-time high. Shoppers want to unite with their favourite companies on a multitude of different levels: share music tastes, like Instagram lookbooks and YouTube videos, and read editorials. Modern branding is more of a performance art than it’s ever been before, and provided your products and practices are up to scratch, there’s ample evidence to suggest that a little openness can go a very long way.

So imagine what complete transparency can do.

For the smaller, more agile business of today – and potentially the larger enterprise of tomorrow – confidence in the entire product lifecycle process, from design to disposal, can provide a wealth of information. All of which – properly catalogued and integrated across the business – can be used to generate an enormous amount of goodwill.

But that potential comes with some strong caveats, and no organisation considering a radical approach to transparency can hope to get by on incomplete information, or without the kinds of answers that consumers are going to seek. Remember, opening your doors in the way that Everlane has invites every armchair businessman or businesswoman into your previously-private processes, calling into question more than just the supply chain and sourcing practices that are currently covered by the phrase “compliance”.

Today, the consumer makes a very binary buying decision. Whether something is worth what you’re charging for it is a conclusion they reach primarily on the basis of whether they like it enough to pay the asking price.

Transparent pricing

Tomorrow, that same shopper might reject a garment because they believe the margin you, as the brand owner, took was too high compared to the wage you paid your factory workers. And they may in turn reject a different product because they believe shipping costs made up too large a portion of the overall RRP, whereas they are making a conscious effort to buy local. When they do buy local – because a brand proudly proclaimed its boots were made in the USA – the influencing factors might include the payment of a living wage to workers, as opposed to just a government-mandated minimum one.

The question, there, has become one of trust and integrity, rather than one of pure value.

Similarly, the discovery by consumers that they may have been paying subjectively “too much” for products all along is one they will find difficult to swallow – and one that businesses will struggle to address. This kind of transparency – without consistent ethical and financial practices to back it up – can very quickly invite criticism of the brand, its management, and  potentially demolish confidence (and with it, share value) in very short order.

Nevertheless, I do believe the aspects of transparency and compliance that other contributors have documented and analysed so well in this year’s WhichPLM Annual Review are just the tip of a potentially very disruptive iceberg.

For a long time, the “best” businesses (which I’ll define as the most consistently profitable and enduring) were lauded in a way that was almost completely divorced from morality. A good CEO was one who kept profits up and costs down through any means necessary, steering the ship in one direction: making and then prudently investing money in furtherance of growth at any cost.

Today, the compass has swung back around with considerable momentum. The unscrupulous business is the one withering under the gaze of the public eye, when their strengths are discovered to have been built on foundations that simply do not pass scrutiny in an increasingly empathetic world. Metrics and concerns that were once the preserve of organisations like Greenpeace or UNICEF are now at the forefront of the public conscience, and firmly on the minds of everyone with a credit card.

So while transparency and compliance in the form we know them today are terrific things – and certainly initiatives that WhichPLM applauds – the businesses best poised to thrive in 2015 and beyond may just be those with the confidence to open theirs doors even further. To invite the consumer into every aspect of their product lifecycles, capturing invaluable brand allegiance in the process.

In order to do that, though, their product lifecycle management practices and technologies will need to be as impeccable as their moral standards.

*Read further into the concept of “radical transparency” by visiting https://www.everlane.com/factories or view the McDonald’s video cited in Ben’s article at https://www.youtube.com/watch?v=Ua5PaSqKD6k

Lydia Mageean Lydia Mageean has been part of the WhichPLM team for over six years now. She has a creative and media background, and is responsible for maintaining and updating our website content, liaising with advertisers, working on special projects like the Annual Review, and more.Joining mid-2013 as our Online Editor, she has since become WhichPLM’s Editor. In addition to taking on writing and interviewing responsibilities, Lydia has also become the primary point of contact for news, events, features and other aspects of our ever-growing online content library and tools.