Can Transparency Solve the Consumer Trust Deficit?

This article first appeared in BoF and McKinsey & Company's The State of Fashion 2019 report.

LONDON, United Kingdom — They say it takes years to earn trust but only an instant to lose it. With trust in very short supply among today's consumers, some companies are going to extraordinary lengths to claw it back. As one of the most traditionally opaque industries out there, fashion faces an especially challenging future in this regard, but instead of grappling to invent new ways to beat the trust deficit, it could look to other industries for inspiration and best practice for ways to improve its supply chain.

The kind of radical transparency that some fashion players will embrace tomorrow is being played out in the supermarkets today. Arguably, nowhere is traceability more important than in the food industry and since Europe’s horsemeat scandal of 2013 — which exposed a sector where some products advertised as 100 percent beef contained undeclared meat from other animals including pig and horse — more and more consumers are asking whether we really know what we’re putting on our plates.

The more complex that global supply chains become, the more vulnerable they are to fraud and error. Sensing that customers were still very distrustful of the supermarket giants, Marks & Spencer (M&S) recently introduced complete traceability of all its beef products. One motivation for M&S would have been to implement a system to prevent it from meeting the fate of one of its rivals, Tesco, which in the dark days after the horsemeat scandal saw hundreds of millions of dollars wiped off its value.

Apparel is one of the most volatile and fast-changing supply chains that I know of.

Initially M&S’ upgrade was met with scepticism but, as it turns out, the firm’s high-tech investment is gradually improving consumer trust. It took years of R&D and operational restructuring, but today the retailer can trace the origins of a single beef patty with such detail that it can name the breed, age and even the name of each individual cow. Individual identities using a series of letters and digits based on a DNA profile taken at the abattoir that can, in turn, be traced back to the farm of origin.

By partnering with Dublin-based tech firm Indentigen, M&S uses a genetic sampling technique that analyses the molecular signature found in the smoke emitted when a tiny sample of the meat comes into contact with a laser. The move has been viewed by some as a benchmark when it comes to radical transparency, as consumers increasingly demand to know the provenance of their food.

But beyond groceries, the question of precisely where our goods come from remains as pertinent as ever — and one that the fashion industry has not yet been able to solve at scale.

“[What] only a few leading brands are doing is [offering] full traceability [of their supply chain]. That means that in theory, you can scan a barcode on a shirt and know the actual supply chain for that particular garment,” says Leonardo Bonanni, founder and chief executive of Sourcemap, which helps brands trace the journey of their products.

“It’s been well established in food, pharmaceuticals and other industries for years. We need to get there with apparel.”

Long Legacy of Bad Habits

In the not too distant fashion past, a lack of transparency in a company’s supply chain could actually be seen as a competitive advantage. Businesses wanted to keep insight into their suppliers and manufacturers as opaque as possible. After all, if nobody knew where the products were coming from, or how they were being made, it was harder for competitors to create identical apparel.

“The idea of mystique is one that is so engrained into the fashion culture of total exclusivity [that] brands hid what they’re doing from everybody,” says Tamsin Blanchard, a veteran journalist focused on sustainability and ecological issues in fashion.

For Neliana Fuenmayor, founder and chief executive of A Transparent Company, which advises brands on sustainable innovation, the luxury end of fashion is especially problematic, “[Consumers] don’t question luxury because if it has that high price ticket [then] you want to think it’s been done in the best way possible.”

An apparel company might think that they only have 1,000 to 2,000 suppliers, but the reality is they have 20,000 to 50,000 when you count all the sub-suppliers.

However, news in summer 2018 that Burberry had burned $37.6 million worth of unsold clothes and accessories, instead of selling it off cheaply, to protect its brand, shocked consumers. It's a practice notably not exclusive to the British fashion brand but the secretive nature of the industry makes it difficult to accurately quantify the scale of the problem.

The public outrage and negative media attention prompted Burberry chief executive Marco Gobbetti to address the issue with a plan that would see a complete turnaround. “We are now in a position to [stop] destroying finished products, which we think, frankly, is just not modern,” he told BoF in September.

It is clear there has been a shift in the way consumers view transparency. In today’s world of post-truth politics and “fake news,” consumers’ distrust of governments and media has extended to every aspect of their lives, from food to medicine and fashion. Surveys suggest that trust in businesses fell in 40 percent of countries in 2017, with more than two in five consumers saying they didn’t know which brands to trust.

Arket Autumn/Winter 2018 collection | Source: Arket

The fashion industry, in particular, has been suffering from a rising trust deficit. After more than 1,100 people died in a garment factory collapse in Bangladesh five years ago, pressure has mounted on Western retailers to be transparent about their supply chain. Other horror stories of garment sweatshops, abuses, child labour and deadly industrial disasters have put brands under scrutiny by shoppers who are increasingly demanding to know if their products were made ethically and sustainably.

Yet transparency remains a major challenge for the global fashion industry, one that was worth $2.5 trillion in 2017, according to the McKinsey FashionScope, which relies on very fragmented supply chains often spread across multiple countries.

Following the Rana Plaza disaster in Bangladesh, it took weeks for retailers to figure out why their labels had been found among the ruins in the first place and which purchasing deals had been made with those suppliers. As a great number of retailers do not own their own manufacturing facilities or use a system of agents and subcontractors known as “indirect sourcing,” it makes it difficult for companies to monitor conditions across their supply chain.

“An apparel company might think that they only have 1,000 to 2,000 suppliers, but the reality is they have 20,000 to 50,000 when you count all the sub-suppliers. It’s a real challenge [for brands] to map their supply chain because there are too many third parties involved,” says Bonanni.

What often happens is that a factory may take an order, only to find that it doesn’t have the capacity to do all the work and, without notifying the brand, the factory owner may then delegate the work out to other factories, which could be unregistered and therefore the kind of place where labour and safety violations occur. “Many larger fashion brands don’t have visibility on suppliers more than one degree removed,” says Jessi Baker, chief executive of Provenance, which helps brands track their supply chain using blockchain.

The speed in which fashion operates also poses a challenge. “The apparel industry is in an unusual conundrum, because it has the highest turnover in supply chain of any industry,” adds Bonanni.

“Some brands are doing fast fashion, others are doing four collections a year, but there is a continuous turnover. With food, you don’t change that often. Apparel is one of the most volatile and fast-changing supply chains that I know of.”

Trade Secrets and Tokenistic Gestures

M&S was one of the first mass-market companies to take tighter control of its supply chain by putting a factory map up on its website, sharing what happens where in the world for many of its categories, including clothing, homeware and food. According to the Global Fashion Agenda (GFA), 12.5 percent of the global fashion market, including big names like Nike, Adidas, Levi's and Gap, have signed up to 2020 sustainability targets, which include publishing lists of all the suppliers producing for them.

H&M Group says it mandates that all suppliers sign a sustainability commitment. In 2017, the company also launched a moderately higher-priced brand called Arket, which focuses more on staple pieces than trends. Each item of clothing purchased online comes with information about what materials the garment is made from, and on the location and name of the factory where it was made.“When we communicate that, customers have the option to make more sustainable choices,” says Karin Brinck, sustainability manager at Arket. “We see transparency as one of the means for our industry to drive positive change through increased openness.”

Meanwhile, retailers like Maiyet have approached transparency by stocking only what it considers socially conscious “positive impact” brands in its recently opened London concept store. According to co-founder Paul van Zyl, the aim is to “promote transparency by sharing the provenance of each brand and creating an environment [for] founders, designers and certifying bodies to come together in an open and honest way.”

While this degree of transparency in the fashion industry is a positive change, it still raises some important questions: what is a shopper supposed to do with that information?

Companies are split into departments and that causes fragmentation and silos. We need to move from a centralised system to a more decentralised one.

“I think it’s a bit tokenistic,” says Rachael Stott, senior creative researcher at The Future Laboratory. “If you’re given the name of a factory or the provenance of a garment, it’s too vague to really help [the consumer] at that point of purchase. I still have to go away and research these factories and names. There’s no guarantee for me as a consumer that what I’m buying is ethical.”

There’s also the debate of how much a factory has to be in compliance. Several experts agree that no company is perfect, so should consumers hesitate to buy a T-shirt or pair of jeans if 80 percent of a factory is up to standards? Is anything less than 100 percent acceptable? Sourcemap’s Bonanni points out that there are currently no uniform standard on what constitutes as an ethical or sustainable factory. “There are different levels of transparency but we need a standard in the industry, so that the consumer understands,” agrees Fuenmayor.

Another challenge with rising levels of transparency is it can lead to the over-sharing of company affairs and potential conflicts with the need to protect trade secrets, information and privacy. In the workplace, for example, business owners have a responsibility to their employees to disclose problems that might lead to employee dismissals, but discussing every loss, financial struggle or employee salary could lead to unrest, loss of confidence and detrimental competition among employees. The same applies to fashion.

“Fashion companies are very careful with how they share information [and] that’s one of the blockers for why radical transparency is challenging,” Fuenmayor continues. “If you’re a brand choosing which supplier to make a product, you’re trying to push down the price as much as possible. That’s where the secretive part comes in because suppliers might offer certain brands a better price than their competitors and so it becomes a grey area.”

Using Technology to Improve Disclosure

But as impossible as full transparency may seem, it’s clear that the pendulum has swung too far in the other direction for far too long. “In the future, not being transparent raises a red flag. Consumers will question... what are you hiding?” Fuenmayor continues. “What is luxury today? Is it a logo or is it a product that I know has not cost someone’s life or the environment? We have to understand that we have more power as consumers, because we’re paying with our wallets every day when we choose a brand or service.”

“Increasingly there are vegan customers who want to know what materials are in [their clothes, for instance] and not just what they’re eating,” says Blanchard. She argues, however, that transparency is especially important for fashion because, “food, you eat it, then it’s gone, whereas with fashion, you wear it and it’s still going to be there. It’s either going to be in your wardrobe or in a landfill.”

Radical transparency doesn't only apply to production; it can be applied to pricing too. One of the early pioneers of this was Bruno Pieters, who started his own label Honest By in 2012 after stepping down from a leading role at Hugo Boss. So meticulous was the Belgian maverick that shoppers could not only trace the manufacturer and composition of the garment, fabrics and lining but also that of the zippers, buttons, thread and even the safety pin holding the hang tag to the item's care label.

De Beers diamond mines | Source: De Beers

Whenever he could persuade textile suppliers to reveal details about origins and sources, Pieters created a painstaking "pedigree" that traced the fabric through the supply chain of raw materials, yarn spinners, weavers, printers and dyers.More surprising was — disclosed on the product detail pages of the brand website — an itemised break-down of the garment's cost to the very last penny, including his wholesale and retail mark-up percentages. When news broke in October 2018 suggesting that Honest By might be closing down, some saw it as a sign of how hard it is to sustain a business in fashion without compromising on transparency.

Transparency is also important in terms of disclosing how companies operate. Fitness technology firm Fitbit, for example, has accessto extremely valuable customer data, which may leave people feeling uneasy. It hopes to quell these concerns by being completely open about which data points they collect and how they share it. Meanwhile, charity services like BitGive and AidCoin use technology to provide greater transparency to donors by sharing real-time financial and project information.

What’s clear is that while technology has played a part in generating much of today’s mistrust, it can also be leveraged to restore trust and confidence.

Blockchain, for one, has the potential to fix this. The underlying technology driving cryptocurrencies such as Bitcoin, blockchain is a decentralised and distributed digital system of records that cannot be altered once they have been added. The global blockchain technology market was estimated by Statista to be worth $339.5 million in 2017, and is forecast to grow to $2.3 billion by 2021.

This technology is already being slowly implemented in a number of industries. Swiss tech firm Ambrosus offers blockchain for the food industry, making it accessible to both emerging start-ups and billion-dollar brands. The firm uses high-tech sensors and blockchain technology to record the entire history of food and pharmaceutical products. By using a smartphone, anyone in the food chain — producers, suppliers, retailers or consumers — can access so-called “tamper-proof” data about their product at any stage in its supply chain life cycle.

The fashion industry, however, seems more reticent. Martine Jarlgaard’s pilot programme to track clothing from raw material to consumer using blockchain is a start. However, it will take much bigger developments from blockchain specialists like VeChain, whose chief executive Sunny Lu is the former chief information officer of Louis Vuitton China, to move the needle.

Meanwhile, De Beers, the world’s biggest diamond producer by the value of its gems, said it planned to launch the first industry-wide blockchain this year, to track gems each time they change hands from the moment they are dug up from the ground. The technology could be used to verify the authenticity of diamonds and ensure they are not from conflict zones where gems could be used to finance violence.

Fashion companies are very careful with how they share information [and] that's one of the blockers for why radical transparency is challenging.

If something similar were adopted by fashion brands, retailers could garner greater trust through the product lifecycle, as it could tell consumers not just where an item was made,but also who it was made by, the conditions they worked in, how much they were paid, the composition of the garment, where the fabric was grown and what chemicals had been used.

While critics of blockchain claim that it has several “Achilles heels” including problems as diverse as scalability, securing privacy and its power source, observers like Scott from The Future Laboratory are more enthusiastic. “Blockchain powers transparency and allows brands to not only communicate their values, but also hold all of their supply chain partners and producers accountable for each step,” she says.

Clear Standards and User-Generated Insight

While full transparency remains an elusive and somewhat controversial concept, many see the immediate goal as understanding better what other steps a company can take to implement aspects of radical transparency into their operations.

Collaboration, says Fuenmayor, is the way forward — and it starts from within. “There has to be a corporate culture shift within the company so that sustainability and transparency can be achieved across all departments.” The problem, she says, is that “companies are split into departments and that causes fragmentation and silos. We need to move from a centralised system to a more decentralised one.”

Fuenmayor adds that “giving power” to employees to “make decisions” was an important step. Scott agrees, suggesting that the solution could go as far upstream in the supply chain as giving autonomy to garment workers. “It’s about putting power in their hands [and could mean] letting them upload their own conditions onto a cloud-based platform, so companies can track labour patterns a bit more honestly and authentically,” she said. “When brands want to control their supply chain and do quality control visits, a lot of [what they see through audits] is staged and not a realistic view of what’s happening.”

Meanwhile, in industries such as beauty, some manufacturers have embraced a switch to “clean label” ingredients or use of ethical certification logos, such as Fairtrade or non-GMO, to indicate that ingredients have been sustainably sourced based on explicit and established standards.

Blockchain powers transparency and allows brands to not only communicate their values, but also hold all of their supply chain partners and producers accountable for each step.

“In the long term we’re heading towards brands having to ingrain the idea of transparency into their DNA. With every new product they bring out, they’ll have to ensure that they can give all the information they can on sourcing and production,” said Blanchard. “This is going to be the future of how people shop, as more consumers are educated about the industry and will put their money in the brands they feel they can put their trust in.”

Forward-looking fashion leaders now believe that we are headed toward a future where trust becomes an exceptionally powerful currency and, extending the metaphor further, transparency then becomes as indispensable to upholding trust as the modern banking system is for managing
our money.

“We mustn’t forget that transparency [itself] is not the goal. Transparency is just one step towards the aim, which is sustainability,” reminds Bonanni. “Positive change is what we should look for in the near future, which is not just for companies to be transparent, but to commit to standards across improving the supply chain.”