Reports

June, 20 2005 |  Share

How Can Wal-Mart Sell a Denim Shirt for $11.67?

--Only by using slave labor--

"Absolutely slave labor." That's what one Wal-Mart shopper commented on NBC Dateline after watching tapes of how Wal-Mart garments are sewn in Bangladesh by young women forced to work 14 hours a day for wages of just 13 to 17 cents an hour.

We wanted to find out how Wal-Mart does it, so together with Dateline, we took a men's longsleeved denim shirt, size Large, to Bangladesh to see what price the factories there would give us to make our shirt. The denim shirt was exactly the same as Wal-Mart's, except ours was made in a union (United Food and Commercial Workers) shop in Chicago, where workers are treated with respect and are paid fair wages and benefits, and of course, the quality was much higher.

We knew that the eight-ounce denim fabric sourced from U.S. textile mills costs $2.00 a yard and that two yards are needed to make the shirt.

The accessories—thread, buttons, canvas supports—cost another $1.00.

The workers were paid 75 cents to cut the fabric and $3.36 to sew the garment.

Indirect labor—inspection, pressing, packing, etc.—cost another $3.36.

The industrial laundry would add approximately 75 cents more.

So, the total cost to make the shirt in the U.S. was $13.22--$5.00 for materials, $7.47 for labor and 75 cents for the industrial laundry. And this included no profit to the factory.



So, how was Wal-Mart able to sell its shirts for $11.67 and still make an over-$10 billion profit last year (even after paying CEO Lee Scott over $335,000 a week)?

Everyone knows that most garments sold in the U.S. today are made offshore. In fact, 96.4 percent of all garments purchased are imports. And, everybody knows that the companies go offshore to get cheap labor. When asked what the wages are offshore, many shoppers respond that they think wages must be $2, $3 or maybe $4 an hour. When people find out that the wages  paid to women in Bangladesh to sew Wal-Mart garments are just 13 to 17 cents an hour, they are shocked.

In Bangladesh we were offered the price of just $4.70 to make our shirt. This price included everything—fabric, accessories, laundry, direct and indirect labor. How could they do it for this price?

The fabric is sourced in China for $1.35 per square yard, and the accessories would cost less than 60 cents.

The total labor cost was 22 cents, and the industrial laundry about 20 cents.

So, their full cost of $3.72 to make the shirt was less than one-third of what the cost is in the U.S. We knew that the factories were inflating the cost of the fabric sourced in China so as to disguise their real profit, which they claimed to be approximately $1.00. We were also very clear about the fact that we—Hansen Fashions—were a very small company and would be starting out with a very small run of about 25,000 shirts.

Given Wal-Mart's enormous size and power, we know they get their denim shirts for $3.00 to $3.25. This is how they can sell a shirt for $11.67 and still make a considerable profit. It's based on exploited labor in China and Bangladesh.

This means that Wal-Mart's mark-up on its $11.67 shirt is still 260 to 290 percent, or $8.42 to $8.67, which is 38 times more than they pay the workers to make the shirt. ($11.67 ÷ $3.25 = 3.59, or a 260% mark-up; $11.67 ÷ $3.00 = $3.89, or 290% mark-up. $11.67 - $3.25 = $8.42; $11.67 - $3.00 = $8.67; $8.42 ÷ $0.22 = 38.3)

This proves two things:

On one hand, it clearly demonstrates how Wal-Mart's bargains are really based on everyday low wages and exploitation, leaving workers across the developing world trapped in misery.

On the other hand, it  demonstrates that Wal-Mart could very easily pay the extra 20 cents per garment so that the workers could climb out of misery and at least into poverty. It would be a simple thing to do.

If Wal-Mart paid 20 cents more per garment, it's mark-up would still be 238 to 265 percent, or $8.22 to $8.47, which is still 21 times more than the 39 cents they would now be paying the workers to make the shirt. ($11.67 ÷ $3.45 = 3.38—or 238% mark-up; $11.67 ÷ $3.20 = 3.65—or a 267% mark-up; $11.67 - $3.45 = $8.22; $11.67 - $3.20 = $8.45; $8.22 ÷ $0.39 = 21.)


 

I. Wal-Mart told NBC Dateline:

"We strongly believe that our business—and the wages and benefits we provide, have helped improve the lives of many thousands of workers in many parts of the world."

The Truth: Wal-Mart is the largest producer in Bangladesh. According to the U.S. State Department, the official minimum wage in Bangladesh's garment export sector has fallen eight percent between 2000 and 2004, dropping to 22 cent an hour. As we have seen, Wal-Mart does not even pay this, with most workers sewing Wal-Mart garments earning just 13 to 17 cents an hour. Furthermore, at the same time wages were falling in Bangladesh, the cost of living increased by 17.5 percent. Coupled with the wage decrease, the Bangladeshi garment workers have lost 25.5 percent of their purchasing power since 2000. They are going backward.

If Wal-Mart has its way, the workers in Bangladesh are about to be driven even deeper into misery. Fortune Asia reported on May 16, 2005 that, "In January, Wal-Mart and other  retailers demanded that exporters cut prices by 12 percent or find themselves without new orders." On top of that, Wal-Mart wants its Bangladeshi contractors to start paying for "anyduties imposed by importing nations," which in the case of the U.S. ranges from 18 to 22  percent. The workers in Bangladesh could see their wages, already at starvation level, plummet by another 34 percent. A young woman sewing Wal-Mart garments for 13 cents an hour may soon find herself earning just 8.5 cents an hour.

Fortune Asia reported on May 16, 2005 that, On top of that, Wal-Mart wants its Bangladeshi contractors to which in the case of the U.S. ranges from 18 to 22  percent. The workers in Bangladesh could see their wages, already at starvation level, plummet by another 34 percent. A young woman sewing Wal-Mart garments for 13 cents an hour may soon find herself earning just 8.5 cents an hour.

Regarding Wal-Mart's commitment to benefits: Over a year ago, we asked Wal-Mart to sign a simple pledge that any woman sewing Wal-Mart's garments in Bangladesh finally receive her legal right to three months maternity leave with full pay. We are talking about maternity  benefits of as little as $27 a month, $81 for the entire three months. To date, 22 companies have signed the pledge, including Costco, Sears/Kmart, PVH, Levi Strauss, Gap, Liz Claiborne, H&M and many others. Wal-Mart alone refuses to sign the pledge, and some of the hardest-working yet poorest women in the world sewing Wal-Mart garments continue to be cheated out of maternity benefits they so desperately need for the welfare of their infants.

 

II. Wal-Mart told Dateline:

It" "discusses prices with suppliers in a responsible manner that takes many factors into consideration."

The Truth: Every factory owner we spoke with told us that, "Wal-Mart is always driving down and squeezing prices, especially lately," despite the fact that "our overhead isn't coming downand living costs are going up." Wal-Mart is "cheap, cheap, cheap," one owner told us. And Wal-Mart no longer negotiates, it says, "Take it or leave it." This we heard repeatedly.

Another owner told us, "Wal-Mart is very tough"They don't care. You have to be very careful." For seven years this owner sewed linen-cotton pants for Wal-Mart, but lost the order in the eighth year because Wal-Mart demanded a five-cent price cut per pair of pants, which theowner could not do and still make a profit. Wal-Mart told him to "Take it or leave it,"—and took the work elsewhere.

One owner explained, "A few years back, I told Wal-Mart, 'Give me one cent more a piece, one cent. I will use that money for these poor people.' He says, 'No, give us two cents less."

Another factory owner told us that over the last three years, from 2001 to 2004, Wal-Mart cut the price it was willing to pay for each "Just My Size" women's short sleeved shirt from $3.17 to just $2.17, a drop of over 30 percent. This was the total cost of the garment—fabric, labor, everything. At the same time, inflation was running in the opposite direction, driving costs in Bangladesh up by 17.5 percent.

Producing for Wal-Mart, the only way a contractor can stay in business is to keep lowering wages and benefits. It is not a great mystery. This is Wal-Mart's business model. As the largest company in the world, it uses its enormous power to constantly drive down wages and prices. When a factory cannot cut any further, Wal-Mart pulls up stakes and moves elsewhere, to places like Vietnam and China.

 

III. Wal-Mart told Dateline:

A spokesman for Wal-Mart told Dateline that Wal-Mart inspects more factories than any other company.

The Truth: To set the record straight, we would like to inform Wal-Mart that in the most recent 71-day period, from April 1 through June 10, the Wills factory was closed on just one day—Friday, June 3. This was after a large "Just My Size" order for Wal-Mart was completed. Wills was open and working on Friday, June 10.

The Wills workers were required to work eight Fridays in a row. (Remember, Friday, the Muslim holiday, is supposed to be the one day off workers must by law receive.) The Wills factory was also open on two national holidays—Bengali New Year (April 14) and May Day. During this 71-day period, some workers were kept till 10:00 or 10:30 p.m. on 51 nights. There were four all-night 19 to 20½ hour shifts during this period, from 8:00 a.m. to 3:00 and 4:30 a.m. the following morning. During the week of Saturday, May 14 through Friday, May 20, the workers were at the factory 96 hours.

It is impossible that Wal-Mart is not aware of this.

Several of the factories visited by the National Labor Committee and Dateline were part of the Nassa Group in Bangladesh. In July 2003, Wal-Mart gave the Nassa Group its International Supplier of the Year award, with the following message:

Heartfelt felicitations and sincere
Appreciation to the Nassa Group
On being awarded the International Supplier of the Year-2002
By the world's largest retailer
The Wal-Mart Stores Inc. (USA)
We are proud of being associated with
Nassa Group

Mr. Abdul Hasnat, country manager for Wal-Mart, presented the award to Mr. Md. Nazrul Islam Mazumden, chairman of the Nassa Group. In other words, these were not fly-by-night factories. The Nassa Group is a huge conglomerate made up of 27 factories.

All Wal-Mart's so-called monitors would have to do to find out the truth about factory conditions and wages, would be to do as we did. It is easy enough to drive out at 10:00 p.m., 12 midnight or even 1:00 a.m. or later to see many of the factories producing for Wal-Mart still operating. It is easy enough to go by the factories on Friday, the Muslim weekly holiday, to see if the factories are in fact open and working. Wal-Mart's monitors could learn a lot, if they could be trusted not to turn the workers in and, with those guarantees, meet with the workers in a safe location where the workers could speak the truth. They would learn a lot about how the workers are cheated of their wages and benefits. Also, visits to the workers homes and neighborhoods  would clearly show how the workers are trapped in misery, as a result of the starvation wages they are earning.

Wal-Mart would have to go out of its way not to see such glaringly serious violations.

And there is a single litmus test to see if Wal-Mart is truly interested in learning about factory conditions. Wal-Mart should disclose the names and addresses of the factories they usearound the world to make their goods. Nike and Reebok have already done this. Publicly disclosing the names and addresses of their contractors' factories would prove that Wal-Mart is not trying to hide anything. On the other hand, it is much easier for Wal-Mart to continue to violate the rights of women and girls in hidden sweatshops, where they are locked behind metal gates, barbed wire and armed guards.

 

"If Wal-Mart Paid Pennies More, Millions of Women Could Climb Out of Misery" Report (June 2005)

"Wal-Mart Whistleblower Speaks out: Working for Wal-Mart as a Monitor" Report (June 2005)