Should You Spend $25 or $250 on a T-Shirt? Part 2

In this two-part series The Millennial Economist breaks down the factors that determine the retail price of a T-shirt, as we explain the economics behind your fashion choices.

Part 1 of this article explained the key cost components of the apparel production process—fabric, manufacturing, shipping, and marketing. In Part II, we’ll discuss transparency, working conditions, sustainability, and environmental effects. We explain what you should look for when purchasing your next T-shirt. If consumers are willing to change their purchasing habits for impact, companies should lean in to the changing preferences in the market.

Some differences between designer and fast fashion T-shirts, such as fabric, shipping costs and economies of scale in manufacturing are straightforward, as we discussed in the first part of this article. Next we will consider some more obscure determinants of the price of a T-shirt, such as traceability, working conditions, sustainability and environmental effects that could make your shirt more expensive, but studies show 60 percent of consumers would be willing to pay extra for.

We interview Rhonda Cole, Founder of Rhonda Cole White Shirts, for this piece to hear her take on these elements as a designer.

Transparency

Transparency is a tool that allows for trust to grow between consumer and supplier, which in turn allows for change within the industry itself. In order for trust to develop, the consumer should have all information available to them.

New brands like Everlane have recently earned a lot of attention in an industry famous for shrouding the connection between what it costs to make an item and what you’ll pay. They saw a gap in fashion industry pricing, so they created a company where each item has an itemized breakdown of costs, along with their markup and a story about the factory where it’s made. This radical transparency model worked. Everlane’s clear vision of disclosing the true cost of items, along with the quality and confidence that you’re investing in quality pieces that will last, has proven itself with increasing revenues of $100m in 2016. Research suggests consumers like the practice and will reward cost transparency with greater loyalty.

No major fashion brand has followed Everlane’s transparency model yet, as it would mean revealing their own hidden costs which would hurt their margins. Most brands markup the original price in order to mark the product down later, to make it seem cheaper.

And if a company takes pains to hide things, consumers should ask themselves why? Transparency is a tool for change, not the goal itself, as we ultimately need to act on the information disclosed in order to hold brands, suppliers, and retailers more accountable.

Working Conditions

This comes at a time when there is a serious concern about the detrimental effects on the climate and safe working conditions due to fast fashion and our obsession with relentless consumption. This insatiable hunger creates unsustainable demand, which leads to big brands cutting corners in order to deliver huge quantities of products at low prices. This results in environmental pollution from the cheap, synthetic fibers and chemical dyes used, as well as social cost paid by the garment workers making our clothes. Between 2006 and 2012, more than 600 Bangladeshi garment workers died in factory fires, usually due to faulty electrical wiring. Even despite disasters like the one in Bangladesh where 1,100 people were killed and 2,500 injured in a building collapse, working conditions haven’t been made much safer. More than 4.4 million people still work in Bangladesh’s 3,000 factories, making it the world’s second largest apparel manufacturing center after China.

Unfortunately, the final cost of a garment is not always synonymous with its quality of working conditions, and the lack of transparency purposely makes it difficult for a consumer to stay informed.

Some large retailers, such as Zara, Gap, and H&M pulled out of the Dhaka Apparel Summit in 2017, sending a clear message that human rights violations and poor working conditions would not be accepted. By applying pressure and threatening to withdraw these contracts, these retailers are using their power and influence to change the situation.

Sustainability

Transparency has helped the direct product strategy for Everlane. Their products are designed to last for a long time, aiming for a long shelf life over seasonality. By staying away from the heavy discounting and promotions, customers are happier with their purchases, not wondering if the shirt will go on sale next week.

In 2013, H&M started a global garment collection initiative where all of their brick and mortar stores globally offer a service whereby customers can hand in unwanted clothes and textiles, from any brand and in any condition, for recycling, with zero percent of donations going to landfills.

The greatest change-makers are the consumers who, with their growing awareness, demand an added value of sustainability in the products and services they purchase. Rhonda explains that consumers should “read garment labels for details. Every garment sold in the United States is required to have a label listing country of origin, fiber content and manufacturer.”

Something we think of organic as synonymous with sustainability. However, that might not necessarily be the case with organic cotton – “it is coveted but not always good for the environment because it can cost more to produce in the short run. It often requires more fiber, land and irrigation when compared to conventional cotton. However, unlike conventional cotton it eliminates the use of chemicals, insecticides and pesticides” explains Rhonda.

Environment

The fashion industry is one of the most polluting industries on the planet. According to the World Bank, 20% of water pollution globally is caused by textile processing, making it the second biggest polluter of freshwater resources on Earth. A full quarter of the chemicals produced in the world are used in textiles and it is also highly resource-intensive. With clothing consumption predicted to soar by 60% by 2030 through the rise of ever-faster fashion, the industry clearly needs to change course.

The Changing Markets Foundation highlights the manufacturing of viscose, a man-made cellulose fiber derived from wood pulp, which could be sustainable but is often not due to its prevalent production methods. Many companies are, perhaps unknowingly, sourcing viscose from factories responsible for polluting the oceans. By dumping untreated wastewater into the sea, these viscose manufacturers have a devastating impact not only on the environment but on local communities who were unwillingly exposed to toxic waters, and are at increased risk of fatal illness. Research reports like these are emerging frequently, although a willingness by brands to be honest does at least demonstrate a commitment to making the changes needed to eradicate these problems.

The Numbers

Sustainability has reached a tipping point. As consumers increasingly embrace social causes, they seek products and brands that align with their values. A survey by the National Retail Federation revealed that 57% of the consumers surveyed were willing to change their purchasing habits to help reduce negative environmental impact, and nearly 80% indicated that sustainability is important to them. For those who said it was extremely important, over 70% would pay a premium of 35%, on average, for brands that are sustainable and environmentally responsible.

Within the apparel/ footwear category, 35% of consumers are “purpose driven” – consumers willing to pay a premium for products and services that align with their values and lifestyles. These consumers are also willing to change their shopping habits to reduce environmental impact and care about issues such as sustainability and recycling.

A growing number of people want to select brands based on how well they align with their personal values and who are willing to “walk the walk” when it comes to sustainability, changing their behavior, and even paying more for brands that get it right. 57% of consumers globally are willing to change their purchasing habits to reduce the negative impact to the environment. 71% of those who indicated that traceability is very important to them are willing to pay a premium for brands that provide it.

Interest in sustainability transcends age; consumers of all generations indicated that sustainability, environmental, and/or personal wellness are impact factors in how they select brands. Each age group surveyed is consistent in the relative importance of sustainability of the products they buy – 75% – 79% of respondents cited sustainability as very/ extremely/ moderately important to them.

Although, global sustainable and environmentally responsible investment is up 68 percent and tops $30T and consumers are increasingly opting for such products, retailers can better align sustainability initiatives to their brand, and further earn consumers’ confidence and willingness to contribute to the cause.

The Economics

Ethical consumerism is the idea that we can shop our way to a better world. Whether you’re concerned with factory worker rights or products made from environmentally friendly materials, the theory is that you can vote with your consumer power to make things better. The inverse of making positive purchase choices, while still practicing ethical consumerism, is to boycott products considered unethical. Major matters can be tackled without changing the underlying economic model.

Economies of scale generally works in fashion—there are significant cost advantages due to the operation’s scale, with the cost per unit of output decreasing with increasing scale. However, Karl Marx had a point: small firms can produce more efficiently than larger firms if the attention to detail on small units is recognized. That’s an important concept to remember here. If consumers get behind the “details” of traceability, sustainability, and working conditions, then these companies could succeed.

Another aspect of Marx’s theory was that small players should take advantage of associating together. His examples in terms of land and smaller farms could achieve the same economies of scale by working together for joint tasks. We can take this idea and encourage companies that are focused on sustainability to join together instead of competing.

Consumers are increasingly gravitating towards more sustainable products, and are also open to the shared clothing economy concept, namely Rent the Runway and Style Lend. Both companies promote sharing closets in order to reduce clothing waste. About 70 percent of Millennials and Gen Z surveyed indicate that they would rent or want to rent products instead of purchasing, and the figures increase to 77 percent for purchasing pre-owned products. Both companies uphold the cooperative spirit and perspective that technology allows us to get more use out of a single piece of clothing.

Conclusion

The difference between a $25 and $250 T-shirt depends on more than just fabric, transportation and economies of scale, it can also hinge on impact. Surveys show that consumers are willing to “walk the talk” for concerns such as traceability, environmental impact, sustainability and working conditions and are willing to pay more for the brands that do it right. Companies should earn consumer confidence through transparency, factoring in the consumers’ willingness to contribute to such causes and pay the difference in support.

References

Cullen, Katherine. “Retail Sector Update.” National Retail Federation. January 30, 2020.

“Dirty Fashion Disrupted: Leaders and laggards revealed.” Changing Markets Foundation. November 2019.

Lim, W. S., Mak, V., Tang, C., & Raghabendra, K.C. Adopting cost transparency as a marketing strategy: Analytical and experimental exploration. UCLA Anderson Review. November 28, 2018.

“Meet the 2020 consumers driving change: Why brands must deliver on omnipresence, agility, and sustainability.” National Retail Federation and IBM. January 2020.

Thomas, Dana. “Why Won’t We Learn from the Survivors of the Rana Plaza Disaster?” New York Times. April 24, 2018.