Playing Fair

We may be quite far removed from the, “We all wanna change the world” 1960s, but a group of former Lands’ End executives and employees last year did set out to change the world — the world of multichannel apparel sourcing.

A year since its formal launch, Fair Indigo, a marketer of casual apparel, has stuck to its passion of complying with the rules of fair trade in apparel manufacturing. Headed by former Lands’ End senior vice president of international and e-commerce, Bill Bass, the Middleton, Wis.-based cataloger/multichannel merchant’s raison d’être is to only use apparel manufacturers that pay more than the bare minimum wages and treat their employees fairly.

“Most factory workers are unhappy people,” Bass says. “When we visit factories to explore sourcing, we tell the factory owners that we want to pay their workers extra.” Fair trade is nothing new in other industries, such as coffee, in which Starbucks regularly sources its beans from fair trade vendors. Even McDonald’s has begun to follow suit with its “premium” coffee. But in the U.S. apparel market, fair trade is virtually nonexistent. In some other countries, such as the United Kingdom, some marketers, such as Warrington, England-based Marks & Spencer, have started carrying fair trade-manufactured clothing.

“I’ve been in the apparel industry for a dozen years and thought, ‘Why hasn’t this happened yet in clothing?’” says Fair Indigo’s Vice President of Merchandising and Sourcing Rob Behnke, a former merchandising exec at Lands’ End and Duluth Trading. What little fair trade there’s been in the U.S. clothing market has been dominated by rural artisans selling textiles, he says. “It’s been sort of a black hole in the market.”

Twice a year, Fair Indigo executives visit each factory with which they do business. They also regularly have the factories audited, demanding proof that the workers making their clothing are paid well beyond the accepted minimum wages and are happy in their work environment.

Executives from most apparel sellers try to meet the legal minimums, Bass says. “They tell factories, ‘I need you to take $0.05 off the price or I’m pulling my business.’ And the cost cuts needed only come from labor wage reductions. So when apparel marketers do this,” he points out, “they’re negotiating the workers’ wages down. Their only concern is to avoid what Kathy Lee Gifford faced.” (The former “Live With Regis & Kathy Lee” star caused a major stir nearly a decade ago when it was discovered that some of the clothes sold under her label were made by children in a Honduran sweat shop.)

“We decided that the apparel industry benchmark of paying minimum wage wasn’t good enough,” Behnke says. “So we developed a number of relationships with different suppliers, some rural artisans and some traditional apparel manufacturers in modern factory settings with good benefits for their employees.”

Thereby, Fair Indigo’s unique selling proposition: The company offers moderately priced, tasteful, natural fiber clothing with some unique features, such as its use of alpaca in place of polyester for fleece sweaters. But Bass readily admits that, for the most part, the clothes are modeled after the likes of J. Jill and Coldwater Creek.

The mission’s the thing, and to date, customers have bought into it. Sales from Fair Indigo’s spring catalog beat plan by more than 30 percent, Bass claims.

“They have a targeted audience that, while not a large segment, is a very loyal customer base,” observes William Mann, COO at Datamann, a Wilder, Vt.-based provider of list processing services for Fair Indigo and other catalogers. “This market segment will continue to grow as people become more aware of what is going on in this country and around the world.”

Clothing Boutique Concept

The company’s first catalog mailed in fall 2006 and its first store opened last November in Madison, Wis. — although the company actually formed in 2005. Behnke came up with an initial concept of opening a small clothing boutique in Madison that only sold fair trade-sourced products. Behnke approached former Lands’ End colleagues Bass and Don Hughes (former Lands’ End CFO) to bankroll the project. Both had investment capital available following Lands’ End’s sale to Sears, and Sears’ subsequent merger with Kmart.

But rather than open one little store, the concept snowballed into a national catalog/Web business with a flagship store that’ll be followed by a chain of additional stores in similar cities to Madison — places where shoppers are likely to care about fair trade-manufactured clothes. These potentially include Cambridge, Mass., Boulder, Colo., and Berkeley, Calif., although no leases have been signed.

Store expansion plans call for two new stores next year, and three to five new retail locations in new markets every year beyond. As for the accompanying catalog/Web business, plans call for steady catalog circulation increases, as well. For its first year, Fair Indigo mailed 500,000 books. This year’s circ plan calls for 1.5 million. The company intends to mail 10 million books in 2010.

As the company expands, Behnke, Bass and Fair Indigo’s entire salaried staff of 13 will continue to heed its fair trade mantra. To get the company’s system in place, it took Bass, Behnke, Hughes and their fourth founding partner, Style Director Elizabeth Ragone, more than a year to find factories that would work up to its standards.

Many factories they approached balked at the idea. “They’d tell us, ‘If we pay these workers more, we’ll have to pay others more, and what if they don’t deserve it?’” Bass laments. “Some would agree, but we’d find out the extra money was going to the factory owners.”

In addition to finding appropriate vendors to heed its standards, Fair Indigo’s biggest challenge was to implement a business model that allowed for a greater cost of goods structure. Many of the factories Fair Indigo sources from — in countries such as Peru, Costa Rica, Uruguay, China, Macau, India, Spain and the United States — are cooperatives, owned jointly by the workers themselves. This enables the workers to be paid better, while eliminating the costs of paying owners and keeping the bottom lines up and the material costs to the cataloger down.

“You take a level of management out so more dollars come out of the factory,” Bass explains. “The workers/owners vote on how much bonus they want to pay themselves vs. reinvesting in machinery.”

As a result, Fair Indigo’s cost of goods is only 10 percent greater than comparable cataloger/retailer costs. But that doesn’t mean the company passes along those extra costs to its customers. “A lot of people took pay cuts to come here,” Bass says, himself included. “If what spins your wheels is flying places first-class, you won’t have fun here.”

Other ways in which the cataloger has kept its overall costs down include the location of its modest headquarters. “We wanted to be in the Madison area, because other catalogers are nearby,” Bass points out. Among them: Lands’ End, The Swiss Colony and Miles Kimball, Conney Safety Products and Demco.

But rather than settle in pricier Madison, Fair Indigo rents a modest space in an out-of-the-way industrial park in Middleton, just outside of Madison. The four cofounders and other executives work in rooms together rather than housing themselves up in posh, private offices.

In addition, Fair Indigo chooses models from nearby Chicago, rather than from the pricier, higher profile New York modeling scene, a 40 percent to 60 percent difference in wages, according to Director of Creative Ryan Williams. In addition, being just a little more than an hour’s drive away, working with local Chicago talent means no travel expenses for the cast and crew. “My photographer owns his own studio, so there’s no need to book one separately,” he says, adding that he knows of no New York City photographer who has a studio. The cataloger also saves on the rental of equipment, such as lights, lenses and wind machines. And catering is cheaper.

But finding less expensive models is only the half of it. “We build sets for photo shoots ourselves and go to Home Depot to get the materials,” Ragone points out. “But when we take the shots, no one could ever know that anything came from Home Depot. In fact, it’s part of an employee culture here. We have to get the same results. People here are resourceful at solving problems.”

As a result, Fair Indigo is able to keep its merchandise prices in line with other catalog sellers of casual apparel. For instance, a women’s silk faux cami top sells for $49, while both a women’s cotton denim jacket and a men’s cotton utility jacket cost $79.

But Do Customers Care?

Like hybrid cars or fair trade coffee, a good portion of Fair Indigo customers shop the company’s catalog, Web site and store in support of the marketer’s cause. “The biggest thing here is that this market basically doesn’t exist,” Bass says. “[But] there are customers out there who are socially conscious and care about people in factories.” The company’s targeted audience is women, ages 30 to 50, with an average household income approaching $100,000.

Generating awareness for its cause requires a steady dose of reinforcement. The catalog’s entire inside front cover explains its story and what fair trade means. It also provides a detailed description of how the cataloger chooses the “best, most ethical factories around the world,” showing four photos of mostly happy-looking workers making clothes.

Then, scattered on about a quarter of the 40 pages of the catalog are testimonials (including photos), not from customers, but from factory workers. One worker from a co-op factory says, “I hope to use my profit-sharing money to pursue a science degree.” Another says, “I like knowing that my efforts are appreciated in the countries where the products I make are sold.” And still others contain complete, four-paragraph stories along the outside page margins of happy factory workers in locations such as Shatoujiao, China.

“What stands out about Fair Indigo is the level of customer-centricity throughout the organization,” observes Sam Decker, chief marketing officer for BazaarVoice, a supplier of outsourced technology to harness online word of mouth that counts Fair Indigo as a client. “The company has an outside-in focus on the customer, which seems to shape everything it does.”

Although the company has found its audience, “there’s still a lack of awareness in consumers’ minds,” Ragone says. “But once they figure it out and read and hear about what it can mean, it’s hard to remain unmoved by it. For instance, when people want to donate to causes and need, say, a shirt or a jacket, with this option,” they turn to Fair Indigo and place an order.

About Fair Indigo
Headquarters: Middleton, Wis.
Year founded: 2005
Merchandise: casual women’s and men’s apparel
Average order size: $120
Annual circulation: 1.5 million
Mailings per year: 4
Retail stores: 1
# of SKUs: 2,000

# of employees: 30 (13 full-time)
Customer demographics: women, ages 30-50, $100,000 household income
Channel breakdown: 50 percent Web, 35 percent call center, 15 percent retail
Printer: Quad/Graphics
List manager: Millard Group

Joe Keenan also reported on this story.