View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by Lake Forest College Publications Lake Forest College Lake Forest College Publications Senior Theses Student Publications 12-1-2014 The Lowest Cost at Any Price: The mpI act of Fast Fashion on the Global Fashion Industry Megan Lambert Lake Forest College, [email protected] Follow this and additional works at: http://publications.lakeforest.edu/seniortheses Part of the Business Law, Public Responsibility, and Ethics Commons, and the Fashion Business Commons Recommended Citation Lambert, Megan, "The Lowest Cost at Any Price: The mpI act of Fast Fashion on the Global Fashion Industry" (2014). Senior Theses. This Thesis is brought to you for free and open access by the Student Publications at Lake Forest College Publications. It has been accepted for inclusion in Senior Theses by an authorized administrator of Lake Forest College Publications. For more information, please contact [email protected]. The Lowest Cost at Any Price: The mpI act of Fast Fashion on the Global Fashion Industry Abstract The fast fashion industry is one facet of the multi-billion dollar global fashion industry. Fast fashion is the latest business model trend in the fashion industry. These firms aim to provide low-cost, low-quality, trend based clothing to consumers at unprecedented speeds. In order to do so, these firms use unethical and exploitative cost cutting methods in order to lower production costs and maximize profits. This study examines the fast fashion business model and its unethical practices in the broader context of the global fashion industry. Economic models and theories are used to explain how fast fashion went from a competitive fringe to a global profit leader, and how these firms can create empires based on unethical business practices. Document Type Thesis Distinguished Thesis Yes Degree Name Bachelor of Arts (BA) Department or Program Economics First Advisor Kent Grote Second Advisor Carolyn Tuttle Third Advisor Lou Lombardi Fourth Advisor Les Dlabay Subject Categories Business Law, Public Responsibility, and Ethics | Fashion Business This thesis is available at Lake Forest College Publications: http://publications.lakeforest.edu/seniortheses/39 Lake Forest College Archives Your thesis will be deposited in the Lake Forest College Archives and the College’s online digital repository, Lake Forest College Publications. This agreement grants Lake Forest College the non-exclusive right to distribute your thesis to researchers and over the Internet and make it part of the Lake Forest College Publications site. You warrant: • that you have the full power and authority to make this agreement; • that you retain literary property rights (the copyright) to your work. 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Printed Name: Megan Lambert Thesis Title: The Lowest Cost at Any Price: The mpI act of Fast Fashion on the Global Fashion Industry This thesis is available at Lake Forest College Publications: http://publications.lakeforest.edu/seniortheses/39 LAKE FOREST COLLEGE Senior Thesis The Lowest Cost at Any Price: The Impact of Fast Fashion on the Global Fashion Industry by Megan Lambert December 1, 2014 The report of the investigation undertaken as a Senior Thesis, to carry two courses of credit in the Department of Economics, Business, and Finance ____________________________ __________________________ Michael T. Orr Kent Grote, Chairperson Krebs Provost and Dean of the Faculty __________________________ Carolyn Tuttle __________________________ Lou Lombardi __________________________ Les Dlabay Abstract The fast fashion industry is one facet of the multi-billion dollar global fashion industry. Fast fashion is the latest business model trend in the fashion industry. These firms aim to provide low-cost, low-quality, trend based clothing to consumers at unprecedented speeds. In order to do so, these firms use unethical and exploitative cost cutting methods in order to lower production costs and maximize profits. This study examines the fast fashion business model and its unethical practices in the broader context of the global fashion industry. Economic models and theories are used to explain how fast fashion went from a competitive fringe to a global profit leader, and how these firms can create empires based on unethical business practices. i Dedication To all the friends, family, professors, and strangers who listened to me speak of nothing but labor exploitation and design piracy for five months. ii Acknowledgments Thank you to my wonderful committee for providing guidance and support through this process. This would not have been possible without the industry professionals who assisted with interviews and debates. Also, thank you to Kathleen Lambert for editing the final draft—and all of my other college papers. iii Table of Contents Abstract……………………………………………………………………………………………….i Dedication………………………………………………………………………………………......ii Acknowledgments……………………………………………………………………………........iii Table of Contents…………………………………………………………………………………..iv Table of Figures…………………………………………………………………………………….v Introduction………………………………………………………………………………1 Chapter One: Industrial Organization…………………………………………………6 Market Segmentation……………………………………………………………………...7 Haute Couture……………………………………………………………………..9 Luxury Ready-to-Wear…………………………………………………………..11 Small Fashion Start-Ups…………………………………………………………13 Commercial Ready-to-Wear……………………………………………………..14 Fast Fashion……………………………………………………………………...15 Counterfeits………………………………………………………………………17 Crossing Markets………………………………………………………………...18 Oligopoly Structure………………………………………………………………………19 Jean Paul Gaultier Model………………………………………………………...24 Zara Model……………………………………………………………………….29 Success of the Competitive Fringe: Fast Fashion Model………………………………...32 Chapter Two: Intellectual Property…………………………………………………...44 Intellectual Property Overview: Settlements v. Trials…..……………………………….44 Intellectual Property in the Fashion Industry...…………………………………………..49 Trademarks………………………………………………………………………49 Copyright………………………………………………………………………...55 Patents……………………………………………………………………………67 Trade Secrets……………………………………………………………………..69 Global Market Place……………………………………………………………………..70 Design in the Fast Fashion Industry……………………………………………………...75 Chapter Three: Manufacturing………………………………………………………..88 Manufacturing Process…………………………………………………………………...89 Supply Chain……………………………………………………………………..91 Exploitative & Unethical Cost Cutting…………………………………………………..98 Low Safety Investments………………………………………………………….98 Low Wages……………………………………………………………………..109 Conclusions and Recommendations……………………………………………….....125 Works Cited……………………………………………………………………………136 iv List of Figures and Tables Figure 1.1: Industry Pyramid…………………………………………………………..…8 Figure 1.2: Gaultier Pay-Off Maximization ………………………………………….…26 Figure 1.3: Zara “Enhanced Design” Strategy ……………………………………….…30 Figure 1.4: Strategic Decisions (Daily Feedback) ……………………………………....31 Figure 1.5: Fast Fashion Supply and Demand……………………………………….…..34 Figure 1.6: Generational Characteristics………………………………………………...38 Figure 2.1: Legal Dispute………………………………………………………………..47 Figure 2.2: Supply of Counterfeit Purchase Offenses……………………………….…..73 Figure 2.3: Copying Decision—No Protection………………………………………..…82 Figure 2.4: Trend Adoption Nash Equilibrium………………………………………..…84 Figure 3.1: Basic Supply Chain………………………………………………………….92 Figure 3.2: Compensating Differential Model………………………………………….105 Figure 3.3: Compensating Differential Model (Minimum Wage)……………………...105 Figure 3.4: Monopsony Labor Market………………………………………………….118 Figure 3.5: Monopsony with Min. Wage……………………………………………….119 Figure 3.6: Optimal Efficiency Wage Model…………………………………………..121 Table 3.1: Country Comparison as of 10/2014 (in USD)…………………………...….112 v Introduction: In Dhaka, a nine-year-old girl named Meem sits on a concrete floor of a nameless factory, snipping threads on collars and cuffs for blouses that will travel across the globe. When her mother became pregnant and could no longer work, Meem left school to help provide for her family. She works twelve hour shifts, with an hour break for lunch; her paycheck amounts to twenty-eight USD per month if she works seven days a week. With the exception of a half day on Fridays, no time off is allowed. The room is small, crowded, and hot even on days when the three industrial fans work. There are no fire extinguishers and the space is filthy. Meem’s glittery hair clips are her most prized possessions; she has eleven, her parents allow her to buy one per month with her earnings. One day, a new child begins work at the factory; she is scared and bursts into tears during her work. Meem, without thinking twice, takes the clips from her hair and presents them to the crying girl. The sense of community in the workroom is strong. Workers protect each other from the wrath of the