It all started with ice cream. In the heat of battle to acquire Ben & Jerry’s ice cream, consumer products giant Unilever asked company founder Ben Cohen how they could sweeten the deal. The entrepreneur replied that a few million for his Hot Fudge Social Ventures Fund sure would help. It did and Unilever got the deal.
Meanwhile, Ben & Jerry’s director Pierre Ferrari, an HBS alumnus, had long been fascinated by the power of branding. A New York Times article about a sweatshop in China caught his eye. Inspired, Ferrari created the SweatX brand of sports clothing to represent a viable alternative to sweatshops – by making clothes for people to sweat in. In the mid and late-1990s there were over 10,000 sweatshops operating in the U.S.
Ferrari chose to locate the venture, called TeamX, in the very garment district of LA that is home to some notorious former sweatshops.
TeamX was incorporated in 2001, and from the start it did things differently, says Chris Mackin, former CEO and director of TeamX, who spoke to HBS students on March 11. His goal is for TeamX to “be a magnet that lifts wages in the industry.” Although the garment business has traditionally been unfriendly to labor unions, TeamX invited the major garment union, Unite!, to visit the shop. The operating entities are actually co-operatives owned by the employees. Whereas the ratio of CEO’s compensation to that of the lowest paid worker in many public corporations today is 400 to 1, at TeamX it is 9 to 1. The workers have health insurance and they are paid for overtime.
“It is cooperative ownership-democracy at work,” said Mackin.
Mackin ticked off the top markets for the SweatX brand – the music and entertainment industry (Jackson Brown allows only SweatX merchandise to be sold at his concerts), corporate logo attire (Red Bull is one well-known customer), and colleges, where social-minded students crusade to bring SweatX clothing into campus stores. Other wholesale markets include non-profit and activist organizations, faith-based progressive communities, secondary schools, and private label manufacturing, where TeamX has done a lot of work for Patagonia.
But what about the numbers? How can they possibly add up? Surprisingly, Mackin says, sewing the shirt is a miniscule percent of the retail price, which is about $12.00 for a plain T-shirt. SweatX sewing costs (not including materials or cutting) are about 45 cents; in Latin America the sewing cost is 3 cents, and in Asia it is one cent per T-shirt. Mackin figures consumers will pay an extra $.50 – $1.00 for a shirt knowing that the employee was compensated well ($12 per hour) and treated respectfully.
Still, that leaves the majority of the costs in the marketing and distribution of the product, an area in which the company is still a little unsure and navigating carefully. “It’s treacherous – you may cut someone [over] here and find out that’s the big dog you just pissed off,” said Mackin.
One student asked if he was against redistributing wealth overseas.
Mackin claims TeamX not a nationalist model – in fact, he would like to see SweatX in all countries, but because globalization is a very divisive issue they would probably select another brand name overseas.
Another astute attendee perceived a conflict in Mackin’s strategy; if other companies follow their example and create their own socially responsible clothing brands, TeamX could lose sales. “God bless’m,” said Mackin. “If Nike launches their ‘Justice’ label that pays identical wages to us…that’s a problem I’d love to have.” However, Mackin took care to note that some garment producers are claiming to be socially responsible simply because they submit to inspections by the U.S. Department of Labor. He encourages consumers to dig a little beyond the label to find out if the workers are unionized and are owners in the company, and to compare the wages and benefits the workers receive with those provided to SweatX’s workers.
In their enthusiasm, TeamX made just one error thus far. They were featured on a national television show which resulted in a tremendous response from consumers, who called from all over the country to order shirts. The company was so flattered that it accepted many single orders which are expensive and inefficient to process. They are still trying to extricate themselves by filling the last of those orders and focusing their attention on the wholesale market. The next step, according to Mackin, is to further research and quantify the various wholesale markets so that the opportunities can be prioritized.