How can a T-Shirt at discounter Takko only cost 3 Euros?Posted: October 11, 2011
Recently I reported about a ZEIT article that explained why H&M T-Shirts cost less than 5 Euros. Now we get even cheapter: The German TV show Galileo on the private channel Pro 7 recently examined products of the German textile discounter Takko. Takko has a turnover of over 1 Billion Euros and apparently has 1500 salespoints and opens a new one every three days.
The result is a quite interesting 17 Minutes TV reportage in which the reporters follow a 3 Euro T-Shirt to the production in Tirupur, trying to find out:
How can a T-Shirt be that cheap?
They calculate the costs of the T-shirt as follows:
- Cotton: 0,60 Euro
- Maschines and technique (I guess production overheads and profits): 0,55 Euro
- Wages: 0,25 Euro
- Transport to Europe: 0,10 Euro
- Takko overheads: apparently 1 Euro
- Takko profits: 0,50 Euro
The journalists argue that the price is not low due to poor quality, and to proove it, they have Intertek test the Takko clothes and more expensive products of competitors. The results show that the Takko products were as bad or better as the competitors’. In additino, they argue that an expensive Italian designer uses the same production unit in Tirupur, and conclude that the quality cannot be that bad. They further argue that the low price is not made through particularly poor working conditions, as the workers in the factory get the minimum wages, like those of competitors.
They underline that the low prices are certainly due to the T-Shirts being produced in a developing country with low wages and poor environmental regulation, as compared to Europe. However, as compared to competitors, who also produce under similar conditions, their arguments were:
- Takko has lower risks than other companies, because they mainly copy designs and do not come up with innovative designs;
- The shops are situated outside the cities, often close to Aldi and Lidl; according to the CEO this saves costs up to factor ten (they neglect that this produces negative externalities through urban sprawl with all consequences, which Takko does not pay);
- Takko does not invest much in advertising;
- The margins are relatively low; Takko makes profits through mass production – and indeed, the white T-Shirt they sold for 6 Euros together with a black one was sold 120.000 only in one week.
If these reasons (and not the wage costs) explain the low price for the clothes, why then does Takko not improve its working conditions and pay living wages? What is the logic behind not paying higher wages? Would consumers move away, if they had to pay 3,50 Euros for a T-Shirt? More interestingly: How much room for manouvre does a discounter like Takko have with its low margins to really improve social and environmental standards before it is thrown out of the market?
Can we make the cheapest products be the best regarding environmental quality (internalizing external costs), as Yvon Chouinard recently suggested in his HBR article “The Big Idea: The Sustainable Economy“.
Finally, I would support the argument that many clothes are well overpriced and that the price is often not correlated with the quality of social and environmental standards. However, I find problematic that the reportage uses a product with huge social and environmental externalities to suggest that T-Shirt and clothes, in general, are too expensive. I am still happy to pay more for clothes that were not produced in huge masses, that use organic cotton, that have better working conditions, and that are sold inside the city and not somewhere outside.