Armani’s Sustainability, Thesis Paper Example

Background Overview

 The luxury fashion industry, according to Choi and Li (2015) has been experiencing a steady growth globally in the past 16 years. It is further one of the most profitable industries. At the same time, the industry is increasingly competitive, and many companies have introduced initiatives to optimize their supply chains. Some of them created supply chains that now integrate corporate social responsibility in production and sales.

Company Information

Armani Exchange is a global luxury fashion company, founded by famous fashion designer, Giorgio Armani. According to Reference for Business (n.d.), the company’s mission is to “continually create clothes and accessories that aspire to a kind of perfection that transcends fashion”. The company currently has more than 250 stores in 34 countries, and only retails its fashion items in department stores and online. Recent initiatives related to sustainability and supply chain optimization are focused around not only improving the company’s overall performance, but also increasing the brand’s value on the market. According to the latest publication on Ethical Consumer (2015), the company received the worst ethical rating based on its initiatives and sustainability policies. The reason behind the above decision will be investigated in detail below to reveal what Armani as a brand can do to make its business model more ethical and sustainable, while improving its brand reputation among its customers.

Management Review

According to Deloitte (2014), in the competitive global market of luxury goods, Giorgio Armani SpA stood on the 20^th place based on revenues. The company managed to increase its sales revenues by 14.9% between 2010 and 2012. The company successfully penetrated emerging markets in Asia, Latin America, and the Middle East, with a strong and growing buyer power. According to the Deloitte report (2014), these markets now account for 19 percent of the total luxury market sales (2013 figure). The authors also state that the main competitive feature of luxury fashion items is to create an emotional connection between the buyer and the brand. This is the reason why brand image is extremely important for buyers who engage with luxury brands.

Referring back to the report created by the Ethical Consumer (2015), it is important to note that the company’s stakeholder engagement was rated poor by the authors of the analysis. The auditing and reporting initiatives that are generally aimed at improving organizations’ transparency were also found to be insufficient. At the same time, the supply chain policy of Armani (to be discussed in detail later) was rated reasonable. The authors mentioned that a supplier code of conduct was in place, while child labor and discrimination were sanctioned by the company.

Sustainability and Brand Image

• Several authors (Choi and Li 2015; Nawaz et al. 2014) confirmed the importance of branding and sustainability initiatives in the luxury fashion industry. Brand image has a close relationship with brand value. The higher the perceived value of the brand is the perceived value of the given product is, and consequently the higher prices the company can charge. Sustainability is in the focus of many corporate responsibility campaigns in various industries. The author will briefly review recent theories related to consumer choices, preferences, and the impact of sustainable practices on corporate and brand performance.
• Ahmad et al. (2014) define a luxury brand as anything that is purchased that is not necessary. While during early years of luxury brands’ presence, owning one of these items was considered a privilege. Later, theorists introduced the idea of conspicuous consumption, stating that purchasing luxury goods is a way of acquiring a social status and prestige. The main characteristics of luxury goods are excellent quality, extremely high price, uniqueness and scarcity, aesthetics, superfluousness, and ancestral heritage / individualistic identity. The last characteristic of luxury goods is closely related to the current case study, as Armani’s corporate social responsibility initiatives and outcomes are likely to have a strong impact on the brand’s identity and ability to connect with customers.
• Choi and Li (2015) state that most luxury brands introduce a closed-loop supply chain management to increase their environmental sustainability. Some related strategies can be as simple as recycling damaged or unsold items instead of increasing their landfill activities further.
• Jia et al. (2015) talked about the challenges of luxury brands introducing sustainable practices related to supplier challenges. The authors found that supplier selection and control has a great impact on the overall sustainability of the company’s supply chain. To evaluate sustainable suppliers, luxury brands need to take into consideration several criteria, such as energy use, water use, pollution control, human rights issues and worker rights safeguarding policies.
• The above review of related literature provides a solid foundation for analyzing the current initiatives and supply chain development policies within Armani SpA focusing on sustainability and corporate social responsibility.

Process Control

• The process control initiative featured on the Armani website (n.d.) states that the company has a strict control system in place that monitors the supply chain for safety regulation compliance, ethical behavior, and respect for the environment. Suppliers are audited on a regular basis using various measures by independent inspection companies in order to ensure that their activities are in line with Armani’s sustainability initiatives and policies. Armani uses an advanced web-based tool, introduced in 2014 to gather supplier information about compliance at production sites. Suppliers are required to submit their self-evaluation based on questions on business conduct.

Corporate Social Responsibility

• The Armani website (n.d.) talks about the company’s corporate social responsibility (CSR) initiatives in detail. While no specific initiatives are featured, and there is no publicly available annual report that would inform investors of the progress of CSR initiatives, the website states that “the company places special attention on consumer protection and the impact on the environment and, by implementing projects targeted at supporting its business, intends to involve all its corporate stakeholders and product supply chain” (Armani, n.d.). The above definition of initiatives is too vague to judge successful or ineffective, therefore, it is important to look further for signs of transparency and corporate social responsibility. The company’s e-commerce website (Armani Exchange, n.d.) provides more information about the company’s targets and initiatives. Five points are featured on the CSR page of the site, related to fighting against discrimination, fair treatment of employees, supplier collaboration and rules related to environmental protection, and non-tolerance of forced or underage working.

Chemical Safety

• The Armani website (n.d.) features information about the company’s commitment towards chemical safety and discharge control. Armani has a Commitment to Zero Discharge 2020 initiative, which involves testing programs focused on reducing discharge and the company’s impact on the environment. The commitment to zero discharge created in 2013 by Armani features a “comprehensive, state-of-the-art testing programme” (Armani, 2013). The document also states that Armani has introduced a long term sustainability program that promotes positive action and sets clear goals. The company states that it encourages positive relations and collaboration with stakeholders to develop technologies that are more sustainable than those currently used.
• Armani’s long term sustainability program (Armani, 2013) is built around specific targets to reduce the emission of hazardous and harmful chemicals during production. By the 1^st of January 2020 the company would like to achieve its zero discharge goal. One of the most important features of the initiative is that it does not only cover Armani’s own manufacturing units, but also suppliers’ facilities. A comprehensive audit procedure is already in place to evaluate suppliers’ performance against targets.
• The action plan detailed in the Zero Discharge initiative includes research focusing on finding APE-free chemical formulations that can replace current substances used in the production process. Further, the company is committed to reducing PFC emission and use, eliminating the substance from the production chain by 2015. Phalates are already banned by Armani, and suppliers are required to find alternative chemicals based on the terms of their contract.

Supplier Environmental Code of Conduct

The Supplier Environmental Code of Conduct (2013) applies not only to suppliers, but also their subsidiaries. The main objectives of the Code of Conduct are “pollution control, waste minimization and resource conservation” (Armani, 2013). The document states that compliance with the Code of Conduct is a mandatory condition of contract agreements between the company and the supplier. The company does not only require suppliers to report on their compliance, but also reserves the right to conduct ad-hoc audits on site. This strict approach towards compliance is justified by the strong need for maintaining the company’s reputation among customers.

The environmental management system described by the document requires contractors to have an environmental policy that is enforced by internal regulations and measures. Minimum requirements are set by Armani for suppliers’ emergency preparedness, training, and audit schedules. The company also requires its contractors to record and analyze CO2 emissions related to operations. Suppliers are requested to set and work towards energy saving targets, water use reduction goals, and implement waste water monitoring measures. Other areas covered by the Code of Conduct related to environmental protection are waste management, noise, air emission, hazardous substance handling and disposal, land use, biodiversity protection, environmental/emergency assessment, and training of employees.

Supplier Social Code of Conduct

The suppliers’ social code of conduct (Armani n.d.) focuses on local and international work and human rights regulations, as well as ethical issues, such as the abolition of child labor and involuntary labor. Further, workers’ protection provisions include anti-discrimination policies, harassment prevention and reporting, and the provision of collective bargaining rights and freedom of association. There are specific regulations related to working hours. Those who are employed by f Armani’s partners cannot work more than 60 hours a week, including a maximum overtime of 12 hours per week. One day off per a period of 7 days is also provisioned by the document. All employees are to be hired based on a written contract. There are further provisions related to health and safety of workers and the workplace, and training of personnel that is responsible for accident prevention and communication of risks and issues.

The environmental protection clause of the code of conduct states that suppliers are responsible to comply with local regulations, work on developing strategies that minimize their business activities’ impact on the environment, and have adequate hazard assessment tools in place.

Suppliers of Armani are also required – based on their contract with the company – to inform the management about subcontracting work to other companies, and enforce the Code of Conduct on their suppliers. Companies contracted by Armani are required to have management systems in place to enforce the Code, and provisions for monitoring and compliance. The management of Armani has the right to conduct unannounced audits at any time.

Review of Scandals and Reputation of Armani in Recent Years

No scandals or environmental protection concerns have been reported in recent years related to Armani’s operations. Indeed, according to the Reputations Institute (2013), Armani is the most socially responsible Italian company. While the company ranks first for CSR reputation in Italy, it is on the 31^st place for corporate social responsibility (Gazzola 2014).  Describing the recent initiatives of Armani, the author (Gazzola 2014, p. 79) states that “In recent decades, the collaboration with its suppliers has been an added value which brought the reliability and consideration of the brand to levels of absolute prestige in the international arena”.

The Ethical Consumer report (2011) ranks Armani as a luxury brand as the second worst performing luxury company in the industry. Based on the analysis of initiatives, targets, and policies, in 2011 the company received bottom rating for environmental reporting, pollution and toxic material release, animal testing, factory farming, animal rights, supply chain policy, and workers’ rights. While the report was created four years ago, and before the introduction of supplier codes of conduct, policies, and initiatives, it is evident that the company’s reputation for being a sustainable brand was not always perfect. Therefore, introducing the supplier contract restrictions was a logical step of Armani’s leadership to eliminate the risk of reputation loss.

According to Environmental Defence (2010), Armani’s Acqua Di Gio contained tested and labeled chemical ingredients that could potentially trigger allergic reactions in customers, and be harmful for health, as well as the environment. Therefore, the chemical substance provision reviewed previously in the chapter can be considered to be an answer to consumer protection group criticism.

The China Dialogue magazine (Greer 2012) reported that 49 fashion companies were linked to a devastating level of water pollution related to textile production in China. The companies are thought to have contracts with the companies that were responsible for the pollution. The above report also confirms that Armani’s initiatives to screen suppliers and contractors, enforce environmental protection and sustainability measures on them is justified by the risks of reputation loss.

Findings

The above review of Armani’s structure, reputation, and initiatives has revealed that in recent years the leadership has introduced some provisions to prevent reputation loss and implement corporate social responsibility into its operation. The supply chain of the company consists of several manufacturers known to have a great environmental impact. Some scandals and revealing reports have been uncovered from recent years that could have potentially caused reputation damage, lawsuits, and non-compliance of the prestigious luxury brand. The comprehensive review of the policies has revealed that the majority of the issues highlighted by consumer advocacy groups have been addressed by the management.

One of the main shortfalls of Armani’s corporate social responsibility policy is found to be the lack of transparency. As it has been stated, there is no publicly available annual report that would provide information for stakeholders about the company’s progress towards its goals.

Some of the documents and policies are vaguely worded, and lack concrete goals, apart from the Zero Emission 2020 document. Further, the company does not have a corporate social responsibility policy available for the public. The author of the current research was unable to obtain information about training provided for employees related to the CSR initiatives and policies. Compliance and reporting requirements were not specified on the company’s website, either.

Ranked low by the Ethical Consumer website for stakeholder engagement, the company needs to work further on engaging with customers, non-governmental organizations, industry experts, researchers, and legislators to create a comprehensive strategy to implement sustainability measures into its operations.

One of the most important findings of the above research is that while the codes of conduct for suppliers is available online and featured on the Armani website, the company’s own policies and internal regulations are not promoted. This indicates that either Armani lacks a strategic vision for CSR, or it misses out on opportunities to use its initiatives to strengthen the brand’s reputation and value on the competitive luxury market.

As Gazzola (2014) confirms, the adaption of CSR policies and publication of initiatives is one of the most effective ways of stakeholder engagement and reputation increase. CSR initiatives have the potential of creating an emotional connection with customers. CSR does not only have a positive impact on brand performance, but also the company’s financial performance and reputation. Indeed, the author  (Gazzola, 2014) finds that four out of seven business performance dimensions are related to CSR: workplace quality, transparency and governance, citizenship, and leadership. Therefore, CSR should be implemented not only in supplier selection and production, but the entire business strategy.

Conclusion

Based on the findings of the above research, it is evident that Armani faces several challenges in the future related to environmental protection and social responsibility. The author of the current research believes that CSR is not embedded in the entire corporate strategy of the luxury brand retailer. Unfortunately, the lack of available policies and documentation of CSR policies has prevented the researcher from investigating the issue in depth. However, it is clear that Armani is missing out on engaging with stakeholders through CSR campaigns involving communities, workers, researchers, and suppliers. Public relations campaigns publicizing individual initiatives could positively impact the brand’s value and reputation, therefore, the following recommendations are proposed:

1. Create and publicize a comprehensive CSR policy that focuses on issues that are most relevant to the fashion industry
2. Engage with customers through social media and engagement programs to align the CSR mission and vision with their expectations
3. Create a comprehensive stakeholder engagement strategy
4. Implement transparency in the company’s overall strategy
5. Create a corporate vision for CSR
6. Set clear and measurable CSR targets related to environmental impact, protection, workers’ rights, human rights, community support, and stakeholder relations.

References

Environmental Defence. 2010. The health risks of secret chemicals in fragrance. Canadian Edition. http://www.cctfa.ca/

Ethical Consumer. 2011. Style over Substance.

Gazzola, P. 2014. Corporate Social Responsibility and Companies’ Reputation. Network Intelligence Studies, (03), 74-84.

Jia, P., Govindan, K., Choi, T. M., & Rajendran, S. 2015. Supplier Selection Problems in Fashion Business Operations with Sustainability Considerations. Sustainability, 7(2), 1603-1619.

Nawaz, A., Ashraf, M., & Shaikh, K. H. 2014. An Empirical Investigation to the Factors Influencing Buying Decision of Luxury Goods: A Study of Y Generation. Global Management Journal for Academic & Corporate Studies, 4(2).