AMDP Proposal: Reformation

 TO: Clark Hansen, CEO

FROM: Morgan Novak, Research & Development

DATE: October 17, 2022

SUBJECT: Recommend Not to Invest in Reformation.

As part of the Research and Development team here at Anima Mundi Development Partners, it is my job to find profitable, sustainable, and socially responsible companies for AMDP to invest in. After extensive research on Reformation, a Los Angeles-based clothing brand, I do not recommend investing in the company. Some reasons I believe this investment would not be well reasoned for AMDP is due to the fact:

1. Reformation engages in greenwashing–a marketing tactic used to present a company as environmentally friendly when they are not

2. Reformation has faced allegations of employee and customer mistreatment

AMDP Standards

Before discussing Reformation, I want to reiterate the standards we keep in mind at AMDP when considering possible investments. Below are the standards AMDP considers when looking at potential investment opportunities. 

Triple Bottom Line

According to the Triple Bottom Line theory, companies should be working simultaneously on three bottom lines or the “three P’s”: profit, planet, and people. 

• Profit: accounts for the traditional measure of a company's revenues and costs (Miller).

• Planet: measures the positive and negative impact the company has had on the natural environment (Miller).

• People: the impact the company has on its most important stakeholders including but not limited to its employees, customers, and investors (Miller).

Corporate Social Responsibility

Corporate social responsibility “is a type of business self-regulation with the aim of social accountability and making a positive impact on society” (Reckmann). CSR states an organization should consider its environmental and social impact when making business decisions.

Social Enterprise

Simply put, a social enterprise is a business whose primary goal is to maximize profits while simultaneously maximizing benefits to society and the environment. These enterprises prioritize social responsibility such as using their profits to fund social programs (Fernando). 

Carbon Footprint

A carbon footprint is the total greenhouse gas (GHG) emissions caused directly and indirectly by an individual, organization, event, or product. Greenhouse gases include carbon dioxide. A carbon footprint is calculated by finding the total amount of carbon dioxide and methane emissions resulting from the entire life cycle of an individual or organization. 

Reformation: Who are they?

To start, I want to give you some background information about the brand itself. Reformation was started in 2009 by businesswoman Yael Aflalo, a California native hoping to bring sustainability to fast fashion—a business model of mass-producing fashion trends quickly and at a low cost to meet consumer demand.  An industry notorious for its detrimental contributions towards climate change, Alfalao created Reformation with the intention of combating the unsustainable issues of fast fashion. 

Reformation operates over thirty stores globally, with four more openings soon. The company has raised nearly forty million dollars from investors while also acquiring Permira Advisers, a global private equity firm, as a majority stakeholder in 2019. Today, Reformation is seen as a frontrunner in the fashion industry for creating sustainable, on-trend clothing and accessories. 

Are They As Sustainable as They Claim to Be?

One of my biggest concerns with Reformation is their growing trend of outsourcing their factory work in distant countries. When the brand was founded, Reformation was solely based out of its Los Angeles warehouse. Every year since then, however, they are moving their production to other countries at steadily increasing rates. 

The company claims to reduce its carbon footprint by manufacturing the products in close range to where it is sold. The company, however, has continuously increased its production in faraway countries, with only 30% of its clothing being produced in Los Angeles in 2022 (Reformation). With the steady decline of production in Los Angeles, manufacturing has seen a consistent increase in outsourcing warehouses in China, with over 50% of their clothing now being produced there. This has led to a notable increase in Reformation’s carbon footprint, which has been masked by the company's engagement in greenwashing. 

Reformation has concealed and misconstrued important details in its sustainability reports, including its involvement in carbon offsetting. Carbon offsetting is when “a brand pays someone else to either capture or avoid emitting a given amount of carbon elsewhere to make up for the fact that the brand emitted that amount itself” (Bauck). In context, this means that Reformation is not lowering their carbon emissions, but rather paying other organizations to decrease their carbon footprint in order to achieve carbon neutrality as advertised in their branding.

According to Good On You, an ethical fashion publication, they also believe that Reformation engages in greenwashing. In their review for Reformation, Good On You goes on to say, “Reformation doesn’t publish enough information about how or where its products are dyed, and we’re concerned about the impact of the chemicals used in its viscose process” (McMillan). In essence, Reformation is only highlighting their positive attributes while discounting the coinciding harmful effects they cause to the environment. 

Moreover, author Jia Tolentino published a piece in the New Yorker in which she also brings attention to Reformation’s greenwashing. When describing the company’s sustainability reports, Tolentino explains “what’s actually being sold is vaguely defined and unreliably calculated, and what’s being remedied is guilt, above all else” (Tolentino). Once again, Reformation is gaining attention amongst the public for their engagement in greenwashing,  further harming perception and undermining the reputability of the brand. 

Labor Conditions and Social Responsibility

Reformation has made its diversity, equity, and inclusion initiatives at the forefront of its sustainability reports. Further, the brand highlights the large percentage of women and people in the BIOPIC community who work for the brand. The reputation of Reformation has bolstered over recent years regarding the mistreatment of people of color, however, has led to the promotion of race-based discrimination and oppression. 

Starting in 2020, Reformation has also received great backlash from its employees for racism and unethical behavior, leading to the eventual resignation of CEO, Yael Aflalo. Following the Black Lives Matter movement of 2020, Reformation publicly denounced systemic racism prompting multiple employees of the brand to call out the company’s active role in the issue. Former assistant manager of the Reformation flagship store, Elle Santiago, stated in a lengthy Instagram post, “Working for Reformation deeply traumatized me” (Santiago) amongst many other examples of the brand's mistreatment towards people of color. Many other employees of the company shared their experiences shortly after Santiago drew a great deal of negative attention to the brand.  

In an industry piece published in Glossy, a fashion and beauty publication, the author of the article “The Rise and Fall of Reformation” Danny Parisi explains how it is unlikely the company will recover its reputation following this incident. Parisi goes on to explain that while the company directly addressed the issues raised by former employees in saying they would implement change, Reformation did little to bring solutions to fruition. After seeking public opinion, Parisi highlights different black women within the fashion industry who believe “that brands publicly touting progressive causes but then not living up to those ideas internally is sadly a common experience for people of color in both beauty and fashion” (Parisi). With Reformation now falling into this category, Parisi believes it will be hard for Reformation to recover its once pristine reputation.

Further, the brand markets itself as providing living wages and health care benefits to its employees, but with its growing outsourcing of warehouses in distant countries, they are not including these employees in this category. In 2022 only 30% of their product will be manufactured in California, with their concern for living wages only applied to this group of workers. The remaining 70% of products produced in other countries are seen as “partners” and thus are not under Reformation management. Countries such as China–where the majority of Reformation’s clothing is now produced–have become known for their unethical treatment of factory workers in fast fashion, but companies are still drawn to them for their cheap production costs (Simpson). 

Revenue and Competitors

The sustainable fashion industry is growing rapidly leading to an increasing number of competitors for Reformation. With climate change being one of the most pressing issues of our generation, many major brands have begun to market their companies as carbon-neutral, similar to Reformation. According to the 2022 Ethical Fashion Global Market Report, “The global ethical fashion market is expected to grow from $6.93 billion in 2021 to $7.57 billion in 2022 at a compound annual growth rate (CAGR) of 9.1%” (Globe Newswire).  This substantial increase in eco-friendly companies in the industry will most likely lead longtime customers of Reformation to the opportunity to shop elsewhere, as their once unique marketing strategy will become monotonous within the industry.

Reformation is a profitable company, however, bringing in an annual revenue of approximately 150 million dollars per year (Growjo). In recent years, however, the annual revenue from reformation has remained stagnant even though the company has expanded its production and number of employees. Further, the company has multiple customers including Everlane, & Other Stories, and Levi’s–all fast fashion brands prioritizing sustainability. These competitors also see positive returns with some seeing double to triple the annual revenue when compared to Reformation. Looking forward, Reformation will have many more competitors considering the expected growth in the ethical fashion market. This will most likely hurt Reformation’s annual revenue, which already has not seen any growth in recent years. 

 

My Recommendation

After reviewing Reformation’s engagement with greenwashing as well as the fast-growing ethical fashion market, I do not recommend investing in the clothing company Reformation. It has become evident that Reformation does not tell the full truth when disclosing important information on environmental issues such as carbon footprints, chemical usage, and international factory conditions. 

Furthermore, Reformation has received backlash for issues with racism and unethical treatment of its employees. Considering the ethical fashion market is growing rapidly, Reformation’s unique position in the industry will soon become obsolete. For all these reasons, I would not recommend investing in the clothing company, Reformation. 

Work Cited

Bauck, Whitney. “Fashion Brands Are Claiming to Be 'Carbon Neutral' - but Is It Greenwashing?” Fashionista,            Fashionista, 26 Sept. 2019, https://fashionista.com/carbon-neutral-fashion-brands-greenwashing. 

Bauck, Whitney. “Reports of Racism Besmirch Reformation's 'Sustainable' Reputation [Updated].” Fashionista,              Fashionista, 8 June 2020, https://fashionista.com/2020/06/reformation-racist. 

Fernando, Jason. “Corporate Social Responsibility (CSR) Explained with Examples.” Investopedia, Investopedia, 3        Nov. 2022, https://www.investopedia.com/terms/c/corp-social-responsibility.asp.  

Growjo. “Reformation Revenue and Competitors.” Reformation: Revenue, Competitors, Alternatives,                               https://growjo.com/company/Reformation. 

Marquis, Christopher. “Ethical Fashion: How Carbon-Neutral Reformation Is Reforming the Notoriously Wasteful             Fashion Industry.” Forbes, Forbes Magazine, 16 Feb. 2021, https://www.forbes.com/sites/ethical-fashion-                how-carbon-neutral-reformation-is-reforming-the-notoriously-wasteful-fashion-industry. 

McMillan, Jennifer. “How Ethical Is Reformation?” Good On You, 4 Nov. 2019, https://goodonyou.eco/how-                    ethical-    is-reformation/. 

Miller, Kelsey. “The Triple Bottom Line: What It Is & Why It's Important.” Business Insights Blog, 8 Dec. 2020,             https://online.hbs.edu/blog/post/what-is-the-triple-bottom-line.

Parisi, Danny. “The Rise and Fall of Reformation.” Glossy, 19 Apr. 2021, https://www.glossy.co/fashion/the-rise-            and-fall-of-reformation/.  

Reckmann, Nadia. “Corporate Social Responsibility.” Business News Daily, 29 June 2022,                                                 https://www.businessnewsdaily.com/corporate-social-responsibility.  

Reformation. “Sustainability Report Q3 2022.” Sustainable Women's Clothing and Accessories,                                         https://www.thereformation.com/sustainability-report-q3-2022.html. 

Reports, Staff. “Fast Fashion in China: A Humanitarian Issue.” BORGEN, 11 Oct. 2020,                                                     https://www.borgenmagazine.com/fast-fashion-in-china/. 

Research and Markets. “$6.9 Billion Worldwide Ethical Fashion Industry to 2031 - Identify Growth Segments for                 Investment.” GlobeNewswire News Room, Research and Markets, 5 May 2022,                                                         https://www.globenewswire.com/. 

Tolentino, Jia. “Virtue and Vanity at Reformation.” The New Yorker, 1 Nov. 2019,                                                                https://www.newyorker.com/culture/on-and-off-the-avenue/virtue-and-vanity-at-reformation.