Knights Apparel

Knights Apparel
Some years ago Joseph Bozich was watching his son play
in a high school basketball game when his vision started
to become blurred. A day later he couldn't read. His
doctor suspected that Bozich had a brain tumor, but tests
revealed that the cause was multiple sclerosis. Luckily
for Bozich, his vision improved, and he has not sufferedchampion
, Bozich got his start in apparel working for
Gold's Gym, selling branded clothing to outside retailers.
In 2000 he founded Knights Apparel and started to build
a business selling athletic clothing with college logos to
universities around America. Like most organizations in
the apparel industry, Bozich relied on a network of foreign
suppliers to manufacture his products. The apparel industry
is often accused of using sweatshop suppliers based in
poor nations where pay is low, hours are long, and working
conditions are awful. In 2005, Bozich wondered if it
might be possible to change this-to source product from
less developed nations but to do so in a more ethical way,
paying employees a decent wage and providing them with
good working conditions.
After some investigation, Bozich decided to establish
his own "model factory" in the Dominican Republic. He
purchased a factory that had previously been used by a
Korean company to make baseball caps for Nike and
Reebok. The Korean company had moved production to
a lower-wage country in 2007, throwing some 1,200 out
of work. The factory now produces under a new label,
Alta Gracia, which is derived from the name of the local
town, Ville Altagracia, and means "exalted grace." The
minimum wage in the area is $14 7 a month, a figure so
low that it is insufficient to live on. Bozich's factory pays
its workers more than 3 .5 times this amount. According
a study done by a workers' rights group, this is the pay
level required to support a family of four in the region.
Bozich has allowed his employees to unionize and has
made investments in safety and good working conditions
a priority. Knights Apparel invested some $500,000
in upgrading the factory with features that include
bright lights, five new sewing lines, and ergonomic
chairs for employees, which many seamstresses thought
were for the managers.
Clearly the higher pay translates into higher costs.
Bozich calculates that the factory's cost per unit of clothing
is 20 percent higher than if it paid the minimum
wage. Given the competitive nature of the market for
apparel, Knights cannot pass this cost increase on to
wholesalers and retailers in the form of higher prices, so
Bozich has elected to take smaller profit margins. For a
product such as a basic T-shirt with a logo, the manufacturing
cost at Alta Gracia is $4.80, about 80 cents more
than if the pay was minimum wage. The shirt is sold for
$8 to wholesalers, with most retailers marking them up
to about $18.
Bozich realizes he has a strong marketing message
built around "fair labor." This is particularly useful selling
into colleges. Student groups have often agitated for
boycotts against companies such as Nike and Reebok forusing sweatshop
labor. (Since being the target of protests
in the 1990s, Nike has put rigorous procedures in place
for auditing the operations of suppliers to make sure they
adhere to Nike's own code of ethics for suppliers.) The
"fair labor" marketing message seems to be resonating
with colleges. Several universities have backed the project.
Duke University's bookstore, for example, placed an
initial order for $25,000 of merchandise. Barnes &
Noble College Booksellers planned to have Alta Gracia
products at some 350 stores in college campuses by early
2011. Barnes & Noble plans to promote the product
heavily and expects to take lower margins to begin with.
The United Students Against Sweatshops, a nationwide
student group that often attacks apparel manufacturers,
has also backed the project and has been distributing flyers
at college bookstores urging students to purchase the
Alta Gracia shirts. Companies such as Nike and Reebok
that also serve the college market are reportedly watching
what happens carefully.54
Case Discussion Questions
1. The case states that higher wage rates at the Alta
Gracia factory have raised the cost per item by
20 percent. Can you see any way in which the
philosophy with regard to pay and working conditions
at Alta Gracia might lower costs in the
long run?
2. Do you think Joseph Bozich would have been

able to try the Alta Gracia experiment if Knights
Apparel was a publicly traded enterprise?
3. What do you think might stand in the way of

Alta Gracia becoming successful? What strategies
might Bozich adopt to minimize the risk of
failure while still adhering to his high ethical
standards?
4. Alta Gracia serves a niche market, colleges,
where there is higher awareness of ethical issues
in apparel production. Do you think the strategy
would work if the company tried to sell to the
mass market through retailers such as Walmart?
5. Is it ethical for apparel companies to move production

around the world in pursuit of the lowest
possible labor costs, even if that means paying
wage rates that are below a living wage? What if
the alternative is not to produce at all?
6. To what extent does the Alta Gracia experiment

suggest that good ethics are also good business
practice?

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Knights Apparel

2. Do you think Joseph Bozich would have been

3. What do you think might stand in the way of

5. Is it ethical for apparel companies to move production

6. To what extent does the Alta Gracia experiment

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