Your support keeps us publishing. Follow this link to subscribe to our print magazine.

The Fashion Debt Trap

Founded in Sweden, Klarna is a bank that has spread like a pink rash over the fashion industry – but its 'buy now, pay later' approach is digging a cash-strapped generation deeper into personal debt.

Fashion is one of the biggest industries in the world, generating $2.5 trillion in global revenues in 2019. Fashion corporations represent the global trend for brands to function as a label and a distribution system, but not much else.

With a few exceptions, fashion giants do not own factories, and everything they sell has been subcontracted many times over. Determined to retain its plastic crown as ‘capitalism’s favourite child’, the fashion industry is a neoliberal icon of what David Harvey described as an increasing reliance on fictitious capital and debt creation.

The pandemic has spot-lit the role of personal debt in keeping this industry going. Under the guise of Lady Gaga endorsements, pink posters, catchy slogans, and hordes of influencers, debt has allowed a new generation of shoppers to consume fashion even during a crisis.

Founded in Sweden, Klarna is a bank that has spread like a pink rash over the fashion industry. Along with a slew of other payment providers, Klarna pops up on websites, offering the chance to ‘buy now, pay later.’ By the summer of 2020, Klarna had 85 million global customers with 200,000 retailers, including ASOS, Boohoo, H&M, Hugo Boss, Bvlgari, NIKE, and Urban Outfitters, adding Klarna and its offer of instalment payments to their checkouts.

Debt’s role in fashion is not new, but Klarna has attracted the attention of campaigners for its unscrupulous targeting of young people. As MoneySavingExpert founder Martin Lewis commented: ‘It’s even been talked about in some ways as a lifestyle choice – but it is not. It is a debt, and it should be treated as a debt.’ The British government has promised to finally consult on how to regulate buy now, pay later, a move welcomed by debt advice charity StepChange, who say they are worried by the ‘disproportionately high’ number of young people seeking advice in recent years.

‘Among StepChange clients, those who have buy now, pay later (BNPL) debts frequently have eight or nine other debts, and they are typically young, with more than a third aged under 25,’ explains Sue Anderson, Head of Media at StepChange. ‘BNPL services are often marketed as a source of convenience but the financial commitment should not be underestimated – it’s important to remember that the main benefit to retailers of offering these services is to sell more goods.’

The pandemic has been punishing for millions of people across Britain, especially the poorest sections of society. In 2020, almost nine million people were forced deeper into debt to cope with growing financial instability. Buy now, pay later schemes were ideally placed to capitalise not just on the shift to online shopping, but on this rise in financial vulnerability and inequality.

‘One central feature of the way capital accumulation works now is that it has to be based on debt,’ explains Marxist historian Neil Faulkner. ‘This is debt at both ends of supply chains because the working class—both as a class of producers and as a class of consumers—goes into debt both to afford the bare necessities, but also stuff they don’t need but have been persuaded to buy to sustain levels of demand.’ This incurred debt then also becomes a tradeable commodity, and an additional means of making the rich richer and the poor poorer.

Fashion during Covid-19 has been a depressing example of what Marx described as the superfluous being easier to produce than the necessary. Modern slavery factories—including in Britain—churned out short-life fashion items while medics wore binbags due to chronic PPE shortages.

Companies like Klarna, valued at $10.6 billion in September 2020 and now worth $31 billion, are a symptom of dysfunction. The fashion industry is pivoting ever further away from production or creativity and more towards financial speculation.

Wage Theft

Young people in Britain taking on debt to buy clothes is mirrored by people in the Global South being forced into debt in order to produce fashion.

This is not, however, to simplistically divide the world into producers and consumers. Young people targeted by finance capital while browsing on their phones are also experiencing a crisis of low wages and insecure employment. Likewise, people stuck working in garment factories are similarly subjected to all the powers of advertising and alienation that cut off their creative impulses and push them to shop.

In this bone-crushingly unequal system, corporations compete for profits not just through sales, but by driving down the costs of production. This has been viscerally illustrated by the treatment of factory workers during the pandemic. Khalid Mahmood is the director of the Labour Education Foundation in Lahore, Pakistan, and has spent the last year fighting the fires of exploitation fanned even higher by Covid-19. Debt is a constant reality for garment workers in Pakistan – even before the pandemic, workers had to borrow money to subsidise poverty wages.

But during the pandemic, as brands cancelled orders and abandoned factories, wages fell even further. ‘Some of the workers had to sell household items, for example, mobile phones or washing machines,’ Khalid explains. ‘Most of them have borrowed money from family or friends, and had to get food from shopkeepers on credit, plus they are in debt for their children’s school fees and house rent.’

In Lahore, families have taken their children out of school, and many have had to move to smaller cheaper homes – sometimes leaving behind their possessions as a guarantee they will pay rent arrears. This crisis is replicated across the fashion industry – one survey found 75 percent of garment workers have taken out loans during the pandemic.

Hardship at the bottom of the fashion system is inseparable from the vast accumulated wealth at the top. At the close of 2020, the world’s top 20 fashion brands were valued at 11 percent higher than pre-crisis levels. Fashion billionaires are among the richest people on the planet. While capitalism creates intergalactic wealth for a tiny percentage of people, billions of others are left in poverty.

In one sense this inequality is not good for business. If accumulated wealth makes too many people poor, how are they going to keep buying commodities like jeans, bandeaux tops, and trainers?

This is where the catchy slogans and pink posters of Klarna come in. ‘The system is on life support, and that life support is debt,’ says Neil Faulkner. ‘Were you to cancel debt and remove the possibility of people getting into debt in order to buy things, not just the fashion industry, but the entire global financial system would collapse.’

From cotton fields to catwalks, the fashion industry is guilty of the systemic mistreatment of people and planet. As an industry worth $2.5 trillion, its ecological unsustainability is well documented. But fast accruing debts are another sign of deep instability.

About the Author

Tansy Hoskins is a journalist writing about labour rights and the politics of the fashion industry. Her two books are Foot Work: What Your Shoes Are Doing To The World, and Stitched Up: The Anti-Capitalist Book Of Fashion.