Lands' End (NASDAQ:SHLD) is investigating whether any of its products were made in North Korea without its knowledge, CEO Edgar Huber told Reuters last week.
Huber's statement came after NK News reported that dress shirts branded with Lands' End labels that also said "Made in China" were seen on a rack at North Korea's Sonbong Textile Factory in June. U.S. companies are barred from trading with North Korea. Violations, including the outsourcing of any element of clothing production to the country, are punishable by up to a $1 million fine or 20 years in prison, according to Reuters.
Lands' End has not authorized any production in North Korea, Huber said, adding, "We will take action if warranted, depending on what the investigation finds." The most likely possibilities are either a case of counterfeiting (the shirts are illegal knockoffs) or a Chinese supplier outsourcing manufacturing to the North Korean factory. Huber said Lands' End's head of sourcing is in Hong Kong looking into the issue.
Pictures of the unauthorized shirts were taken at the Sonbong factory in June, where visitors also photographed what appear to be counterfeit NBA replica Utah Jazz and Chicago Bulls basketball jerseys.
The unauthorized sourcing comes amid increased supply-chain focus by both retailers and apparel makers in the wake of the factory collapse in Bangladesh that killed more than 1,000 apparel workers. What's more and more clear is that most stores and even many clothing companies don't know where their merchandise is coming from. Factories in Bangladesh, China and other countries routinely subcontract work to other factories that are unauthorized either because they have failed to pass safety inspections or are in countries under economic sanctions.
In the case of the Sonbong factory, NK News reported that a plant manager told visitors the factory worked largely on contract from Chinese companies, taking advantage of low-cost North Korean labor. "Basically we saw material made in China being cut and sewn into finished clothes," an unnamed source said. "All the clothes were labeled as Made in China."
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