Indigenous Sets Out to Remake the Apparel Industry
Sep 19 2012
Building the Next Economy
Seventeen years ago, Indigenous co-founders Scott Leonard and Matt Reynolds were picking burs out of hand-knit South American sweaters before delivering them to The Nature Company. Today, their company produces a full line of premium fashion knits sold online and at 500 independent stores, as well as clothing for major brands and private labels hanging on racks at the likes of Bloomingdales, Neiman Marcus, and Nordstrom.
That might not sound like lightning progress, but consider this: Indigenous works with a supply chain of more than 1,500 artisans from small knitting groups around the world; pays fair living wages; and uses organically grown fibers, low-impact dyes, and handmade fabrics. They pioneered Fair Trade certification for apparel and developed the Fair Trace Tool™, which lets consumers see their clothing’s supply chain. And they’ve done all this in an industry where labor conditions cause ongoing protests and “organic” often translates to “unfashionable” or “unaffordable.” Viewed in that light, Indigenous looks like a revolution.
The spark was Leonard’s travels in Ecuador. “I had seen firsthand that women were not necessarily being honored for their weaving and knitting skills,” says the Indigenous CEO. “They weren’t being paid the wages that they could have been, or they didn’t have the opportunity to apply those skills to the marketplace.
“We really wanted to make a difference in the world with women in economically marginalized communities,” Leonard says. “We thought that bringing in fair wages and technical assistance, and marrying environmentally friendly fibers with more sophisticated designs, was a way to do that.”
Indigenous had two major problems: quality control and financing. “How do you elevate a cottage industry’s quality control? When you’re dealing with 1,500 artisans and they’re in pockets of three to 30, how do you aggregate their work and have continuity and consistency that’s truly premium? There were a lot of quality-control glitches, from fibers to knitting, to consistency of sizing and fit, to timing of delivery,” says Leonard, a serial entrepreneur whose past businesses include an environmentally friendly surf shop.
Indigenous President Reynolds, who is a store buyer and has a background in developmental economics, adds that systems integration was a major issue. “We’re dealing with a unique production model—it’s diversified, it’s spread out—and we had to create a new systems model,” he says. “That took a lot of time and collaboration and money.”
Financing was a huge obstacle. “It’s not just that we were a start-up, visionary company trying to do something no one else had done,” Leonard says. “But once we collect an order and give it to an artisan, how does that artisan pay for the fibers, and if they’re the lead, how do they pay the other people in the group? They don’t want terms. They do the work and they want to be paid.”
Looking for a better way to finance its supply chain, Indigenous began engaging with RSF around 2001. “Conventional banking was just not going to work. That our balance sheet was not looking so great was a difficult hurdle,” says Leonard. “RSF provided working capital, helped us to formalize our financial strategies, and helped us attract other socially minded investors.”
RSF encouraged Indigenous to include a section on social returns in the business plan for its Series A funding round. That ended up being the aspect some investors were most impressed with, Reynolds says, adding, “RSF has been a pioneer and supportive spirit in trying to push the social and environmental return aspect into financials and into evaluating the success of a business.”
In 2010, RSF provided Indigenous with a PRI Fund loan to assist in creating standards and procedures for the Fair Trade apparel pilot program and to develop the Fair Trace Tool, which allows shoppers to scan a hang tag QR code to find out where the garment originated, who made it, how the fibers were raised, and what the social impact was.
“We hope that by educating people to actually look into things, they’ll see how clothing can be made responsibly,” Reynolds says.
Indigenous has worked with its longtime suppliers in South America to obtain Fair Trade certification, and the company was the only clothing manufacturer certified in South America as of mid-2012. On top of that, the Fair Trace tool is a breakthrough that could change how organizations verify supply chains and microfinance results, Leonard believes.
Indigenous now runs at a profit and has invested in RSF’s Social Investment Fund as a way to help other social enterprises grow (and earn a competitive return, Reynolds points out). In addition, Leonard and Reynolds have created a donor-advised fund with RSF to support their artisans’ communities through grants.
“We are proud to say that we are now hanging next to mainstream, high-end fashion design brands in stores across the country, and we were able to do that without sacrificing values,” Reynolds says. “The other thing is that even though we still are a small business, we’ve put over $20 million into the artisan and organic supply chain, and that has really affected lives.”
Company name INDIGENOUS
Impact area Food and agriculture
RSF relationship Former working capital borrower, current PRI Fund loan recipient, Social Investment Fund investor, donor-advised fund advisor
HQ Santa Rosa, CA
Revenue About $6 million annually
Communities served Weavers and knitters in South America and elsewhere; U.S. consumers