Friendly attire: Online retailer Adili aims to be the Amazon of the eco-fashion world

But can you stack 'em high, sell 'em cheap and still find ethical clothes people want to wear?

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"That hemp sandals clich," says Adam Smith, the chief executive of the online ethical fashion retailer Adili, "well, if you look at our site, it's not there."

Nor does Adili.com its name taken from a Swahili word for "ethical" and "just" fit the archetypal image of a low-key green company with limited commercial ambitions. Along with Smith, its founders are Quentin Griffiths, of the successful fashion retail site Asos.com, and Christopher Powles, an accountant. They aim to establish their brand in a market that analysts agree is showing steady growth.

An internet "boutique" that sells clothing and accessories, Adili.com pitches to the growing number of consumers who want to buy either Fairtrade, organic or recycled fashion. It stocks respected ethical designer brands including Patagonia, Terra Plana and Edun, and plans to launch its own brand to reach those customers who can't afford a 200 hand-knitted alpaca shrug.

This month, the company announced that it plans to float on the Alternative Investment Market (AIM) just a year after taking its first order and it hasn't even made a profit yet.

Taking time out from a round of presentations to potential investors, Smith is keen to emphasise that Adili isn't simply cashing in on a "trend" for ethically sound clothing, but is partly born of his own green convictions.

"I'd say somebody like New Look putting four organic T-shirts in the corner of their high street shop should be viewed slightly more cynically than what we're doing," says the 41-year-old entrepreneur, who's keen to show me that his trainers and jacket are both by Patagonia, a brand that uses recycled materials such as plastic water bottles to make its sports-style clothing.

Smith doesn't hide the fact that his conversion to the ethical cause is relatively recent, though he says the seeds of his interest in working conditions were planted early on. A graduate of the London School of Economics, Smith studied monetary economics and development economics: "That was the first spark of interest in development issues. Then it kind of lay dormant for a while." During this time, Smith worked at the Treasury, did 11 years with Dixons specialising in e-commerce and then joined Sit-Up, a direct-television/internet shopping start-up company that traded in "grey-market" [outside the authorised distribution channels, though not illegal] goods.

Travelling in Asia to secure supply chains for Sit-Up, Smith was disturbed by what he saw. "I was looking for factories that we would be happy to use; labour conditions in some of the Chinese factories were quite appalling. In Pakistan, I saw a lot of exploitation of child labour rather than being a cultural thing as you might see in rural India, these were factories that were hazardous, with effluent being discharged into watercourses, hazardous chemicals leaching into the ground. It made me think quite hard about what we were doing."

When Sit-Up was sold in 2005, Smith focused his drive in a new direction. "I knew I wanted to do something in ethical trade the product group itself didn't matter."

He soon met Griffiths and Powles and the three founders settled on fashion as the most promising product group.

Their instincts proved correct. "Online fashion retail is getting much stronger," says Maureen Hinton of Verdict Research retail analysis, "and now women are becoming more willing to buy from brands they're not familiar with. Ethical trading is one of the major issues in retail at the moment. It's fairly well established in personal care and beauty, but ethical fashion is becoming less of a niche."

In February, Sim Scavazza, the former head of Miss Selfridge, was signed up as creative director; Adili.com is also working with Clare Lissaman, who helped Marks & Spencer on its Plan A project to reduce waste within five years. Smith himself moved to Dorset, where Adili.com's distribution centre is based, and now grows most of his vegetables. "You can't move for recycling bins in our house."

The boots, jackets, jewellery and childrenswear sold on the site has to meet at least one of what Smith terms "the major ethical hooks" that is, being made either from organic materials, recycled goods, or is Fairtrade-certified. "People ask us, 'What is ethical fashion?' and, this way, we let the consumer decide what they want it to mean."

This also allows Adili.com to have a wider product range. "But it wasn't done for that commercial reason," he insists, "we just don't want to patronise the consumer. It's about integrity and transparency."

Smith believes that high street retailers can't meet the demand for ethical products. He sees a gap in the market, which he is highlighting to potential shareholders. "We absolutely are a commercial, for-profit organisation and we wouldn't be able to go into the AIM if we weren't. But the way I see it, if you can't grow big enough to make a sufficient impact, you'll always be a cottage industry."

Picking as his ethical-trade heroes Sam Petter, the founder of Tatty Bumpkin, Stuart Rose for his Plan A project for M&S and Yvon Chouinard of Patagonia, Smith was also inspired by a catalogue of John Lewis garden furniture. "The principle was that they weren't going to say that everything is certified by the FSC [Forest Stewardship Council] because it's expensive to get certified. So those suppliers were working towards getting certified. Trade was actually giving them the capability to work towards that certification. It was a powerful principle."

It is an approach to development economics that he wants to push further with a planned "foundation" that Adili.com will soon create. "Within the constraints of trying to make a profit for our shareholders, we've got an agreement that 5 per cent of the company will go into a foundation that will, in time, start working on projects in developing countries."

One in Rwanda creates employment in the form of "producer groups", in communities where women have been widowed by genocide. "It's a group of 20 women who make accessories, which will be retailed by Adili.com, and hopefully those sorts of producer groups can find their feet in time and broaden their commercial outlook."

This is where cynics who might see Adili.com as three investors making a buck out of a trend might have to give Smith more credit. He aims eventually to run this foundation himself: "I'm not going to make millions out of this and be driving an Aston Martin in 10 years."

The premium on the price of ethical clothing on average, 15 per cent is another commercial challenge for Adili.com. "Ethical fashion can seem a bit elitist because the prices are high. I don't want us to be an eco-niche for the affluent."

The answer, he thinks, is to launch a better-priced own label, due to be available next autumn. Presumably at the other end of the scale, Smith notes a shortage of organic bespoke tailoring for men.

Adili.com's product offering relies on the design of more than 60 brands on the site, of a style that Smith terms "contemporary but not way-out". For the most part, this translates as everyday clothes in pleasant colours and styles, with rather special-occasion prices. Some goods do fall firmly in the worthy-but-frumpy category unbleached sheepskin shoes that resemble stuffed pitta breads, for instance, or textured cowl-neck knits that scream "ageing auntie". But Adili.com avoids most of the horrendous hippie-chic styles that dominate its rivals and labels such as People Tree and the on-trend Ciel are to be found here. Its jeans selection is strong and a 50 dark-denim style by Ascension are the site's bestselling garment.

"Their product looks fairly good," says Hinton, "but as more companies go into that market, it's going to be more competitive, so the product will be the most important part of the proposition."

Its intentions appear good, then but if Adili.com wants to challenge the fashion-forward high street, those pitta-bread shoes have to go.

Five best online buys

* Clutch bag 50

Available from www.equaclothing.com

* Men's trainers 69

Available from www.adili.com

* Silk Camisole 55

Available from www.thenaturalstore.co.uk

* Wrap dress 38

Available from www.peopletree.co.uk

* Women's jumper 49

Available from www.adili.com

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