Bangladesh Safety Pact to Cost Retailers $60 Million

Twenty-five retailers including Hennes & Mauritz AB (HMB) and Inditex SA (ITX) pledged at least $60 million over five years to monitor safety in Bangladesh factories ahead of a midnight deadline to sign the accord after a building collapse that killed more than 1,100 people.

The pledge, which would cost a company like H&M less than 0.1 percent of its annual profit, calls for the appointment of a committee that will oversee safety inspections and a training program for workers, managers and security staff. Companies would then be required to ensure their suppliers have enough money to repair and renovate factories, according to the agreement announced today by the IndustriALL global union.

The cost to retailers will be “far beyond” the $500,000 a year that they have each agreed to contribute for the five years of the agreement, Scott Nova, executive director of the Worker Rights Consortium, a Washington-based labor-rights monitoring group, said by phone today. The WRC has said it would take $3 billion of investment to bring factories up to snuff.

“The bottom line is that brands and retailers must make sure that the factories have enough money to pay for the repairs and renovations,” Nova said. “No one retailer is going to be paying $200 million a year, but the cost will be substantive.”

Agreement Signatories

Retailers were discussing agreements on improving labor conditions in Bangladesh both before and after the collapse of the Rana Plaza factory complex -- the worst industrial incident in the country’s history. The disaster killed at least 1,127 people and followed a series of deadly fires that already had prompted activists to push Western retailers to take more responsibility for work conditions there.

Marks & Spencer Group Plc, (MKS) Loblaw Cos. (L) and Associated British Foods Plc (ABF)’s Primark clothing chain are among retailers that have accepted today’s agreement. Abercrombie & Fitch Co. (ANF), based in New Albany, Ohio, has given a verbal agreement to IndustriAll to join the accord.

“We are committed to Bangladesh and support industrywide efforts to improve safety standards,” Kim Harr, director of sustainability at Abercrombie, said in an e-mailed statement. “We believe this is the right thing to do to bring about sustainable, effective change.”

Other signatories include Carrefour SA (CA), Tesco Plc (TSCO), J Sainsbury Plc (SBRY), Next Plc (NXT), El Corte Ingles, Mango and Benetton Group SpA.

Non-Binding

“We recognize the commitment that these companies are making towards ending the cycle of factory disasters in Bangladesh,” IndustriALL general secretary Jyrki Raina said in a statement on the union’s website. “We call on all other global brands sourcing from Bangladesh to join us in making sure that every garment worker in Bangladesh can work in safety.”

Five apparel and retail trade associations in the U.S. and Canada announced the Safer Factories Initiative today. The plan is a non-binding proposal that brings together workers, factory owners, buyers and the Bangladeshi government to develop an industry standard on fire and building safety, Nate Herman, vice president for international trade for the American Apparel and Footwear Association, said in a phone interview. It also would look to increase education, improve assessments and bolster training, he said.

Global Unions

The trade groups are not working with the global unions and advocacy groups involved in the accord H&M and other European retailers have signed, Herman said. A draft of the group’s proposal will be released in the coming weeks, he said.

“Clearly what’s happening here is the American companies are all joining together under AAFA and the National Retail Federation and they’re all together saying, ‘We don’t want to do anything that’s legally binding,’” Liana Foxvog, organizing director at International Labor Rights Forum, said of the Safer Factories Initiative announcement in a phone interview. “We know the track record of programs that are company-run.”

Wal-Mart Stores Inc. (WMT) has said it won’t accept an agreement “at this time” and will instead make public safety inspections at all of its suppliers’ authorized factories in Bangladesh. A Gap Inc. spokeswoman, Debbie Mesloh, said on May 13 that the company is “ready to sign on” pending a change to the provision regarding binding arbitration.

Fire Training

The money from the agreement announced by IndustriALL will fund safety inspections, fire training and remediation programs, the union said in the statement. A committee of unions and retailers will be formed to oversee disputes, with any arbitration award being enforceable in a court of law, the union said. Inspections will be transparent and public statements will be made on any factory that is not acting “expeditiously” to implement upgrades.

“The whole issue in terms of safety and other standards could be quite expensive to monitor and generally deliver,” said Colin McLean, chief executive officer and fund manager at SVM Asset Management in Edinburgh.

The largest companies such as Wal-Mart “can show some leadership” on the matter, McLean said.

Wal-Mart said yesterday that reviews of the 279 supplier plants will be completed within six months, and the factory names and inspection information will be posted on its website. The world’s largest retailer said it expects the costs of “appropriate remediation and ongoing safety investments to be appropriately reflected in its costs of goods purchased.”

‘Sourcing Equation’

Retailers “do need to make the investment” because Bangladesh is “a significant part of the sourcing equation,” accounting for about 10 percent of overall production volume, said Jamie Merriman, a retail analyst at Sanford C. Bernstein.

Still, the cost of manufacturing apparel in Bangladesh is rising at a pace that means it may be no cheaper than China within five years, according to Merriman. She cited Eurostat figures showing that the cost of importing clothing into Europe has been increasing about 4 percent a year from China for the last 5 years, compared with about 7 percent from Bangladesh.

To contact the reporters on this story: Sarah Shannon in London at sshannon4@bloomberg.net; Lindsey Rupp in New York at lrupp2@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net; Robin Ajello at rajello@bloomberg.net

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