H&M-Inditex Joining Bangladesh Pact Pressures Wal-Mart: Retail

After Hennes & Mauritz AB and Inditex SA, Europe’s two largest clothing retailers, committed to an agreement to improve fire and building safety in Bangladesh, pressure is mounting on U.S. retailers to sign the pact.

The European companies are joined by more than 1 million consumers who have signed petitions urging companies such as Gap Inc. to support the program. Some institutional investors also are beginning to express concern about the safety issue, including the Illinois State Board of Investment, which owns shares of Wal-Mart Stores Inc.

The cost of doing nothing could be severe for retailers, said Steve Hoch, a marketing professor at the University of Pennsylvania’s Wharton School.

“Most brands are smart enough to embrace the issue at hand and signal to the consumers they’re doing something about it,” Hoch said in a May 9 phone interview. “If it does tarnish the brand, it’s going to really cost them in the long run.”

At least seven companies have agreed to sign the pact before the May 15 deadline set by the retailers for a decision. Some companies involved in the discussions that have balked are citing concerns about how much the cost would be to individual retailers and how legal issues would be addressed. A Gap spokeswoman, Debbie Mesloh, said yesterday in a statement that the company is “ready to sign on” pending a change to the provision regarding binding arbitration. J.C. Penney Co. is working on an alternative safety agreement with industry groups, Daphne Avila, a company spokeswoman, said in an email. She declined to provide details.

H&M, the first retailer to agree to the accord, fell 0.2 percent to 234.50 kronor at the close of trading in Stockholm today. Inditex SA, which also agreed to sign the proposal, rose 1 percent to 104.35 euros in Madrid.

Worst Ever

The collapse of the Rana Plaza factory two weeks ago, the worst industrial accident in the country’s history, killed at least 1,127 and came after a series of deadly fires in Bangladesh that already had prompted activists to call for Western retailers to take more responsibility for work conditions there.

Retailers including Wal-Mart and J.C. Penney began discussing a contractually enforceable document for Bangladesh working conditions in April 2011. As outlined, the proposal would require companies to pay suppliers more so factory owners could afford to make safety upgrades.

The accord would run for five years and would be funded by the participants, according to PVH Corp., owner of the Tommy Hilfiger brand, which said yesterday that it would join the effort and pledged $2.5 million. The plan calls for a review of existing building regulations and enforcement, the development of a worker complaint process and a mechanism for employees to report risks, the company said.

Institutional Investors

Several institutional investors said they’re concerned that big retailers aren’t doing more to address worker safety in Bangladesh. William Atwood, executive director of the Illinois State Board of Investment, pointed to the world’s largest retailer, Wal-Mart, in which the fund holds 98,211 shares. He said the company’s auditing standards “failed miserably in Bangladesh,” adding that his board is working with other institutional funds and probably will formally express concerns.

“There needs to be a real concerted effort. No one wants to profit, certainly not the state Board of Investment, for putting workers at some crazy risk,” Atwood said. “I would hope Wal-Mart will look real seriously at rethinking their approach to these procedures.”

Wal-Mart Garments

While Wal-Mart garments were being made without its permission at the Tazreen factory in Bangladesh where more than 100 people died in a fire, the U.S. company’s clothing was not found in the Rana Plaza collapse.

Joe DeAnda, information officer of the California Public Employees’ Retirement System, wrote in an e-mail that the fund engages with companies directly on several issues, including “fair labor practices in supply chains.” Calpers owned 4.9 million shares of Wal-Mart as of March 31. New York City’s comptroller, John C. Liu, who oversees city pension funds that own more than 5 million Wal-Mart shares, raised concerns about safety in Bangladesh after the Tazreen fire.

Wal-Mart is working with other stakeholders and lobbying the Bangladeshi government to improve worker safety standards across the industry, Kevin Gardner, a spokesman for the Bentonville, Arkansas-based company, wrote in an e-mail. Wal-Mart says its investigations, which continue, have confirmed no authorized production took place in the Rana Plaza complex.

Forceful Stance

Since the collapse of the factory building two weeks ago, the government of Bangladesh has taken a more forceful stance on workers’ rights. Prime Minister Sheikh Hasina’s government has shut factories as the European Union’s Trade Commissioner Karel De Gucht considers steps including trade sanctions against Bangladesh.

The deadly accident helped spur the Bangladesh cabinet yesterday to approve an amendment to labor law giving workers greater freedom to form trade unions. After a series of worker protests, the government has agreed to raise the minimum wage.

Factory inspections have also been stepped up. Government inspectors have found 700 garment factories “faulty in terms of workplace safety” in the 2,400 units examined since Feb. 7, Commerce Minister G.M. Quader told reporters in Dhaka yesterday.

Big Names

Activist groups hope the addition of some big names like H&M to the retailers’ accord and the changes in the government’s approach will encourage U.S. companies to get off the sidelines.

“This is a game changer, and now the pressure is on all the other global brands and retailers to engage,” Judy Gearhart, executive director of International Labor Rights Forum, said in a telephone interview. “There’s really not a lot of reason for the U.S. brands not to follow suit.”

The U.K.’s Ethical Trade Initiative has given a “clear signal” to its member retailers to take the proposal seriously, said Peter McAllister, the ETI’s director. The group’s members include Primark, Wal-Mart’s Asda chain and Tesco Plc, which said yesterday it would sign on to the pact.

H&M is an important addition because it is one of the biggest buyers of clothing from the Asian nation. A petition calling for H&M, Gap and several other brands to sign the pact amassed more than 1 million signatures, Liana Foxvog, organizing director at International Labor Rights Forum, said in an e-mail.

Primark, the U.K. budget fashion chain owned by Associated British Foods Plc, also said it is committed to signing the accord and was one of the companies whose products were made at Rana Plaza.

At least five retailers have said their suppliers made garments at the collapsed factory complex, including Loblaw Cos.’ brand Joe Fresh, U.K. budget retailer Matalan Ltd., plus-size womenswear seller Bonmarche Ltd. and Spanish department store El Corte Ingles.

Final Version

A final version of the pact has been circulating among retailers, said Jyrki Raina, general secretary of IndustriALL Global Union, which is helping facilitate the agreement. Other additions are German retailer Tchibo GmbH, clothing maker C&A Mode GmbH, the U.K.’s Marks & Spencer Group Plc and Carrefour SA, which said today it had no business relationship with local companies in the collapsed building.

Though it met with retailers in Frankfurt about the agreement last month, J.C. Penney is waiting for clarity on what contributions will be required from brands, Avila said. Sears Holdings Co. is also asking for more details on the accord before it decides, Howard Riefs, a spokesman for the Hoffman Estates, Illinois-based company, wrote in an e-mail.

4,500 Factories

The global garment industry would have to spend about $3 billion over five years to bring safety standards at Bangladesh apparel factories up to Western standards, according to an analysis by the Worker Rights Consortium. Upgrading the country’s approximately 4,500 factories would cost the garment industry about 10 cents per garment, the Washington-based labor monitoring group said.

The annual cost would be $600 million, or about 3 percent of the $19 billion that the Bangladesh Manufacturers & Exporters Association says Western companies spend annually on manufacturing in Bangladesh.

“We’re really happy that H&M and Inditex, two really big players in Bangladesh, have signed up,” said Sam Maher from Labour Behind the Label, a platform of the Clean Clothes campaign which is working to support IndustriALL on the agreement. “There remains other big companies which should also do the same, including Gap and Wal-Mart.”

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