Thursday, May 16, 2013

Abercrombie & Fitch Signs Bangladesh Safety Agreement While Other American Companies Hold Out

Late on Wednesday, American retailer Abercrombie & Fitch announced it would sign a safety upgrade plan that has been signed by six major European retailers and one other American company, PVH, owner of Calvin Klein, Tommy Hilfiger, and Izod. The agreement, which is legally binding, includes independent factory inspections and requires companies to help underwrite building upgrades and repairs.

Many other American retailers have yet to sign on, including Walmart and Gap. Gap has voiced concerns that the plan could be used to sue it in American courts and Walmart objected to governance and dispute resolution mechanisms. Walmart announced on Wednesday that it would instead use its own voluntary plan that includes inspecting all of its Bangladesh facilities and providing fire safety training to workers. Gap also sent a letter to employees at its headquarters saying that it has hired a fire inspector to examine factories in Bangladesh and will commit $22 million in loans to factories to make upgrades.

Meanwhile, other retailers are already looking to pull operations in Bangladesh and move them to other countries. The New York Times reports that Western executives are looking into sourcing production in Vietnam, Cambodia, and Indonesia. But pulling operations out of Bangladesh could only harm workers further:

Garment manufacturing makes up a fifth of the economy in Bangladesh and four-fifths of its exports, which means that one of the world’s poorest, most densely populated countries is desperately dependent on continued export orders to stave off soaring unemployment and possibly further political unrest. Some executives say that many multinationals will continue buying from Bangladesh, although some may diversify their orders to more countries.

Executives may also struggle to find safer working conditions elsewhere. A shoe factory in Cambodia collapsed on Thursday morning, killing two workers and injuring seven. An initial investigation showed that the ceiling lacked the materials to support heavy weight.

Rather than pulling operations, some companies are indicating that they will stay and make further investments in the country. In an interview on Wednesday with the Financial Times, H&M CEO Karl-Johan Persson said he supports Bangladesh’s recent announcement that it would raise the minimum wage for garment workers, saying that he wants salaries to be revised yearly. The company has also agreed to pay as much as $500,000 per year toward factory improvements and inspections by signing onto the safety agreement.

Although some retailers fear the costs of upgrades, they could pass them on entirely to consumers and only raise prices by 10 cents per garment.

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