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Retailers Negotiate Bangladesh Compensation Package

09/11/2013 | 08:35pm US/Eastern

A dozen global retailers began two days of meetings in Geneva on Wednesday to negotiate a $77 million compensation package for the victims of two Bangladesh garment factory accidents, as labor unions pressed the companies for payments that would acknowledge their responsibility for the country's worst facilities.

Companies including Primark, part of Associated British Foods PLC, Zara parent Inditex SA and German discounter KiK Textilien und Non-Food GmbH--all of which had clothes that were made at one of the stricken plants--are attending the meetings at the International Labour Organization, said the companies and organizers.

Many other major retailers with manufacturing links to the factories aren't participating, including Benetton SpA and Mango MNG Holding SL, organizers said. The most notable absentee was Wal-Mart Stores Inc., one of the biggest buyers of clothes made in Bangladesh.

The meeting escalates the debate over who should bear responsibility for accidents that result from flawed manufacturing standards.

Some companies are reluctant to make payments to victims of those accidents that could acknowledge their responsibility--and open themselves to lawsuits--for events they believe they couldn't control. Some labor groups counter that apparel companies are broadly responsible even if they weren't producing in the factories at the time of the disasters.

More than 1,100 workers died when the Rana Plaza building collapsed in April, and over 2,000 were injured. In November, over 100 workers died in the Tazreen factory fire.

Wal-Mart acknowledges some of its clothes were at the Tazreen factory, at the time of the November fire. It also said its clothes had previously been made in the Rana Plaza building but that it didn't have production at the time of the disaster. In both cases, Wal-Mart said, its clothes were at the factories without its knowledge via unauthorized subcontracting.

The retailer wouldn't say whether it will pay compensation to the families of the workers who died at Tazreen and declined to make its sourcing executives available for comment. "We are focused on investing our resources in proactive programs that will address fire safety in the garment and textile industry in Bangladesh and prevent fires before they happen," said Wal-Mart spokesman Kevin Gardner.

Paying compensation implies greater responsibility than underwriting building repairs, labor activists say.

"A lot of brands want to be associated with prevention, but not with reparation," says Ineke Zeldenrust, the lead coordinator at the Clean Clothes Campaign, a garment workers' rights group.

Li & Fung Ltd., a Hong-Kong-based retail middleman in Bangladesh that isn't attending the Geneva meeting, has agreed to compensate victims of the fire. A Li & Fung division had placed an order at Tazreen Fashions a couple of months before the fire.

"Every business has to make its own decision on what is right, but we all have to get up in the morning and look in the mirror," Rick Darling, president of Li & Fung USA, said in an interview in his New York office. "We feel we have a responsibility through our business and supply chain."

The $77 million payout for both accidents is expected to be one of the highest ever.

To get to the grand total, labor unions and workers' rights groups applied a formula that has been used in previous Bangladesh factory accidents, awarding 25 years of salary plus various bonuses to the families of the deceased victims. Families could receive about $33,000 for each victim, according to calculations.

The unions want the brands to share the burden with factory owners, the Bangladesh government and the garment industry association even if they were only linked via illegal subcontractors.

Under the plan proposed by IndustriALL, a global union body that has spearheaded the compensation and safety meetings, the brands would pick up the biggest part of the tab, paying 45% of the total. The meetings in Geneva are meant to determine each brand's share.

Several retailers disagree with the burden and want intermediaries to contribute also. Benetton has paid for limb replacements for several workers injured in the collapse of Rana Plaza but isn't attending the meeting because of a "lack of clarity around the objectives," said Chief Executive Biagio Chiarolanza. Mango representatives didn't respond to requests for comment.

The reason Bangladesh manufacturing is so cheap is in part because many factories don't comply with safety standards, and retailers benefit from that, said Peter McAllister, director of the Ethical Trading Initiative, which has helped coordinate negotiations among retailers. "It's not the real cost of making clothes," he added.

The momentum to repair Bangladesh's garment industry began gaining steam after the Tazreen fire. Retailers sourcing from the factory agreed to meet to discuss how to make the industry safer and compensate workers.

But early on, the two topics were separated into different negotiations, said Philipp Schukat, program director for the German governmental agency Deutsche Gesellschaft Fur Internationale Zusammenarbeit, or GIZ, which organized many of the meetings.

A meeting for the end of April had already been planned at GIZ's headquarters on the outskirts of Frankfurt when the Rana Plaza disaster occurred. GIZ got a strong turnout to discuss factory safety, including Wal-Mart and Hennes & Mauritz AB, the two biggest buyers of Bangladesh-made clothes.

Yet Wal-Mart didn't actively speak up, according to several people present at the meeting. At the end of the meeting, IndustriALL general secretary Jyrki Raina said he took the opportunity to ask Wesley Wilson, Wal-Mart's senior director of ethical sourcing, to pay victim compensation. "I said, "We need you,'" Mr. Raina recalled. "He said they took the decision not to pay for Tazreen because it was not an authorized supplier, and it wasn't their responsibility."

Mr. Gardner declined to comment on Mr. Raina's allegations. He said it was important to be at the GIZ meeting as it works toward "improved worker safety with the Bangladesh government, with industry groups and with suppliers."

The meetings resulted in two competing safety pacts, one dominated by European retailers such as H&M and Inditex, and the other anchored by Wal-Mart and Gap Inc. The American safety pact, launched in July as the Alliance for Bangladesh Worker Safety, plans to create a specific worker safety fund that can be tapped to aid victims in the case of future fires or other garment factory disasters. The details of the fund haven't been outlined.

Write to Christina Passariello at christina.passariello@wsj.com and Shelly Banjo at shelly.banjo@wsj.com

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