(Corrected to clarify Gap stance on agreement in fourth paragraph.)
The death of 1,127 Bangladeshis in the collapse of the Rana Plaza factory complex, the worst accident in the garment industry's history, has caused a change of course for European retailers. Not so much for their U.S. counterparts.
So far, 11 European retailers have committed to an Accord on Fire and Building Safety for Bangladesh promoted by workers' rights advocates. These include the giant Swedish clothes seller Hennes & Mauritz AB. Only one U.S. company has signed on: PVH Corp., owner of the Tommy Hilfiger brand.
U.S. companies such as Wal-Mart Stores Inc., the world's largest retailer, argue that their own, voluntary safety programs are sufficient. Yet this kind of industry self-policing has resulted in an estimated 1,700 worker deaths in Bangladesh since 2005.
The safety accord provides for an independent safety inspector appointed by a committee made up equally of trade union and company representatives. Factory owners would be required to execute the inspector's recommendations and retailers would have to pay factory owners enough to do so. These obligations would be legally binding. The Gap Inc. has said it would sign, but only if the agreement is amended to limit the enforcement clause.
If U.S. companies continue to hold out, they may gain a slight short-term advantage over their European competitors, in that the signees may absorb the estimated $600,000 cost of elevating safety standards at each factory they work with in Bangladesh.
On the other hand, the European companies could pass on the cost -- an estimated 25 cents per item of clothing at the point of sale -- to the consumer and even charge a premium for sourcing clothes in factories independently verified as safe. Certainly, consumers are paying attention. More than 1 million people signed a petition encouraging Gap and other companies to commit to the safety accord.
Institutional investors have also begun to express concerns that U.S. retailers aren't sufficiently addressing worker safety in Bangladesh. Nike learned only after it lost sales and share value in the 1990s that its reputation was inextricably linked to conditions in the Vietnamese factories that made its wares. Importers from Bangladesh ignore that lesson at their peril.