In Bangladesh rubble, the prices of profit

By Sarah Morris

MADRID | Tue May 14, 2013 8:42am EDT

Rescue workers attempt to find survivors from the rubble of the collapsed Rana Plaza building in Savar, around 30 km (19 miles) outside Dhaka May 4, 2013.

Credit: Reuters/Andrew Biraj

(Reuters) - Order dockets found in the rubble of a Dhaka garment factory where over 1,100 workers died show just why it pays foreign stores to buy from Bangladesh - clothes made for as little as a tenth of what they sell for in the West.

Rana Plaza, which collapsed three weeks ago, supplied big names in global retail; documents plucked from its ruins by labor activists and seen by Reuters bring into sharp focus the price of putting shirts on the backs of cost-conscious shoppers.

In one case, polo shirts of a brand sold in London for $46 were offered for sale from Rana Plaza for just $4.45, a typical transformation in an industry where manufacturers across Asia and retailers in Europe and North America are locked in war to get catwalk trends ever faster, and ever cheaper, to consumers.

Found at the site, where rescuers dug out bodies of hundreds of seamstresses and factory hands, were orders from Spanish chain store Mango to Phantom Tac, a supplier based in Rana Plaza, where owners are accused of sacrificing safety to profit.

It is no secret that retail price labels, whether for a $5 T-shirt or a $5,000 suit, reflect manufacturing costs that are a fraction of what the wearer eventually pays. But the mark-ups revealed by the Rana Plaza documents - of 5 to 10 times from factory gate to store window - offer a precise insight into the relationship of one end of a global supply chain to the other.

One order form, a copy of which was shown to Reuters by activists, bore Mango's letterhead logo and was dated January 23 this year. It specifies 12,085 polo shirts for a men's autumn/winter range in five colors - black, off-white, royal blue, burgundy and straw - in six sizes, from XS to XXL, and in 100-percent cotton at a weight of 220 grams per square meter.

The price to Mango: $4.45 each. The chain currently offers similar shirts for sale in Spain for 26 to 30 euros ($34-39) and for 26 to 30 pounds ($40-46) at its branded stores in Britain.

A Bangladeshi garment worker, typically paid less than half the wages of counterparts in China, the world's biggest clothing exporter, would have to spend two or three weeks earnings just to buy one polo shirt at Mango in Madrid. A Spaniard on the minimum wage could afford the same shirt for a day's labor.

"GOOD PRODUCT - COMPETITIVE PRICE"

Other costs - shipping, shop wages and rents, advertising and so on - eat up the mark-ups retailers make in a ferociously competitive business where consumers demand the lowest prices.

Operating profits of 15-20 percent are common, however; many firms insist they do also try to ensure suppliers do not abuse poor garment workers - as seen in moves this week to sign up to a new code of practice in Bangladesh to try to improve safety.

Mango, which has over 2,600 outlets in 107 countries, said it had not finalized the order found in the rubble. The company, based in Barcelona, said that it would have gone ahead only had a trial sample been found to be up to standard and had Phantom Tac passed Mango's checks on its labor practices and safety.

"The documents found refer to an order that wasn't confirmed and that we would not have confirmed until we had finished the social audit with a positive result," a spokeswoman said.

Another set of documents retrieved from the dusty wreckage shows an order, complete with pattern sketches, for long-sleeve, checked shirts under the Danish brand Jack's, owned by retailer PWT Group. The unit cost was $5.08, and tags to be attached to each shirt listed a retail price of 24.90 euros ($32.66).

"A good product - at a competitive price," runs the slogan for Jack's menswear, sold in Scandinavia, Russia, Britain and Ireland. Its owners said they were shocked by the loss of life:

"We are very moved by this and feel deeply with the wounded and families of the victims," said PWT marketing manager Brian Borsting, adding that the firm planned to offer financial help.

Bangladesh ranked bottom in minimum pay for factory workers in 2010, according to World Bank data. Business owners told Reuters average wages were around $64 a month. The minimum wage for the lowest skilled in the clothing industry is 3,000 taka - about $38. It was nearly doubled in 2010 after violent protests, but most workers earn above the minimum, limiting its impact.

The government has again responded to pressure after the Rana Plaza disaster by calling this week for new regulations on wages and calling on private employers to raise pay levels. But as clothing accounts for 80 percent of exports, employers have persuasive political arguments against eroding competitiveness.

U.S. aid agency USAID found in 2009 that a pair of chinos using $4.60 of materials left a Bangladeshi plant for $5.37, 92 cents less than a Chinese competitor. Nearly all the Bangladeshi advantage, for a garment made in 40 minutes, came from a labor cost of just 32 cents an hour, compared to $1.44 in China.

CRITICAL VIEWS

Mango, with sales last year of 1.69 billion euros, does not disclose its margins. Among listed competitors, Spanish rival Inditex SA (ITX.MC), the world's largest clothing retailer and owner of Zara and Massimo Dutti, most recently recorded a 58-percent gross margin - the excess of revenues over the cost of the goods it sold - according to Thomson Reuters data; Sweden's H&M Hennes and Mauritz AB (HMb.ST) had a margin of 55 percent.

After accounting for other costs, taxes and so on, these two had net margins of 16 percent and 9 percent respectively.

Activists argue that global chains should do more to share their profits with the people who make their products:

"More than low prices for clients and the safety of its workers, retailers have been focused on achieving high margins," said Ruben Sanchez, spokesman for Spanish consumer group FACUA.

"They have the room to spend more on workers' conditions."

Fashion retailers have been criticized on social media, too.

Benetton's Facebook page shows a stream of comment about working conditions in Bangladesh that drew a response from the Italian company: "We intend to play our part and this is why we are providing a fund for the victims," it said in a posting.

British discount fashion retailer Primark, owned by Associated British Foods Plc (ABF.L), and Canada's Loblaw Cos Ltd (L.TO) also offered compensation to families of victims who were working for their supplier at Rana Plaza.

The factory collapse was one of four deadly incidents in six months in Bangladesh and retailers and authorities in the European Union and United States are looking at stricter codes.

(Additional reporting by Ruma Paul in Dhaka, Tracy Rucinski and Fiona Ortiz in Madrid, Veronica Ek in Stockholm and Astrid Wendlandt in Paris; Editing by Emily Kaiser and Alastair Macdonald)