Wal-Mart Said Considering Bangladesh Pullback

There is widespread talk in the industry that the world's largest retailer has a strategy to gradually wind down its sourcing from the country.

Sourcing in Bangladesh.

Is Wal-Mart Stores Inc. giving Bangladesh a wake-up call?

This story first appeared in the March 18, 2013 issue of WWD.  Subscribe Today.

Just as the retailer’s “zero tolerance” policy for any violation of its global sourcing standards came into effect March 1, there is widespread talk in the fashion industry that the world’s largest retailer has a strategy to gradually wind down its sourcing from Bangladesh by early 2014. Particularly hard hit will be the country’s $11.05 billion innerwear sector, which generated a significant $553.7 million share of the Asian nation’s apparel exports of $4.4 billion to the U.S. in 2012.

The main motivation for such a shift, which is currently reflected by a rash of canceled orders, is Wal-Mart’s tightening of compliance issues that it hopes will be enforced following a series of tragic factory fires in Bangladesh’s apparel industry that have claimed the lives of more than 118 workers since November. The price-focused retailer is expected to review alternatives for low-cost labor in countries such as Vietnam, Cambodia, and even an emerging industry in Burma, where products such as underwear and sleepwear would not require a highly skilled workforce. There’s also talk among vendors of returning to China, which raised its production costs over the past few years due to higher labor costs and raw material increases. While China has had its series of setbacks such as factory shutdowns, the country has state-of-the-art technology and skilled workers that specialize in the manufacturing of foundations, especially bras, which require expert patternmaking and fit techniques that include 30 components or more.

It’s unclear if the potential move is aimed exclusively at innerwear — which includes underwear, sleepwear, robes, active-looking tops and pants — or other apparel categories. Based on conversations with executives at industry events and showrooms along Madison Avenue, as well as chatter following a couple of Wal-Mart’s secretive conclaves with vendors this year, suppliers are privately saying Wal-Mart has “nuanced” or “suggested” that innerwear firms explore new manufacturing and sourcing opportunities in low-cost labor countries other than Bangladesh.

RELATED STORY: New Reports Put Factory Fire Onus on Governments, Employers >>

From a U.S. vendor’s perspective, one executive at a major innerwear company who requested anonymity described Wal-Mart’s approach to vendors as “subtle.”

“Wal-Mart has a strategy to manufacture less in Bangladesh, and they are tightening the noose. We recently had a serious session in Bentonville [Wal-Mart headquarters] where they discussed this issue with us…it was nuanced, suggested — but not threatened — that suppliers should look at manufacturing and sourcing options elsewhere…and slowly pull out of Bangladesh. Bangladesh has the lowest labor costs, but that’s only relative….There are other alternatives out there, and some people are looking at the possibility of going back to China or other low-cost countries,” the executive said.

Another executive, who also spoke on condition of anonymity, said, “There was a [product] walk-through, and somebody very high up at Wal-Mart went up to look at a group [of sleepwear, daywear and underwear] and said, ‘Oh, this is made in Bangladesh. Cancel this order….’ Wal-Mart is in season four, and the merchandise was for fourth-quarter delivery. This led us to believe they are extraordinarily sensitive to bad press and to product that’s coming out of Bangladesh. Made in Bangladesh has become a dirty word at Wal-Mart.”

The big garment manufacturing companies in Bangladesh know that they’re under the spotlight and realize their apparel industry is too important for the country’s business owners and government to put at risk with lax fire standards.

As a result, one source from the compliance world said a number of Bangladeshi makers are raising production and labor costs to accommodate the demand for stricter compliance rules. But there’s “no guarantee” the extra money from higher pricing will be used to enhance fire safety measures, he said. “Manufacturers in Bangladesh who are considered top-tier are now asking for higher prices from the industry due to the scrutiny on compliance standards….But even if Wal-Mart agreed to pay something like 7 cents more per garment — which would be very unlikely — they know that money would probably not be used for the benefit of workers or the factories,” he added.

Wal-Mart officials would not address questions from WWD about changes or a new business policy with Bangladesh.

Megan Murphy, senior manager of international corporate affairs at Wal-Mart, would only say in an e-mail: “Bangladesh continues to be an important sourcing market for Wal-Mart. We welcome the opportunity to work with the respective governments, suppliers and factories to improve worker safety conditions and standards.”

Meanwhile, the Western world and organizations specializing in corporate social responsibility and workers’ rights have lauded Wal-Mart for its zero-tolerance action to prevent more factory fires in Bangladesh and elsewhere in the region. As reported, Wal-Mart unveiled the new policy in January following tragic events at several factories, including the Tazreen Fashions factory fire in November that killed more than 111 people, mostly women. International Intimates received unwanted press following the Tazreen disaster when documents uncovered at the scene indicated that company was among American apparel-makers supplying goods for Wal-Mart. The documents revealed that a subcontractor for International Intimates was producing nightgowns and robes made at the factory for Wal-Mart and women’s sleepwear for Sears.

In Bangladesh, the $19.1 billion garment industry accounts for 13 percent of gross domestic product and more than 78 percent of total exports. The prevalence of fires among Bangladesh’s 5,000 factories has killed at least 1,071 workers and injured 3,127 in 279 incidents since 1990, despite the codes of conduct and corporate social responsibility programs adopted by apparel brands and retailers.

Observers on the ground in Bangladesh report there is growing “disenchantment” among local leaders and garment workers with Wal-Mart, especially after the retailer rejected a shipment by Simco Dresses in February. The shipment of dresses and women’s apparel valued at $390,000 was part of a $1.2 million deal. Simco reportedly subcontracted 25,000 pieces of its total 130,000-piece order to the Tuba Group, owners of the infamous Tazreen Fashions factory near Dhaka, Bangladesh. Wal-Mart is said to have refused any responsibility for Simco Dresses’ financial hardship arising from the rejected shipment and suggested that Simco deal with Success Apparel, the local company’s New York-based contractor. After the Tazreen inferno, Wal-Mart severed ties with Success Apparel.

Affirming Wal-Mart’s displeasure with Simco was a letter sent by Andy Barron, an executive vice president of Wal-Mart, to Muzaffar Siddique, managing director of Simco, in February. Excerpts of the letter published in The Daily Star newspaper in Bangladesh included: “Due to Simco’s involvement in the subcontracting that led to Success Apparel’s termination, Wal-Mart determined it was inappropriate to purchase the product.”

Despite the rising number of cancellations by Wal-Mart, Sulabh Chowdhury, secretary of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said he is skeptical that Bangladesh could lose Wal-Mart’s business, the country’s second-biggest retail client following H&M.

“Bangladesh is the second largest exporter of apparel in the world, so it’s not so easy for a buyer to pull out of Bangladesh,” said Chowdhury. “As far as we know, some orders have been canceled because of quality issues, but it does not mean that Wal-Mart, or any other large buyer, will stop buying from here altogether. I think that other than China there is very little competition for Bangladesh in terms of strength of production, and it is not that easy to leapfrog into new geographical areas.”

Addressing how Bangladeshi officials are dealing with Wal-Mart’s compliance demands, Shafiul Islam Mohiuddin, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said he recently attended a meeting with Wal-Mart executives in Hong Kong.

“We are trying to address the situation and take all the necessary preventive measures, and the buyers are joining with us in creating better compliance,” explained Mohiuddin. He noted that although Wal-Mart and some of its policies continue to “cause concern” to regional manufacturers, both sides are seeking a solution.

“We are handling the issue in a pragmatic way — but they have to treat Bangladesh as their partner,” stated Mohiuddin.

At the factory level, the prevailing mood in Bangladesh is angry and fearful as a pressure-cooker atmosphere builds to fulfill orders, but with no incentive of higher wages, said one manufacturer in Dhaka, who did not want to be named.

“We are under tremendous pressure, because we don’t want to lose the business. But at the same time, we feel that companies such as Wal-Mart are exerting too much influence on the garment industry in Bangladesh. They want everything on their own terms. They are putting pressure on us to meet all their demands — but what about us? We expect better terms as well,” he complained.

An exporter from Ashulia, a district of Dhaka, agreed that stricter compliance should be rewarded with higher compensation.

“We are willing to work with the stronger compliance issues that Wal-Mart is talking about, but we need to be compensated for that. Wal-Mart must pay more. The issues facing us are changing very rapidly, and it is not easy for smaller companies to keep up with this. Instead they simply go out of business,” said the exporter, who said he was afraid to be identified.

From the labor rights camp, Charles Kernaghan, director of The Institute for Global Labour and Human Rights, said Wal-Mart has the financial muscle to make Bangladesh clean up its act in the manufacturing arena — if it wants to.

“The Bangladesh government is so corrupt and controlled by the factory owners who live in mansions with the money they’ve sweated out of the workers.…It would be devastating to the workers if Wal-Mart pulled out all apparel manufacturing in Bangladesh. But if it was just a segment like intimate apparel, it would be a very powerful message that would certainly wake them up,” said Kernaghan. “Bangladesh wants to grow its apparel industry from $19 billion to $50 billion by 2020. They are filling lakes and lagoons to build more factories, and they are planning to turn the entire country into a huge garment warehouse.”