As some retailers such as Loblaw Cos. Ltd. commit to help ensure workplace safety in Bangladesh and other developing countries, they face a tricky balancing act: Improve conditions for workers while holding the line on costs.
Joe Mimran, creative director of Loblaw's affordable Joe Fresh fashions, this week pledged to move quickly to improve working conditions in its Bangladesh factories following last week's deadly collapse of a building that housed one of the plants that produced clothing for the company.
"It is a competitive business," Mr. Mimran said this week. "We're not looking at costs right now – for us, it has to be the standards."
In the aftermath of the Bangladesh disaster, retailers are struggling to respond in a humanitarian way and pledge aid for victims while still striving to remain competitive in a cutthroat sector. But amid a sluggish world economy and a battle for bargain-hungry customers, apparel merchants risk falling into their familiar low-cost patterns once the dust settles from the latest crisis.
Retail veteran George Minakakis, who has worked in Asian markets, said many merchants face a serious problem of keeping costs low and working conditions acceptable.
"The reason you have lower production costs is a result of below-standard labour costs, lack of safety laws, lower shipping [expenses]," Mr. Minakakis said.
Mr. Minakakis, a former executive with international eye-wear company Luxottica Group and author of Last Retailer Standing, added, "However, as many have experienced in China and India, to name two, when that path to modernization and recognition of working rights takes place, costs will go up."
In Bangaldesh "the turning point for many retailers will be when the cost of production no longer delivers a retail price of $8 for a T-shirt, then they pack up and move production to another country."
And a key question is whether consumers are willing to pay more. For chains such as Loblaw, which is in the beginning stages of a crucial U.S. expansion, cheap production is part of the business model, meeting consumers' appetite for affordable styles.
Kathy Pieper and Linda Smith left the Joe Fresh flagship store on Fifth Avenue in Manhattan on Friday with two large orange bags of summer clothes, but they sounded stunned to learn of the brand's connection to the building collapse in Bangladesh, where the death count has reached more than 500.
"I'm upset, I'm sorry," said Ms. Pieper, 54. "I went for the prices and the feel and … that's just not right."
"They should be building their own factories," added Ms. Smith, 64, an agent who represents artists. "They should be taking control."
Bonnie Astino, 30, said the Joe Fresh ties to the disaster in Bangladesh "could definitely influence whether I shop at a company or not." She held up a small bag of just-purchased accessories: "I'm not going to return this, but …"
Kowan Bethune, a 30-year-old regular Joe Fresh shopper clad in stylish yellow jeans, was "flabbergasted" when he heard about some of the clothing line being produced in the destroyed building. Yet he didn't think it would change his buying behaviour. "It depends. I have to do some research on it."
On Wednesday, Loblaw president Vicente Trius told analysts the retailer's Joe Fresh sales hadn't been pinched "at this stage" from the tragedy. "But it is an evolving situation that we need to be very close to."
Bangladesh's apparel manufacturing sector already has its challenges, with labour costs expected to rise in the coming years even while many workers lack sophisticated skills – relegating them to producing low-margin basics such as T-shirts, said Achim Berg, a principal at consultancy McKinsey & Co. in a 2011 report.
Bangladesh's ready-made garment exports could double between 2011 and 2015 and nearly triple by 2020, the report predicts. The country's sourcing market "will get crowded as incumbents plan to significantly increase and new players enter."
Disney recently decided to stop producing in Bangladesh. Loblaw – which has clothing being made in 47 plants there – said it's committed to stay and improve conditions.
Bangladesh has an important edge for Canadian retailers: Ottawa agreed to drop import duties (18 per cent) a decade ago for Bangladesh and other least-developed nations.
Mr. Mimran acknowledged the duty-free advantage. "It costs us as much to produce in Bangladesh as it does in another country in Asia – the difference is the duty."
The industry has endured major changes over the past 25 years and "we've always been able to absorb it into our costs," he said. "We respond to the competition the same way that any brand would," he said. "However, we do not only look at price. … If we need to pay more to get a certain hand feel, then that's what we'll do."
But if overseas governments cannot help provide necessary information for the company's audits to help ensure safe working conditions, Mr. Mimran said, "we may have to rethink which countries we go into."