Better Safety in Bangladesh Could Raise Clothing Prices by About 25 Cents

According to one rights group, safety enhancements in factories would barely raise prices.
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A woman is rescued from the rubble of the Rana Plaza building 17 days after the building collapsed in Savar on May 10, 2013. (Reuters)

There was some rare happy news out of Bangladesh today as Reshma Akhter, an 18-year-old seamstress, was dug out and rescued after 17 days of being trapped in the wreckage of a collapsed eight-story garment factory building where 1,045 other people have perished. The Rena Plaza incident is officially the worst disaster in the history of the global clothing industry, and it renewed calls for improved safety protections and building code standards in Bangladesh -- a country that owes much of its recent economic growth largely to low-wage clothing work.

The dangerous conditions have been partly blamed on price-conscious businesses, some of whom go with the cheapest and often least-safe local suppliers at the expense of protections for workers. After a November fire that killed 112 workers, brands like Wal-Mart, Gap, and H&M refused to sign a new union-proposed safety plan, which would have introduced more rigorous safety inspections, saying it was "not financially feasible."

That price pressure comes from consumers, too, though. In a story that's so darkly uncomfortable it reads like it's from The Onion -- but is in fact from Bloomberg -- a young British shopper explains how she loves her bargains even though she's troubled by the plight of workers in developing countries:

"It bothers me, but a lot of retailers are getting their clothes from these places and I can't see how I can change anything," 21-year-old university student Elizabeth McNail said, clutching a brown paper bag from clothier Primark the day after a building collapse in Savar, Bangladesh, killed at least 381 people. "They definitely need to improve, but I'll still shop here. It's so cheap."

This consumer cognitive dissonance raises the question: just how much more expensive would our clothes get if factories in Bangladesh were safer?

There aren't many clear-cut studies on the matter because it would depend on how much the retailers passed on the price increases to customers, as opposed to taking a hit to profit margins. Scott Nova at the Worker's Rights Consortium, a Washington, D.C.-based advocacy group, made this calculation:

We have a general cost estimate for the renovations, upgrades and retrofitting of buildings that is needed across the industry in Bangladesh to make the factories safe. The figure is $3 billion. That translates to about 8 cents per garment at factory price.

That $3 billion, Nova says, would go toward properly constructed fire exits and fire escapes, emergency lighting, proper alarm systems, electrical rewiring, closure of structurally unsound buildings, and the relocation of factories to safe structures.

The impact to retailers' profits, he argues, would be minimal:

For a major retailer, with 5 percent of its production in Bangladesh, which is typical, the increased cost would be about four one-thousandths of a percent of total corporate revenue.

A tiny fraction of one percent isn't much, but that's not the end of a t-shirt or tennis shoe's life-cycle:

On the other hand, if all of the increase is passed along to consumers, and subjected to mark ups, and assuming the increased costs are spread across a company's product line (rather than just raising prices on the garments from Bangladesh), consumers could see a cost increase of a penny or two across all of a retailer's apparel products.

Okay, so your H&M bikini becomes $10 rather than $9.99 -- no big deal. If retailers passed along the increases just to clothes made in Bangladesh, though, it might run you a quarter or more:

The scenario that would lead to the largest increase in retail price is as follows: all of it is passed along, with full markup, and all of the increase is put only on products from Bangladesh. This would mean a retail price increase of 25 or 30 cents at retail, with no impact on retail prices for any product not made in Bangladesh.

Of course, these are calculations from just one, non-retailer source, but it does give a sense of perspective as to how much -- or in this case, how little -- consumers would feel these factory safety improvements.

In the cut-throat world of retailing, though, even a small amount might make all the difference.

"There's also a collective action problem ... with the buyers, who are looking for the cheapest possible price for the product and aren't willing to raise that price a bit if their competitors aren't," Kimberly Ann Elliott, a senior fellow at the Center for Global Development, told the Washington Post. "It feeds into a vicious cycle."

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Olga Khazan is a staff writer at The Atlantic, where she covers health.

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