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H&M Admits Higher Wages Might Bring Higher Prices

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In a moment of surprising candor, Helena Helmerson, head of sustainability at Swedish retailer H&M, admitted that the company’s apparel prices may have to rise to accommodate higher wages for textile workers in developing countries like Bangladesh.

Speaking to AFP, Helmerson said that passing on wage increases to customers in the form of higher retail prices “might be a possibility,” at least in the long term. Her remarks have been seized upon as a watershed concession, interpreted as an unusually frank concession to economic reality. Viveka Risberg, a representative with the non-profit organization Swedwatch, commented on the significance of Helmerson’s remarks. “It’s the first time ever that they have said they were willing to raise prices and that consumers were now ready for that. It’s going to take years to get to a living wage in Bangladesh but I’m more hopeful now they have opened up to involving all the stakeholders–the unions, the workers, the suppliers and the government,” she said.

In November, H&M announced that it plans to deliver a “fair living wage” to the 850,000 textile workers who produce its garments by 2018, publishing  a “road map” for accomplishing what initially seems like a daunting task. First, it plans to collaborate with factory owners to “develop pay structures that enable a fair living wage, ensure correct compensation and overtime within legal limits.” Then, starting next year, H&M will test its approach in three separate factories: one in Cambodia, where it continues to bolster its presence, and one in Bangladesh.

Eventually, H&M will extend the initiative to include its “strategic suppliers” which lists more than 750 factories. H&M also wants all of its workers to have access to occupational training that improves their basic skills. The company plans to extend to their workers in both Bangladesh and Cambodia some basic training in collective bargaining, largely by introducing them to labor organizations in Sweden.

At least originally, H&M vehemently denied that an increase in wages would result in corresponding increases in retail prices. At the time H&M first announced its advocacy of a living wage, a company spokesperson said, “We don’t see that our road map on the fair living wage will have a negative impact on the price of our products. It is an investment in our customer offering and will benefit H&M long term. Wages are only one of several factors influencing the sourcing costs and prices in our stores.”

H&M has been closely scrutinized in recent months, partly due to its controversial sourcing to nations like Bangladesh and Cambodia that have consistently failed to meet international compliance standards and also because of its robust economic performance. The retailer had a massive third quarter, enjoying a net profit of $690 million, a 22 percent increase from last year.

The company has also been implementing a muscular expansion strategy, with aims to have opened 350 new stores by the conclusion of 2013. This year, H&M opened its 3,000th store.

But the retailer has weathered intense criticism for what some see as its complacency in fighting for better wages and labor conditions in Cambodia. H&M opposed a plan by Better Factories for Cambodia (BFC), an auditing organization sponsored by the UN, to inspect factories and then publish the names of those it deemed in violation of compliance regulation. The BFC estimates that fifteen of the roughly 450 factories it currently oversees would qualify for that level of public disclosure.

Now, H&M has become a more outspoken advocate of reform in Cambodia. The company is partnering with the International Labor Organization, the Swedish Union IF Metall and the Swedish Embassy in order to push for a less dysfunctional labor market. At least in its preliminary stages, this would translate into pushing the Cambodian government into convening a board to subject the minimum wage to an annual review, overseeing contractual agreements between workers and factory owners and superintending collective bargaining.

In search of low cost labor and high production capacity to service a high volume business, H&M looked to South Asia for its manufacturing needs, moving into Bangladesh in 1982 and then Cambodia in 1998. And while many retailers have been openly plotting their exit strategies from the two politically precarious nations, H&M has been digging in its heels, attempting to improve labor conditions and tighten control over its supply chain.

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