LONDON (BLOOMBERG) - Hennes & Mauritz AB, Europe's second-largest clothing retailer, is rolling out a more generous compensation program for its Asian suppliers to improve factory conditions and combat unrest in the countries that produce the majority of its apparel.
The Swedish retailer, which has 3,649 stores across 59 markets, is introducing a "fair wage method" to 68 factories in China, Cambodia and Bangladesh this year, a plan that seeks to boost workers' pay, provide some discretionary income, and allow representation through trade unions.
H&M gets about 80 per cent of its products from Asia. It's been under pressure along with other retailers to improve factory conditions following events such as the 2013 collapse of the Rana Plaza complex in Bangladesh that killed at least 1,127 people, and a nationwide strike by garment workers in Cambodia last year that left three dead.
The Stockholm-based company says increasing wages improves productivity and is also key to calming tensions that have caused such disturbances.
"A lot of the riots and unrest we have seen in countries like Cambodia and Bangladesh is connected to the issue of wages," Anna Gedda, H&M's head of sustainability, said by phone. "If we can address the issue of wages and industrial relations, that will lead to more stable production markets."
H&M tested the method in three factories across Cambodia and Bangladesh in 2014. Absenteeism fell in the Cambodia factory, while the retention rate increased, Gedda said. It remains to be seen whether higher wages will affect the company's purchasing prices and profit margins, she said.
The clothes H&M gets from Asia are often priced in dollars. In June, the company reported second-quarter profitability at its lowest level in nine years after a strong dollar led to higher garment costs.
"It's not just about productivity and prices," Gedda said. "It's about creating an environment that is sustainable and can promote a textile industry."