Tag Archives: News event
Some of Monday’s top stories:
Hilton seeks as much as $2.4 billion in biggest hotel IPO, by Hui-yong Yu
U.S. stocks decline amid retail, manufacturing reports, by Namitha Jagadeesh and Nick Taborek
Factory activity gauge at 2-1/2-year high, by Lucia Mutikani and Ryan Vlastelica
U.S. top court declines to hear online retailers tax case, by Lawrence Hurley and Patrick Temple-West
Why some states pay less for Obamacare, by Tami Luhby
Today in business journalism
This date in business journalism history
by Liz Hester
Despite retailers’ best efforts, holiday spending dropped this year even as more people went to stores. It’s not a great sign for the season if people are watching their budgets instead of taking advantage of the discounts.
Here’s the Wall Street Journal story:
Aggressive discounts on clothes and toys lured slightly more consumers into stores on Thanksgiving and Black Friday this year, but budget-conscious shoppers spent less.
Total spending from Thursday through Sunday fell 3% from a year earlier to $57.4 billion, with shoppers spending an average $407.02, down 4% from $423.55 a year earlier, according to the National Retail Federation.
The retail trade group said the number of people who went shopping over the four-day weekend that kicked off with Thanksgiving rose slightly to 141 million, up from 139 million last year.
As retailers offered some of their biggest promotions a day earlier, store traffic on Thanksgiving Day jumped 27% to 45 million shoppers. As a result, traffic on Black Friday rose just 3.4% to 92 million shoppers.
More consumers decided to bypass stores altogether. Online shopping continued its steady rise over the Black Friday weekend, accounting for 42% of sales racked up over the four-day period, up from 40% last year and 26% in 2006, the trade group said.
The results suggest that the crowds that piled into stores across the country were careful in their spending and the weekend’s added hours didn’t lead to a surge in buying. Retailers have warned that intense promotions this holiday season could hurt margins as they battle for sales in a barely growing market.
The Reuters story had a similar lead as the WSJ story, and went on to note that the week is often a predictor for how much money people will end up spending:
The Thanksgiving weekend is an early gauge of consumer mood and intentions in a season that generates about 30 percent of sales and nearly 40 percent of profit for retailers.
But many have given modest forecasts for the quarter. Wal-Mart Stores Inc said it expects no growth in its U.S. comparable sales, and Macy’s Inc didn’t raise its full-year sales forecast despite strong numbers last quarter.
The shorter holiday period this year – there are six fewer days between Thanksgiving and Christmas compared with 2012 – prompted retailers to begin offering bargains on Monday, earlier than usual, something Shay said likely pulled some sales forward to the first part of the week.
The NRF stuck to its forecast for retail sales to rise 3.9 percent for the whole season.
One problem for some retailers is that if customers expect deep discounts the entire season, it cuts into profit. The Associated Press story had a quote from National Retail Federation CEO highlighting the problem:
Matthew Shay, president and CEO of The National Retail Federation, said that the survey results only represent one extended weekend in what is typically the biggest shopping period of the year. The combined months of November and December can account for up to 40 percent of retailers’ revenue.
Overall, Shay said the trade group still expects sales for the combined two months to increase 3.9 percent to $602.1 billion. That’s higher than the 3.5 percent pace in the previous year.
But to achieve that growth, retailers will likely have to offer big sales events. In a stronger economy, people who shopped early would continue to do so throughout the season. But analysts say that’s not likely to be the case in this still tough economic climate.
“It’s pretty clear that in the current environment, customers expect promotions,” Shay said. “Absent promotions, they’re not really spending.”
Interestingly, Bloomberg chose to use statistics from a different organization that reported sales were up for the season. Lower in the story they used the NRF numbers every other outlet used in the lead:
U.S. retailers eked out a 2.3 percent sales gain on Thanksgiving and Black Friday, in line with a prediction for the weakest holiday results since 2009.
Sales at brick-and-mortar stores on Thanksgiving and Black Friday rose to $12.3 billion, according to a report yesterday from ShopperTrak. The Chicago-based researcher reiterated its prediction that sales for the entire holiday season will gain 2.4 percent, the smallest increase since the last recession.
Retailers offered more and steeper deals on merchandise from flat-screen televisions to crockpots that, while luring shoppers, may ultimately hurt fourth-quarter earnings. Many consumers showed up prepared to zero in on their favored items while shunning the impulse buys that help retailers’ profits.
“You could get the same deals online as you could get in the store, and yet there were still a ton of people out there,” Charles O’Shea, a senior analyst at Moody’s Investors Service in New York, said in an interview. Going out to stores, “is part of the experience,” he said.
While the story might seem mundane, sales during the Thanksgiving weekend are an important indicator of how the year will end for retailers and if they’ll hit their predictions. Analysts, investors and the media, who are likely hoping that customers will open their wallets a bit more this holiday season, are closely watching the numbers.
by Liz Hester
In the quest to grab as big a share of people’s holiday shopping budget as possible, more and more retailers are opening their doors on Thanksgiving. While Black Friday has traditionally been the day for people to spend money, those looking to get the best deals are shopping earlier than ever before.
The New York Times had this story with an excellent anecdote to begin:
Before most Thanksgiving turkeys even approached the oven on Thursday, a small line of tents had formed in front of a Best Buy in Falls Church, Va., their inhabitants waiting for the holiday deals to begin. First in line was William Ignacio, who pitched his tent at 2 p.m. on Wednesday.
Traditionally, the holiday shopping season kicks off on Black Friday, the day after Thanksgiving. But every year, more stores are opening on the holiday itself and keeping their doors open longer, beginning in the predawn hours and stretching through the day.
“The sales are good,” said Divya Quamara, 25, who stood in an Old Navy in Manhattan on Thanksgiving afternoon. “And the stores are open.”
In Annandale, Va., rock salt had been sprinkled on the parking lot in front of the Kmart that opened at 6 a.m. Though the temperature was just below freezing, a handful of shoppers were lured out of bed for discounted electronics or to browse in advance of Friday’s sales. Wind had partly dislodged a plastic banner hanging above the entry.
The Associated Press led with retailers instead of customers shopping:
Stores are hoping holiday shoppers will gobble their turkey on Thanksgiving afternoon, but save the pumpkin pie for later.
As more than a dozen major retailers from Target to Toys R Us open on Thanksgiving Day, shoppers across the country are expected to get a jump start on holiday shopping. The Thanksgiving openings come despite planned protests across the country from workers’ groups that are against employees missing Thanksgiving meals at home.
The holiday openings are a break with tradition. The day after Thanksgiving, called Black Friday, for a decade had been considered the official start to the holiday buying season. It’s also typically the biggest shopping day of the year.
But in the past few years, retailers have pushed opening times into Thanksgiving night. They’ve also pushed up discounting that used to be reserved for Black Friday into early November, which has led retail experts to question whether the Thanksgiving openings will steal some of Black Friday’s thunder.
In fact, Thanksgiving openings took a bite out of Black Friday sales last year: Sales on turkey day were $810 million last year, an increase of 55 percent from the previous year as more stores opened on the holiday, according to Chicago research firm ShopperTrak. But sales dropped 1.8 percent to $11.2 billion on Black Friday, though it still was the biggest shopping day last year.
“Black Friday is now Gray Friday,” said Craig Johnson, president of Customer Growth Partners, a retail consultancy. “It’s been pulled all the way to the beginning of November.”
Stores are trying to get shoppers to buy in an economy that’s still challenging. While the job and housing markets are improving, that hasn’t yet translated into sustained spending increases among most shoppers.
Overall, The National Retail Federation expects retail sales to be up 3.9 percent to $602.1 billion during the last two months of the year. That’s higher than last year’s 3.5 percent growth, but below the 6 percent pace seen before the recession.
USA Today found the best lead, a family who celebrated Thanksgiving on Wednesday in order to shop without the hindrance of family obligations on Thursday:
Asked what day Thanksgiving is each year, Katie Brenner’s kids can barely wait to answer.
“I know this one!” says 6-year-old Alex Brenner, waiting in line Thursday afternoon at a Toys “R” Us store in Asheville, N.C.
“It’s on the very fourth Wednesday, every year, on every November,” she says. “You eat turkey and green beans, you go to sleep, then you go for big shopping.”
Katie Brenner covers her daughter’s ears and whispers.
“They don’t even know most people celebrate Thanksgiving on Thursday,” she says. “All the good stores open on Thanksgiving now, so we just have to celebrate a day early.”
Maybe Thanksgiving Day isn’t a secret in most homes, but more families are celebrating the day as the Brenners did — standing in line to score bargains as the holiday shopping season is launched.
Much of the criticism around shopping on Thanksgiving is that it takes away a holiday for people who have to show up and work in the stores. Fox News had a counter story about laws that prevent retailers to be open on the holiday:
As workers across America protest against working on Thanksgiving Day, laws that may date back to the Colonial era are keeping shoppers and employees in three states at the dinner table.
In Rhode Island, Maine and Massachusetts so-called “blue laws” prohibit large supermarkets, big box stores and department stores from opening on Thanksgiving.
Business groups say the laws are unnecessary barriers during an era of 24-hour online retailers, but many shoppers, workers and even retailers say they appreciate one day free of holiday shopping.
“I shop all year. People need to be with their families on Thanksgiving,” Debra Wall, of Pawtucket, R.I., told The Associated Press.
The holiday shopping frenzy has crept deeper than ever into Thanksgiving this year. Macy’s, J.C. Penney and Staples will open on Thanksgiving for the first time. Toys R Us will open at 5 p.m., and Wal-Mart, already open 24 hours in many locations, will start holiday deals at 6 p.m., two hours earlier than last year. In recent years, some retail employees and their supporters have started online petitions to protest stores that open on Thanksgiving — but shoppers keep coming.
No matter when you decide to start shopping, someone will have to open the doors, restock the shelves and run the registers. As retailers strive to better each other, they’re also pushing steeper discounts and costly days of labor. Soon, the competition could drive some to a loss.
by Liz Hester
Subprime loans are back, according to two pre-Thanksgiving stories. But it isn’t for those looking to buy a home, now banks are issuing them to business owners and those looking for cars.
The New York Times had a story about small businesses using subprime loans. Banks are issuing them as investor demand for yield rises and they’re able to package and sell them:
A small, little-known company from Missouri borrows hundreds of millions of dollars from two of the biggest names in Wall Street finance. The loans are rated subprime. What’s more, they carry few of the standard protections seen in ordinary debt, making them particularly risky bets.
But investors clamor to buy pieces of the loans, one of which pays annual interest of at least 8.75 percent. Demand is so strong, some buyers have to settle for less than they wanted.
A scene from the years leading up to the financial crisis in 2008? No, last month.
The company involved was Learfield Communications, of Jefferson City, Mo., which owns multimedia rights to more than four dozen college sports programs and which made just under $40 million last year in a common measure of earnings. But its $330 million loan package from Deutsche Bank and GE Capital on Oct. 9 highlights how five years after a credit bubble burst, a new boom is taking shape.
Companies like Learfield are the belles of the ball this year. Wall Street and private equity firms, hedge funds and other opaque financing pools have grown frustrated by low returns on other forms of debt and turned instead to riskier but more lucrative bets on ever-smaller companies. The Learfield case is notable for the leverage involved — the company was able to borrow more than eight times its earnings — and that has raised eyebrows in some credit circles.
The story went on to chronicle the history and some of the downfalls of subprime loans:
Leveraged loans became popular before the 2008 collapse but nearly disappeared afterward, regarded as a symbol of unbridled lending. But they started to return in 2010 and are now back in force, with volumes of $548.4 billion this year through Nov. 14, already exceeding the precrisis level of $535.2 billion in 2007.
The type of leveraged loans that Learfield took out are known as covenant-lite, financial lingo for loans that lack the tripwires that could alert investors to any potential financial troubles at the company that could affect repayment. More than half of all leveraged loans issued this year have been the so-called cov-lite types, double the level seen in 2007 on the eve of the credit crash.
Bloomberg Businessweek wrote a piece about the rise of subprime car loans, another area banks are turning to in order to increase profit:
As the fifth anniversary of the Federal Reserve’s policy of keeping interest rates near zero approaches, the market for subprime borrowing is again becoming frothy, this time in the car business instead of housing. U.S. auto sales, on pace for the best year since 2007, are increasingly being fueled by borrowers with spotty credit. They accounted for more than 27 percent of loans for new vehicles in the first half of the year, the highest proportion since Experian Automotive (EXPN:LN) began tracking the data in 2007. That compares with 25 percent last year and 18 percent in 2009, as lenders pulled back during the recession. “Perhaps more than any other factor, easing credit has been the key to the U.S. auto recovery,” Adam Jonas, an analyst with Morgan Stanley (MS), wrote in an October note to investors.
The money for subprime loans comes from yield-starved investors who buy bonds backed by them. Issuance of such bonds, which pay higher rates than U.S. government debt, soared to $17.2 billion this year, more than double the amount sold during the same period in 2010, but still below the peak of about $20 billion in 2005, according to Harris Trifon, an analyst at Deutsche Bank (DB).
The interest rates on subprime auto loans can climb to 19 percent, according to Standard & Poor’s (MHFI). “Right now, you have to have fairly bad credit to be paying above 3 percent,” says Jessica Caldwell, an analyst with auto research firm Edmunds.com. Chrysler Group (F:IM) has been a beneficiary of the subprime boom. Fifty-eight percent of loans taken out to purchase its Dodge brand vehicles in October were above an annual percentage rate of 4.2 percent, the industry average, according to Edmunds. The average loan for a Dodge charged an APR of 7.4 percent, and 23 percent of the loans had APRs of more than 10 percent, making Dodge the brand with the highest percentage of loans at more than 10 percent, followed closely by Chrysler and Mitsubishi (7211:JP). Dodge’s U.S. sales rose 17 percent this year through October compared with a year earlier, propelling Chrysler Group to 43 straight months of rising sales.
About 13 issuers have raised money in the asset-backed bond market to make subprime auto loans this year, according to Citigroup (C). Among them are GM Financial, the lender known as AmeriCredit before it was acquired by General Motors (GM) in 2010, and new entrants such as Exeter Finance, owned by Blackstone Group (BX). Exeter has issued $900 million of bonds linked to subprime auto loans this year, data compiled by Bloomberg show. Exeter has higher loss rates compared with other lenders, S&P said in a Sept. 17 report. A spokeswoman for Exeter declined to comment.
While banks and investors in loans are looking for new ways to increase returns, what is dangerous is the potential outcome. Those with cars loans and business loans may end up defaulting, which doesn’t bode well for the economy.
by Liz Hester
When Jos. A. Bank made a bid for Men’s Wearhouse, it was just a straightforward M&A transaction. But on Tuesday, when Men’s Wearhouse turned the tables and made a bid for Jos. A. Bank, the whole story got a lot more interesting.
The Wall Street Journal wrote this story:
Men’s Wearhouse Inc. launched a surprise offer to buy rival men’s clothing retailer Jos. A. Bank Clothiers Inc., turning the tables on its erstwhile suitor in what has become one of the year’s most colorful takeover dramas.
The bid comes less than two weeks after Jos. A. Bank walked away from its bid to buy its larger competitor, which said the $2.3 billion offer was too low and rebuffed it. The new bid values Jos. A. Bank at about $1.5 billion, or $55 a share—an 8.7% premium over its closing price Monday and 32% above where the shares traded before the possibility of the two companies uniting surfaced in early October.
Investors in both companies cheered the latest step in the takeover dance, with Jos. A. Bank and Men’s Wearhouse shares rising 11% and 8%, respectively, from their already-elevated levels. Both stocks surged when Jos. A. Bank made its $48-a-share bid—and the stocks barely retreated even after it pulled the offer Nov. 15, suggesting investors expected another chapter in the saga.
Men’s Wearhouse’s countermove sets up one of the year’s most unusual deal situations. The company, based in Fremont, Calif., is attempting a version of a rare maneuver known in mergers-and-acquisitions circles as a Pac-Man defense, in which deal prey turns into predator. Popularized during the 1980s, the gambit has met with mixed results, with the proposed deals often not getting consummated.
Reuters reported that this wasn’t just about trying to get a higher price on the original deal, but a true takeover attempt:
The combined company would have 1,700 stores that rent tuxedos and sell suits, a scale that in the past has raised antitrust questions about a merger.
The retaliatory offer from Men’s Wearhouse, which the company said implies an enterprise value of about $1.2 billion for Jos. A. Bank, follows pressure from its largest shareholder, New York-based hedge fund Eminence Capital LLC.
Eminence, along with other hedge funds that hold about 30 percent of Men’s Wearhouse shares, had tried to persuade other investors to pressure the company into accepting the takeover offer from Jos. A. Bank.
“We are pleased to see that the board of Men’s Wearhouse agrees with us and recognizes the substantial benefits of merging with Jos. A. Bank,” said Eminence Chief Executive Ricky Sandler.
The last person to push Men’s Wearhouse to sell itself was its founder, George Zimmer, known to U.S. television audiences for his advertising catch phrase, “You’re going to like the way you look – I guarantee it.”
Zimmer was ousted by the board in June after arguing for a sale of the company to an investment group. At the time, he accused the board of trying to silence him for expressing concerns about the direction of the company he founded 40 years ago.
Men’s Wearhouse is serious about acquiring Jos. A. Bank and is not simply trying to force the company to raise its bid for Men’s Wearhouse, according to sources familiar with the process.
USA Today had this information about the deal and the combined finances of two firms:
A combination of the two companies would create the fourth-largest U.S. men’s apparel retailer, with more than 1,700 total stores and annual sales of more than $3.5 billion, Men’s Wearhouse said.
The company forecast that the combination would create about $100 million to $150 million of annual synergies over three years through more efficient purchasing, customer service and marketing, and streamlining corporate functions. The deal would add to Men’s Wearhouse’s earnings in the first year following closing, it added.
Men’s Wearhouse said it plans to pay for the deal with existing cash from its balance sheet and borrowed money.
Jos. A. Bank withdrew its $2.3 billion offer to buy Men’s Wearhouse earlier in November.
The New York Times story had this background on the original offer and the history of the negotiations:
Jos. A. Bank made an unsolicited $2.3 billion bid in early October for Men’s Wearhouse, which rejected the offer as highly conditional and said it believed that its own turnaround plan would be better for shareholders.
Jos. A. Bank indicated later that it would consider raising its $48-a-share offer if it were allowed confidential access to Men’s Wearhouse’s books. Men’s Wearhouse again rejected the offer, and Jos. A. Bank withdrew its bid this month, but left the door open for possible talks in the future.
The Men’s Wearhouse offer is not contingent on any financing and will not require additional costly third-party equity commitments, the company said.
Bank of America and JPMorgan Chase are advising Men’s Wearhouse, and Willkie Farr & Gallagher is providing legal advice.
Now is when the talks get interesting. One thing is for sure, investors like the idea of a combination of the two men’s retailers and are willing to buy into the idea. Who will have control is the big unknown.
Some of Tuesday’s top business stories:
New York Times
Men’s Wearhouse offers to buy Jos. A Bank, by David Gelles
Frustration from a deal on flawed hip implants, by Barry Meier
Health law’s birth-control rule gets Supreme Court review, by Greg Stohr
Tech factories luring migrants risk U.S. labor violations, by Cam Simpson
Housing data brightens U.S. economic growth outlook, by Lucia Mutikani
Why Amazon is goosing Prime memberships, by JP Mangalindan
Today in business journalism
This date in business journalism history
2012: The AIG bailout is over
by Liz Hester
Wal-Mart shareholders and employees are getting a new head of the company for the holidays. The world’s largest retailer announced that its promoting Douglas McMillon to replace retiring chief executive Michael Duke.
The Wall Street Journal reported he will be the fifth person to head the company:
Wal-Mart Stores Inc. said company veteran Douglas McMillon will take over as the retailing giant’s chief executive, a rare leadership change at a company that brings in nearly half a trillion dollars in annual revenue but is struggling to book further growth.
The retail giant’s board met Friday in Bentonville, Ark., and named Mr. McMillon as the company’s fifth-ever CEO. The 47-year-old executive, currently president and CEO of Wal-Mart International, will take the top job on Feb. 1, after current CEO Michael Duke retires early next year.
Wal-Mart has a long history of grooming leaders from within and said it began planning for Mr. Duke’s succession years earlier.
The move will create a ripple effect throughout the world’s largest retailer at a time when it is grappling with sluggish sales in its international and U.S. businesses, a global investigation into allegations of bribery at its foreign operations, and worker protests over poor pay practices at its domestic stores.
Mr. McMillon and William Simon, president of Wal-Mart U.S., were among the favored candidates. Now, analysts are watching to see what happens with Mr. Simon and are waiting to see who will take over the international operations as it tries to retool its strategy at its 6,200 stores abroad.
The New York Times added this context around Wal-Mart’s recent performance and struggles to continue to grow:
In recent weeks, Walmart has been busily promoting its holiday deals, in one of the fiercest competitive sales seasons in recent memory, driven partly because there is a very short window this year between Thanksgiving and Christmas. The company’s executives have noted that Walmart’s core customer base remains very budget-conscious, hit by the end of the payroll tax holiday earlier this year and uneasiness over events like the federal budget shutdown. At the busiest time of the year, major retailers are already slashing prices and many are chipping away at the lure of Black Friday deals by offering them even earlier.
Mr. McMillon’s ascension is also occurring at a time when the company has announced major expansion plans in China.
Bloomberg Businessweek wrote a piece about the four things to know about McMillon, including that his division has had some troubles recently. Here are the first two:
1. McMillon’s part of Wal-Mart has had its share of troubles recently.The U.S. Department of Justice and the Securities and Exchange Commission are investigating allegations of corruption by Wal-Mart executives in its Mexican subsidiary, the company’s biggest, and a potential cover-up by executives at its headquarters in Bentonville, Ark. Wal-Mart is cooperating with the investigations and conducting its own internal investigation and review. The retailer also facedcriticism that it wasn’t doing enough to ensure safe working conditions in garment factories in Bangladesh, after several fires killed more than 1,000 people. And last month Wal-Mart had to break up with its Indian partner, delaying its ambitious plans to open hundreds of supercenters there.
2. His rival for the job faced worse problems. Bill Simon, the head of Wal-Mart’s U.S. operations, was the other executive frequently named as a potential successor to Duke. But Wal-Mart’s U.S. stores have been dealing with even bigger issues than its international ones. Bloomberg News has reported that the retailer alienated some shoppers on its home turf because the retailer doesn’t have enough workers to keep shelves adequately stocked. Some of those workers, meanwhile, have been protesting Wal-Mart’s low wages. And recently the company said it expects same-store sales over the all-important holiday season to be “relatively flat.”
The USA Today story chose to focus on McMillon’s qualifications, which helped him edge out other candidates for the top job:
“Unless you’re there, you don’t really understand it, and when you’re big, people may assume that you’ve got bad intentions,” McMillon said. “I learned more in the first six months at Wal-Mart than I learned in 5 1/2 years of post-secondary education.”
Originally from Jonesboro, Ark., McMillon, 47, started his career in 1984 as a summer associate at a Wal-Mart distribution center.
He got a B.S. in business administration from the University of Arkansas and an MBA from the University of Tulsa. While pursuing the MBA, he rejoined the company in a Tulsa Walmart store.
A lot of McMillon’s 22 years at the company were spent in merchandising in the Walmart U.S. division, giving him with experience with food, apparel and general goods. From 2006 to February 2009, he ran Sam’s Club and then took over Walmart International.
That deep Wal-Mart experience likely gave him leg up versus other candidates like Bill Simon, who runs Walmart U.S.
“Bill Simon was more of an outsider,” said Sucharita Mulpuru, a retail analyst at Forrester Research. “It was going to be one of them.”
McMillon also has a record of generating growth – both at Sam’s Club and the International business, which he ran from Arkansas.
Investors seemed to be indifferent to the news of an insider taking over since the stock only rose slightly on the news. It will remain to be seen how radically a nearly life-long Wal-Mart executive will change things. With all the pressure to keep costs low on one hand and to pay workers more on the other, McMillon will have his fair share of problems to solve.
Some of Monday’s top business stories:
New York Times
Signs of change in news mission at Bloomberg, by Amy Chozick, Nathaniel Popper, Edward Wong and David Carr
Wal-Mart names McMillon to replace Duke as CEO, by Aditi Shrivastava and Phil Wahba
Wall Street edges up on Iran deal, but energy weaker, by Ryan Vlastelica
Chrysler IPO is delayed, by Chris Isidore
Not wanted: 100,000 Medicaid enrollees, by Tami Luhby
Pending sales of U.S. existing homes drop for fifth month, by Ben Schenkel
BlackBerry executives leave as CEO rebuilds management, by Hugo Miller
Bitcoin survival guide: everything you need to know about the future of money, by Robert McMillan and Cade Metz
Today in business journalism
This date in business journalism history
Some of Friday’s top business stories:
Chinese Nokia workers pledge to continue strike, by James Pomfret
Buyer beware: Retail cards have costly trap, by Blake Ellis
Fiat seen as winner with Chrysler valued at $10 billion, by Leslie Picker
Toxic lakes from tar-sand projects planned for Alberta, by Jeremy van Loon
Comcast seeks advice on possible Time Warner Cable bid: Sources, by Javier E. David
Yahoo is selling stock (so it can buy it back), by Stephen Gandel
Today in business journalism
This date in business journalism history
by Liz Hester
With consumers ready to open their wallets for the holiday shopping season, those worried about the quality of working conditions for factory workers may find some comfort in a retail agreement announced Wednesday.
The Wall Street Journal had this story:
Three parallel safety pacts spurred by the death of more than 1,100 people in the April collapse of a garment factory in Bangladesh have tentatively agreed on common standards for plant inspections in the country.
Experts from the three groups—the Accord on Fire and Safety in Bangladesh, which is led by mostly European retailers; the Alliance for Bangladesh Worker Safety, led by Wal-Mart Stores Inc. and Gap Inc.; and the government’s own National Tripartite Action Plan—reached the deal last week.
It would prompt the groups to adopt unified standards to simplify inspections and avoid duplication, officials with the three programs said.
The agreement, which still needs final approval from each group’s steering committee, could be a significant breakthrough in international efforts to raise standards in Bangladesh’s garment industry, according to Srinivas Reddy, country director of the International Labor Organization, which helped broker the deal.
“It was vital to agree on a coordinated approach toward safety standards and inspection methodologies to avoid multiple inspections of the same factories and to ensure that the same basic standards are applied,” Mr. Reddy said.
Reuters added these details of the agreement between the various retailers:
European retailers have agreed to finance fire and safety reforms for buildings that do not meet requirements, while the North American group – Alliance for Bangladesh Worker Safety – pledged $100 million in loans to factory owners to finance safety upgrades.
“The reason garment factories continue to be unsafe is not for a lack of common standards. It is because the monitoring visits carried out by brands were not conducted by competent engineers, not done in manner that is transparent, and did not include any commitment by brands and retailer to finance repairs,” said Theresa Haas, a spokeswoman for the Worker Rights Consortium, a labor rights group that is a member of the European-led Accord on Fire and Building Safety in Bangladesh.
“It’s up to the factory owner to decide if they want to remediate. We can’t force them to make these changes,” said Jeffrey Krilla, president of the American-led alliance, who called the agreement a huge step forward.
Individual retailers can voluntarily pull out of factories that do not meet safety requirements.
The new agreement comes as hundreds of workers take to the streets, demanding higher wages in protests that resulted in the death of least two workers and suspended production in up to 200 clothing factories.
Bangladesh garment factory working conditions have been under close scrutiny since the April collapse of the Rana Plaza factory complex killed more than 1,100 garment workers and a November 2012 fire at the Tazreen factory killed 112 workers.
USA Today’s story talked about how many labor groups felt the agreement didn’t go far enough:
The agreement is less stringent than the guidelines being pushed coalition of labor groups that called for third-party monitoring and labor representation and the coalition immediately lashed out at the retailers’ plan, calling it a “sham.”
“Worker representatives are not part of the agreement and have no role whatsoever in its governance,” the labor groups said in a statement Wednesday. “Given the grave risks facing millions of workers in Bangladesh, there can be no credible or effective program without a central leadership role for worker representatives.”
Scott Nova of the Worker Rights Campaign called the deal “an attempt to side-step the issue.”
Retailers said they objected to the labor-backed pact because they say it exposes them to unlimited liability. They also say that the pact called for large funding from the retailers and other private businesses without providing accountability for how the money would be spent.
Under the retailers’ plan, inspectors will “prioritize factory safety risks for remediation efforts” and will be empowered to report dangerous safety conditions to all parties. The initiative also includes an independent chair of a board of directors responsible for oversight.
The Bloomberg story added this context about the backdrop for labor unrest and why retailers are being pressured to make changes to business practices:
Unsafe factories and wages higher than only Myanmar in Asia have sparked labor tensions in Bangladesh’s $20 billion garment industry. A series of protests by workers demanding higher wages have taken place in the past several months in the industrial zones of Gazipur and Ashulia on the outskirts of the capital Dhaka. Some workers clashed with the police in demonstrations that forced the shutdown of factories.
Two workers died and 30 others injured in a protest this week as thousands took to the streets demanding a higher monthly salary of 8,000 taka ($103). The government last week increased the minimum wage to 5,300 taka, below the amount unions are demanding.
Except for one or two factories, most that had been shut by labor unrest have resumed production, Abdus Salam Murshedy, president of Exporters Association of Bangladesh, said via phone today. “Workers have joined work,” he said. “We expect that the government will issue a formal, written notice on the new wage structure today. The situation is returning to normal.”
Bangladesh Prime Minister Sheikh Hasina yesterday urged workers to accept the wage increase and to end violence, she said in a speech broadcast by Bangladesh Television.
The standards will hopefully help relieve some of the worst labor abuses, but often when regulations are enacted, business simply moves to a less regulated environment. As pressure mounts for retailers to lower costs and increase margins, it will remain to be seen how many companies continue to manufacture in Bangladesh instead of moving to another location. What would really be newsworthy is if these standards could be applied to all countries.