By John Chalmers
(Reuters) - The day after Wal-Mart Stores Inc published Simco Group's name on its list of banned Bangladesh suppliers, the garment maker learned it had lost an order from U.S. retailer J.C. Penney Co Inc for 500,000 pairs of pajamas.
Khurrum Siddique, Simco's head of operations, thinks this is no coincidence. He said his factories, named along with dozens of others on Wal-Mart's "red" list of unauthorized suppliers first published on May 14, have become pariahs for Western brands that are trying to play it safe in Bangladesh after a litany of deadly workplace accidents.
The reputational blow dealt to these businesses exposes a dilemma for multinationals since the April 24 collapse of a building outside Dhaka that killed 1,130 people, most of them low-paid seamstresses. Is it better to sever ties with long-time suppliers that may pose a safety risk, or stay and try to lift standards?
"What Wal-Mart is doing at the moment is nothing but saving its own skin. As a responsible business partner they should stay with us and help improve working conditions for the safety and security of workers," said Reaz Bin Mahmood, a vice president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA). "For so long they made huge profits. Now the time has come to join friendly hands with us."
Simco's four factories appeared on Wal-Mart's list even though they had never failed a safety audit in 22 years of supplying the world's biggest retailer.
Wal-Mart said Simco was banned for unauthorized sub-contracting of an order to a factory called Tazreen Fashions where 112 workers died in a fire last year.
Simco said it had subcontracted to Tuba Garments Ltd, which was an authorized Wal-Mart supplier at the time, but Tuba then shifted the order from its mother factory to Tazreen. Tuba's managing director, Delowar Hossain, confirmed in a letter he gave Siddique to show Wal-Mart that his company had diverted the work to Tazreen without Simco's knowledge.
Simco says it is being unfairly punished for that lapse.
"This is ... like the parable of the boy who was throwing stones at a frog not realizing what was a game for him was death for the frog," said Siddique, adding that Simco was considering taking legal action against Wal-Mart for "besmirching" the company's good name.
Wal-Mart, which stepped up factory inspections in response to the series of deadly accidents, said it was not seeking to influence the business decisions of any other companies. But several retailers and brands, including Spain's Inditex SA, owner of the apparel chain Zara, told Reuters they had followed up with their own checks of named factories.
Not all buyers have barred factories on the "red" list. Reuters found last month that an unapproved factory where Wal-Mart and Inditex inspectors had spotted cracks in the wall was still making Wrangler shirts for the world's largest apparel maker, U.S.-based VF Corp.
VF Corp told Reuters its philosophy was to stay and try to improve working conditions.
"We believe this provides the necessary balance between providing needed jobs and safeguarding employees," VF said in an emailed statement to Reuters.
A poor South Asian country, Bangladesh relies on garments for 80 percent of its exports. Thanks to cheap labor and a capacity to handle high-volume orders, its industry has enjoyed a long boom and the country is now second to China in the global ranking of apparel exporters.
Wal-Mart takes more than 10 percent of Bangladesh's garment exports currently worth $19 billion a year, according to officials at the BGMEA industry association, a share that gives it both clout and influence.
Its Bangladesh operations have become a bigger issue for shareholders since the deadly building collapse in April, even though it did not use any of the suppliers based in the complex. Wal-Mart hosts its annual meeting in its home state of Arkansas on Friday, and a group of employees and activists raised $8,700 to bring two former factory workers from Bangladesh to help call attention to labor practices.
Wal-Mart has been the most aggressive in spotlighting substandard suppliers. In addition to the "red" list published on its ethical sourcing website, it issued a press release calling on the Bangladesh government to suspend some factories where it found safety problems. But it has somewhat softened its stance after some factory owners raised objections.
It changed the wording on its website to specify that unauthorized subcontracting was grounds for inclusion on the list. When asked whether this was in response to Simco's concerns, Wal-Mart said only that it had updated the language to add "greater clarity" on the types of violations represented on the list. (http://az204679.vo.msecnd.net/media/documents/factory-list-unapproved-bangladesh-updated-5-24-13_130138871602644965.pdf)
It removed the names of about 100 factories that had been banned before January 2011, and said it would list unauthorized suppliers on the website for a period of only 24 months, "recognizing that facilities and practices can change over time." It also added an email address where factory owners could lodge complaints if they felt they were named in error.
One of the names removed was Garments Export Village Ltd. Chairman A.K.M. Badiul Alam said he had decided in 2007 to stop supplying Wal-Mart and since then the retailer had never conducted a safety audit of his operations.
"We have been questioned by our international community and all stakeholders relentlessly, and our goodwill and image are in threat," Alam wrote to the industry association, objecting to his company's inclusion on the initial list.
Last month, Siddique was stunned to learn that an order he received to make pajamas for J.C. Penney had been canceled. The news came in an email from the U.S. chain's Chinese supplier, Wuxi Jin Mao Co Ltd, which said Penney was following Wal-Mart's unapproved factory list.
"Normally the big retailers in U.S. share such information with each other," Yang Nan, an executive at Wuxi Jin Mao, wrote in the email. "JCP, Target, etc will follow Walmart's unapproved fty (factory) list this time, and suspend these 245 ftys in Bangladesh for now."
Officials at Wuxi Jin Mao declined to comment.
Penney confirmed that it had suspended Simco as a supplier - for reasons it would not make public - but said that decision was taken before it even knew a Wal-Mart register existed.
"To our knowledge, the company (Penney) has never issued a directive to follow Wal-Mart's suspension list. In fact, we were not aware of the Wal-Mart list until they posted it online," Penney spokeswoman Daphne Avila told Reuters by e-mail.
U.S. discount retailer Target Corp also denied that it was following the Wal-Mart list.
Simco, which in an ordinary year shipped $12 million to $15 million worth of apparel, has seen its business dwindle to about half of what it was six months ago. Siddique said the company had about 1,500 workers at its peak but now employs just 600 and is on the verge of a complete shutdown.
He and others in Bangladesh say they want Wal-Mart to name the suppliers they continue to use rather than those they don't.
"We do not want to work for Walmart in future," he wrote in a cease-and-desist letter to Wal-Mart dated May 17. "But your putting us on this list and implying it is because of so-called 'electrical, fire, and building safety' issues is not only a false misrepresentation but will cause us serious financial damage, because our other customers, American or otherwise, are following this list."
(Additional reporting by Donny Kwok in Hong Kong, Serajul Quadir in Dhaka, Jessica Wohl in Chicago and Phil Wahba in New York; Editing by Emily Kaiser)