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Wal-Mart Stores, Inc. (WMT): When Cheap Prices Are Actually Too Dear

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Wal-Mart Stores, Inc (NYSE:WMT)Last week, a Bangladeshi tragedy hit American news. A large, nine-story building housing several garment manufacturers collapsed; the death toll is at least 380. This may sound distantly tragic, but it hits closer to home than many of us might like to think.

Many well-known U.S. companies either use or have used the exact manufacturers residing in that building to manufacture their wares. That says a lot about how corporate America can soil its reputation and show a marked lack of moral fiber simply to deliver inexpensive merchandise to unwitting consumers. And of course, this also guarantees high profit margins for their income statements.

The dirt cheap merchandise Americans have come to expect often carries a far higher price than many realize — a real human toll. “Supply chain” sounds like boring financial parlance, but it hides a lot of human dangers, indignities, and sometimes, tragedies.

Cracks in the foundations
CNNMoney pointed to the underlying story about the recent occurrence in Bangladesh, which not only involves loss of life but also unsafe working conditions. Cracks in the building had appeared just one day before it collapsed, but the factories’ workers were told to go into a building showing deteriorating structural integrity anyway.

According to CNNMoney’s report, Joe Fresh, which is supplying some products for J.C. Penney Company, Inc. (NYSE:JCP), uses some manufacturers in the building, and a factory there had shipped an order to Benetton just weeks before. There’s a claim that one factory counts Wal-Mart Stores, Inc. (NYSE:WMT) as a buyer, which the retail behemoth denies.

This isn’t even the first time a horrific tragedy has occurred at a Bangladeshi garment factory recently. A November fire trapped and killed 112 people and 200 more were injured. That factory definitely made items for Wal-Mart Stores, Inc. (NYSE:WMT) and Sears Holdings, although each retailer said they hadn’t realized their connection.

Tragedy and transformations
Investors with long memories might recall that human-rights-related incidents can seriously hurt corporate reputations. As much as tragedies invoke horror and sadness — and a wish that things like that didn’t happen in the world — at least some companies have responded to criticism on human rights issues, improving their supply chains by leaps and bounds.

For example, NIKE, Inc. (NYSE:NKE) has transformed its supply chain in recent years, reversing course after public outrage about sweatshop labor in the past. The general public, including the investing public, may not even realize it, but NIKE, Inc. (NYSE:NKE) now has strong policies in place for a positive supply chain, and it’s even strengthening them.

The Gap Inc. (NYSE:GPS)‘s business has presented its ups and downs for investors over the years, but the retailer’s supply chain policy is one thing it’s gotten right for a while now. The company has a Social and Environmental Responsibility department that employs 70 people, all of whom are dedicated to addressing issues like these. The retailer’s Code of Vendor Conduct policy forbids use of child labor, discrimination, and forced labor, and requires its vendors to treat all workers with respect and dignity and pay fair wages. It also requires safe work conditions and reasonable working hours.

Speaking of human rights and supply chains, the war in the Democratic Republic of Congo has brought public attention to “conflict minerals,” which are used in all manner of electronics and other consumer goods. The SEC has mandated that public companies provide conflict mineral disclosure regarding their supply chains.

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