By Corina Pons
MADRID (Reuters) -Inditex's shares slid on Friday after the world's biggest fast fashion retailer agreed an inflation-beating 20% rise in average wages for shop workers in the Zara owner's home market of Spain.
Spain's two largest unions, CCOO and UGT, announced the pay increase late on Thursday, with UGT saying salaries were set to rise by as much as 40% in some parts of the country. Inditex (BME:ITX) shares fell by as much as 4.7% on Friday after the news.
Inditex, which employs about 165,000 people in 177 countries, with a third of all staff based in Spain, did not respond to a request for comment. About 86% of its staff work in its 6,477 shops and most are women.
The pay hike is part of a "process of homogenisation" of working conditions for staff in different brands, according to the agreement signed by Inditex and unions seen by Reuters.
Inditex owns eight brands including Massimo Dutti, Pull & Bear and Bershka in Spain, where its move establishes a marker for rivals still negotiating wage rises, unions said.
The rise could prove a headache for businesses and policymakers trying to keep a lid on inflation.
"Wages for Inditex shop workers were very low in some places in Spain," UGT union leader Alvaro Cajigal said. "We hope it will set a precedent for other retail chains".
Spanish consumer prices rose 5.8% year-on-year in December, initial data from the National Statistics Institute showed, while average annual inflation was 8.4%, the highest since 1986.
Spain's main business group CEOE welcomed the deal but warned too many wage rises could trigger more inflation.
Inditex has already set itself apart from some rivals by passing on a larger chunk of rising costs, and analysts expect it to continue raising prices.
NEGATIVE READ-ACROSS?
Other Spanish retailers such as supermarkets chains have so far limited pay rises to inflation, but Fast Retailing Co, owner of Uniqlo, offered as much as 40% in January in Japan.
Analysts speculated that such a move would pressure other fashion retailers to follow suit amid a battle to retain young talent in tight labour markets.
"This creates a negative read-across for other global retailers such as H&M who will potentially see similar levels of wage inflation to maintain staffing," Deutsche Bank (ETR:DBKGn) analysts said in a report on Friday.
Sweden's H&M in December announced a 500 euro ($535) bonus for 4,000 shop workers in Spain and Portugal after Inditex offered 1,000 euros to workers in its home market.
The wage increases will cost Inditex about 167 million euros a year, or about 9.7% of its operating costs, Bankinter said in a note to clients.
The new increase means Inditex will pay a minimum wage of 1,500 euros ($1,610) a month to shop assistants and a minimum of 2,041 euros for workers with more responsibilities.
Shop assistants will also receive monthly sales commissions and annual incentives that will increase their salaries to at least 1,900 euros per month, UGT said.
Unions said Inditex also agreed to continue increasing salaries in line with inflation over the next three years, as other retailers in Spain have agreed.
CGT, a smaller Spanish union, has called off some planned strikes in Madrid and other cities on Saturday after the wage agreement, its leader Anibal Maestro said.
($1 = 0.9318 euro)