Zara owner Inditex agrees 20% pay hike in Spain

Shares in Zara owner Inditex fell as much as 4.7% on Friday after the world's biggest fast fashion retailer agreed an inflation-busting 20% increase in average wages for shop workers in its home market of Spain.

Spain's two largest unions, CCOO and UGT, announced the pay increase late Thursday, with UGT saying salaries were set to rise as much as 40% in some parts of the country.

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 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 Inditex's different brands, according to the agreement document signed by Inditex and unions seen by Reuters. As well as Zara, Inditex owns eight brands in Spain including Massimo Dutti, Pull & Bear and Bershka.

The move establishes a marker for Inditex rivals in Spain that are still negotiating wage increases, unions said, and could prove a headache for businesses and policymakers alike, who are 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. Average annual inflation was 8.4%, the highest since 1986.

Spain's main business group CEOE in a statement welcomed the agreement but warned too many salary increases could provoke a second wave of 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. "Even if cost of goods sold headwinds are reversing there will still to be cost increases to help mitigate the increase in wages," Deutsche Bank analysts said in a recent report.

Other Spanish retailers such as supermarkets chains have so far limited pay rises to inflation, but Inditex rival Fast Retailing Co, owner of Uniqlo, offered an increase of as much as 40% in January in Japan, which some analysts speculated would pressure other fashion retailers to follow suit amid a battle to retain young talent in tight labour markets.

Sweden's H&M in December announced a 500 euro ($535) bonus to 4,000 shop workers in Spain and Portugal after Inditex offered 1,000 euros to shop workers in its home market.

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, the labour agreement said. 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.