Boohoo shares plunge again as vow to probe supply chain falls flat

Boohoo shares have plunged 35% this week

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8 July 2020

Boohoo’s attempt to stamp out growing City fears over the fallout from modern slavery allegations fell flat today as shares crashed, wiping £300 million off the retailer’s value.

The online fashion retailer attempted to nix the growing scandal by appointing Alison Levitt, a QC, to review its supply chain in a bid to find out whether factories were meeting minimum wage and Covid-19 rules.

It also vowed to spend £10 million to “eradicate supply chain malpractice” and speed up an existing independent review by ethical audit specialist Verisio and Bureau Veritas, which kicked off in May. There have been concerns over Leicester’s clothing industry dating back to at least 2017.

The company is scrambling to contain the impact of a Sunday Times investigation which alleged staff at a Leicester clothing factory carrying a sign marked ‘Jaswal Fashion’ were being paid £3.50 an hour, while the minimum wage for someone over 25 is £8.72, and not adhering to social distancing rules. Staff were working on clothes for Boohoo owned Nasty Gal.

Boohoo said it had found "some inaccuracies" in the report, saying it had “not found evidence of suppliers paying workers £3.50 per hour”.

It claims that the clothes had been made in Morocco and were just being repackaged in Leicester at a premises formerly operated by Jaswal Fashions, which has never been a Boohoo supplier. The order was placed with Revolution Clothing, which outsourced the job to Morefray Limited, which made the clothes in Morocco and repackaged them in Leicester.

Levitt will study suppliers’ minimum wage compliance, Covid standard, working hours, contracts and record keeping and Boohoo will update on her initial progress in September.

Chief executive John Lyttle said: "As a board we are deeply shocked by the recent allegations about the Leicester garment industry.

"We wish to reiterate how seriously we are taking these matters and we will not hesitate to terminate any relationships where non-compliance with our Code of Conduct is found."

The scandal has seen Next, Asos and Zalando drop Boohoo clothes from their websites, while it faces a potential exodus from social media influencers who have provided a foundation for its meteoric sales growth in recent year.

The allegations have sent Boohoo’s share price tumbling, down 35% this week and cutting the firm’s value by £1.94 billion. Today the stock fell 32p or 12% to 229p, valuing it at £2.9 billion, marginally below arch rival Asos’ value. It also puts bosses further away from a £150 million bonus package, which is dependent on a surge in the share price. Umar Kamani, the boss of Boohoo owned Pretty Little Thing, has this week alluded to the scandal on his Twitter account.

CMC Markets analyst Michael Hewson said: “If management were hoping that this would help stabilise the share price and draw a line under recent events, they couldn’t have been more wrong, with the shares falling again, and now down over 35% this week.”

Emily Salter, retail analyst at GlobalData, said: “Though questions about boohoo’s ethics have not hindered its impressive growth previously, this allegation is more likely to make an impression on shoppers due to its location and occurrence during a time when retailers’ actions are increasingly under scrutiny. The demand for cheap fashionable clothing will not disappear but the press coverage and actions resulting from the allegation could have long-lasting impacts on transparency in fashion."

Analysts at Peel Hunt labelled the stock a Buy, adding: "Fundamentally, we see the share price fall as a buying opportunity, accepting that ESG remains a work in progress for boohoo and that the group and board remain committed to rebuilding the reputation of the Leicester factories."

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Boohoo shares plunge again as vow to probe supply chain falls flat

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