More Than £2bn Wiped Off The Value Of Boohoo And Why It’s Now In Danger Of Infecting The Rest Of Fast Fashion

Shares in Boohoo continue to nosedive, now over £2 billion has been wiped off the fast fashion retailer’s value since the original Sunday Times report into allegations of modern slavery was published over a week ago.

Despite Boohoo reporting that they were launching an immediate investigation into its supply chain, it appears that this has not satisfied many ethical investors.

A statement from the company last week read, “As one of a number of retailers that source products in the area, boohoo wants to reiterate that it does not and will not condone any incidence of mistreatment of employees and of non-compliance with our strict supplier code of conduct.

“Boohoo remains committed to supporting UK manufacturing and is determined to drive up standards where this is required.

“Where help and support for improvement is required we have and will continue to provide it, to ensure that everyone working to produce clothing in Leicester is properly remunerated, at least the National Minimum Wage, fairly treated and safe at work.”

However, late last week, new reports of unsafe working conditions at Leicester factories which supply Boohoo resulted in investors selling their stakes in the company.

Analysts at Shore Capital sent out advice to sell Boohoo shares, saying the allegations were likely to mean “growing difficulty” for ethical investors. Aberdeen Standard Investments sold off 27m shares worth about £80m last week, criticising Boohoo’s “inadequate” response to allegations of malpractice.

And on Monday, analysts at Bank of America issued detailed guidance suggesting that the pace of Boohoo’s sales growth in the UK could be halved by the bad publicity while its costs might have to increase by up to £20m a year in order to fix potential malpractice in its supply chain.

In contrast, ASOS today released its Q3 trading statement, reporting group sales up 10% to £1,014.2m and an increase in its active customer base up 16% to 23 million.

Chief executive, Nick Beighton said, “While we remain cautious about the consumer impact of Covid-19 looking forward, we are on track to deliver strong year-on-year profit growth and to return to positive free cash flow for the full-year.”

However, on the analysts call, he sounded a note of caution saying he’s “very worried” about the potential impact on the fast fashion industry from the Boohoo worker scandal.

And it now emerges that ASOS pulled a plan two years ago to use more Leicester factories owing to concerns over the welfare of workers. And in the subsequent three years, it has dropped two factories in the town due to poor ethical standards.

ASOS has for some time been transparent about its supply chain and the suppliers it uses, something Boohoo has not done although says it now will. However, in its guidance, the Bank of America also said, “In our view, part of the problem Boohoo has had through these accusations is that it does not appear to have full transparency on all of its supply chain, particularly its Tier 2 suppliers.”

As Boohoo sneezes, will it infect the rest of fast fashion or can Boohoo be sufficiently quarantined until it has recovered from the virus?

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