Shares in online fast fashion retailer Boohoo (BOO:AIM) remained in freefall on Wednesday, cheapening 19.2% to 211.12p with investors evidently not buying a comprehensive statement from the company in response to modern slavery allegations.

Judging by today’s price action, the market can’t shake off concerns that sales for Boohoo’s brands will be impacted by the current media storm.

AN ATROCIOUS WEEK

On Monday, Boohoo was forced to announce an investigation after it was reported that workers at one of its Leicester suppliers were being paid as little as £3.50 per hour, well below the minimum wage.

There were further allegations that workers were forced to work throughout the COVID-19 lockdown without social distancing measures being implemented or protective equipment available.

Then yesterday, it emerged that ASOS (ASC:AIM), Next (NXT) and Zalando have all dropped Boohoo’s brands from their websites as a result of these allegations.

Boohoo is set to launch an immediate independent review of its UK supply chain led by a QC. Other measures include a commitment to rebuild the reputation of the textile manufacturing industry in Leicester with an initial commitment to invest £10 million to eradicate supply chain malpractices and accelerate independent third-party audits from compliance specialists.

While these measures seem sensible, Shore Capital downgraded its rating from ‘hold’ to ‘sell’, explaining that sales will be impacted by not being on the ASOS, Next and Zalando websites in the short term.

‘We have noticed a surge in social media hashtags including “BoycottBoohoo” and we highlight that millennial consumers are interested in both sustainability and business ethics,’ explained the broker.

Shore Capital also questions the impact on the cost base and wonders whether Boohoo ‘has been experiencing input prices for goods that might be no longer sustainable. This may put pressure on gross margins and prices could rise, which would negatively impact their competitiveness.’

TURNING TIDE

AJ Bell investment director Russ Mould believes ‘the tide is turning for Boohoo. Despite pulling out all the stops, its crisis management efforts aren’t stemming the growing backlash against the company. The change in stance towards the retailer is quite remarkable. Only a few weeks ago everyone was applauding Boohoo for its ability to continue growing during the pandemic and investors were bidding up its share price to new record highs.

‘Now in the space of days the share price is falling fast, and a growing army of people are sharpening their knives.’

Mould believes a thorough review of Boohoo’s supply chain should have been carried out a long time ago. Allegations about poor supplier working practices actually date back to 2017.

‘Boohoo looks like a classic case study in the making for poor ESG practices given the supplier and wage controversy, its actions in buying companies from connected parties and the very large incentive plans for directors.

‘It’s also worth considering that the nature of the fast fashion model and low-price tag mean that many of its customers are buying clothes, wearing them once and chucking them, which is hardly ethical.

‘A social media backlash is now building against Boohoo as the likes of Next and ASOS temporarily stop selling its clothes and reality TV star Vas J Morgan becomes the first influencer and former Boohoo collaborator to boycott the brand.’

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Issue Date: 08 Jul 2020