Boohoo to cut suppliers who don't meet standards after 'modern slavery' report
Millennial fashion darling Boohoo’s stock has suffered a 14% plunge as investors assessed the fallout from a Sunday Times report that its clothes had been made in a factory with slavery practices in Leicester.
The company said today that it will review its supply chain after a report that said staff at a company carrying a sign with the name Jaswal Fashions was paying staff £3.50 an hour, less than half the minimum wage, and not observing social distancing.
Boohoo said Jaswal had gone out of business, and it believes another firm was occupying the premises.
The firm said: “We will not hesitate to immediately terminate relationships with any supplier who is found not to be acting within both the letter and spirit of our supplier code of conduct. This includes very clear expectations on transparency about second tier suppliers.”
Liberum analyst Wayne Brown downgraded the stock to Hold from Buy, arguing that shareholders may start to question the sustainability of the group’s margin structures if the allegations are proven.
“While we are huge fans of Boohoo’s strategy, with concerns on corporate governance and ethics escalating, the outlook for the shares becomes less certain,” Brown said, lowering his target price to 350p from 500p. The stock tumbled 53p to 335p this morning.
Analysts at Peel Hunt said: “Critics will say the group’s low pricing model encourages suppliers to flout guidelines and the law, although boohoo continues to take a hard line on any suppliers that fail to measure up.
“Consumers have so far taken little interest in Environmental, Social & Governance (ESG), whether at boohoo or elsewhere, although investors are increasingly less tolerant, which is more likely to be a force for change.”
It has been a tumultuous year for Boohoo – which has thrived during lockdown as customer bought casual clothing online – but faced an attack from short-seller ShadowFall over its stake in Pretty Little Thing. It bought the £323 million stake the same week.
