Boohoo has commissioned an independent review of its UK supply chain as it takes action to stem growing concerns from investors and customers about the treatment of workers who make its clothes.
The investigation will examine Boohoo suppliers’ compliance with regulations on wages and working practices during the pandemic and will be led by Alison Levitt, former principal legal adviser to the Crown Prosecution Service.
Boohoo also announced a £10m investment to “eradicate supply chain malpractice”. John Lyttle, chief executive, told the Financial Times the sum was intended “to show how seriously we are taking the issue”.
The online retailer has been rocked by fresh allegations that garment workers at a Leicester factory making clothes for one of its brands were paid below the minimum wage and suffered poor working conditions.
The fast-fashion group, whose quick turnround of new ranges turned it into one of the hottest stock investments in the UK, has lost more than a third of its market value since the allegations were reported in The Sunday Times last weekend.
They continued their slide on Wednesday, falling 12 per cent by lunchtime, despite the company’s efforts to reassure the market that it was dealing with the issues raised.
Rival fashion platforms including Next, Asos, Very.co.uk and Berlin-based Zalando have said in recent days that they would temporarily drop Boohoo products from their websites, pending greater transparency into the UK brand’s supply chain.
Some of the £10m will be spent on the Levitt review and on increased use of third-party compliance auditors, Bureau Veritas and Verisio. Mr Lyttle said Boohoo would also expand its own compliance team in Leicester, which currently numbers “around half a dozen” people.
“If we have a rogue operator we will find them and we will not do business with them. We do not need to do business with them,” he said.
He added that Boohoo would consider helping finance businesses in Leicester. “We’re looking at how we can be creative if there are strain points,” he said.
Investors have ditched Boohoo shares since the report alleging that workers making garments for its Nasty Gal brand were paid as little as £3.50 an hour at a factory in Leicester displaying the name Jaswal Fashions.
The company said its own investigation had found that Jaswal Fashions had never been a supplier but that the Nasty Gal order was placed with another company that had the items manufactured by a subcontractor in Morocco and shipped back to the UK. Once back in the UK, they were “repackaged into compliant boxes” for delivery to a Boohoo distribution centre in Burnley.
Its investigation had not discovered “evidence of suppliers paying workers £3.50 per hour” but did find “evidence of non-compliance with our code of conduct” by the suppliers involved in the Nasty Gal order. Boohoo said it had terminated its contracts with them.
Analysts at Jefferies said the decision to launch an independent investigation was a “clear move back on to the front foot in addressing concerns about the UK supply base”.
In response to the Boohoo statement, Next said it “looks forward to seeing the results of the investigation” but that it would not resume selling Boohoo labels until it was complete “and any necessary remedial action has been taken”.
Zalando said the company was “heading in the right direction” but that it would “require additional actions and evidence of their implementation” before resuming discussions on the commercial relationship between the two.
Boohoo said such wholesale revenues accounted for less than 4 per cent of group turnover in its last financial year, and 1.4 per cent in the first four months of this year.
It added that it would “welcome the opportunity” to work with Priti Patel, home secretary, who over the weekend promised a crackdown on clothing factories in Leicester.
