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Boohoo Shoppers Undeterred by Scandal

The ultra-fast fashion company boosted its outlook as its core customer base appeared unfazed by reports of poor working conditions in its supply chain.
Source: Boohoo Image Library
By
  • Sarah Kent
BoF PROFESSIONAL

LONDON, United Kingdom — Boohoo's summer of scandals over working conditions at its factories appears to have had little effect on its bottom line.

The company reported revenue of nearly £450 million ($535 million) in the three months to August 31, up 44 percent compared to a year earlier. Net profit in its first half rose by the same percentage to £52 million. Boohoo has increased its guidance for the year, forecasting revenue growth of between 28 and 32 percent.

Though the company's share price remains off record highs seen in June, it now looks solidly on the road to recovery following a tumultuous summer. The Manchester-based ultra-fast-fashion group had been riding high through the pandemic as bored and housebound young consumers drove rising sales. That came to a crashing halt in late June, when a series of reports resurfaced long-standing allegations of abuse in the company's UK-based supply chain, linking those conditions to an outbreak of Covid-19 in the manufacturing hub of Leicester.

The scandal played into mounting criticism of fast fashion by consumers, investors and regulators, concerned about the social and environmental impact of low-cost, high-volume producers. But for the most part, social media ire has not translated into weaker sales.

Social media ire has not translated into weaker sales.

Boohoo's strong performance plays into broader market trends. Last month, Asos said it expected to report sales growth of nearly 20 percent when it releases its annual results in October. H&M group and Zara-owner Inditex have both seen sales recover faster than expected, despite their substantial reliance on brick-and-mortar retail channels.

It's a boost to the company's broader ambitions. Founded in Manchester nearly 15 years ago, Boohoo has grown into an ultra-fast-fashion juggernaut. It swiftly carved out a dominant position among new breed of digitally savvy, low-cost brands, establishing a test-and-repeat model of production that allowed it to keep up with the rapidly accelerating pace of Instagram trends. In recent years, the company started empire-building, snapping up troubled high-street brands like Karen Millen, Oasis and Warehouse to broaden out its customer base.

But the company has also consistently faced allegations of poor working conditions in its supplier base, much of which is based in the UK to guarantee speed to market. While this summer’s blow up appears to have left sales unscathed, the business remains under scrutiny from investors and regulators.

The company acted swiftly to try and contain the damage, cutting ties with two suppliers and launching an independent review. On Friday, it published the results: a critical review of long-standing governance failings that verified allegations of poor working conditions throughout the supply chain. It also concluded that Boohoo did not deliberately allow such conditions, intentionally profit from them or break any laws.

The business remains under scrutiny from investors and regulators.

“Boohoo’s culpability lies not in doing nothing but that they did too little too late,” the report found, adding a series of recommendations, including regularly published supplier lists, immediate spot checks across the entire UK supply chain and new systems to manage and ensure supply chain compliance. Among other measures, the company said it is appointing two new non-executive directors to its board, strengthening its sourcing team and establishing new purchasing principles for its buyers.

The steps seemed to quell many investors’ concerns for the time being. However, the company’s supply chain remains in focus and it will need to continue to show progress. Labour organisations Labour Behind the Label and the Ethical Trading Initiative declined to participate in the review, pointing to its narrow remit and raising concerns about its independence. Both have already called for more action.

The company acknowledged the path ahead in an extended investor call Wednesday.

“We are aware that we will not achieve our ambition to be the fashion e-commerce leader, not be a strong investment proposition and not succeed if we do not get this right in terms of compliance and sustainability,” Chief Executive John Lyttle said. “We intend to build all shareholders' confidence that these matters will be dealt with appropriately and sensitively and that they will not recur.”

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