Fallout of Fast Fashion – what it means for companies going forward
Friday 10th July 2020
The recent trend towards greater social responsibility within large companies is clear through the backlash online fashion company Boohoo has received following reports that it purchases from factories that underpay their workers. The Sunday Times further reported that one such factory operated during lockdown and failed to put measures in place to protect their workers from COVID-19. In fact, it was stated that some Leicester factories operated at 100% capacity. It is known that Boohoo purchases roughly 80% of its products from Leicester factories.
During lockdown, Boohoo was one of the few companies to have seen a surge in sales. A 44% growth in the first quarter led to share prices increasing by 22%. With many companies closing to follow Government guidelines, it was questioned why authorities did not consider how the increase in production had been managed safely. Further, it was recently unveiled that a £150 million incentive-based executive bonus scheme will be on the line to encourage further growth in Boohoo’s sales over the next few years. With recent news already causing issues for the company, whether Boohoo can recover will depend on consumers.
The impact of these allegations has proven harmful for the company. On Monday, £1.1 billion of the company’s value was lost. This quickly dropped to £2 billion on Wednesday. Furthermore, clothing businesses Next and ASOS pulled Boohoo’s clothing from sale in an effort to dissociate themselves from the brand. The company’s shares have continued to fall; it was reported that the shares had dropped 12% on Tuesday. Amidst the climate of social responsibility and the trend towards more ethical shopping, it is no surprise that Boohoo has suffered. The current trend has seen many brands criticised for their lack of action regarding the ‘Black Lives Matter’ movement and the recent events with Boohoo appear to mimic this, albeit in a different context.
Chief executive of the company, John Lyttle, commented that the company will not falter to end any relationships with factories that are breaching the ethical code of conduct. However, it is unclear still how swift recovery will be for the brand. It is sensed that the straightforward approach to resolution is vital to recovering its image. Liberum’s Wayne Brown commented that the effort to investigate will ‘start to help rebuild confidence that Boohoo intends to do the right thing’. Boohoo’s effort to investigate its supply chain independently proves this may be so.
One of the company’s largest shareholders, Jupiter Asset Management, is reported to be engaging with Boohoo over the supply issues. Jupiter reaffirmed Lyttle’s comment that any factory breaching the code of conduct will have their relationship terminated.
However, Aneesha Sherman, an industry analyst, emphasises that the consideration that consumers have for ‘Environment, social and governance’ issues is a huge problem for fast fashion companies. Citing this revelation, Sherman suggests that consumers are ‘more conscious’ about the ethical considerations around the products they buy. Should this remain a prominent focus, Boohoo may struggle to recover and may even find their shares further decreasing.
Ultimately, the shares currently continue to drop as social pressure to boycott the brand increases. The link between a company’s reputation and its economic value demonstrates that, going forward, companies should be entirely conscious and aware of all stages of their supply chain before another set of information is leaked having a similar effect.
