Summary

• An independent review identified several flaws in Boohoo’s Leicester supply chain
• In July 2020, the fashion retailer had appointed Alison Levitt QC to conduct an assessment regarding its responsibilities and duties related to the workforce in its Leicester supply chain.
• The review recommended improvements to the retailer’s corporate governance, compliance, and monitoring processes, among others.

Several flaws in the Boohoo Group plc’s (LON:BOO) Leicester supply chain has been discovered by the independent review undertaken in early July 2020 for its UK supply chain. An enquiry by Alison Levitt QC, apart from recognising the failings, suggested improvement measures for the retailer’s corporate governance, compliance, and monitoring processes. As per the company, Ms Levitt seemed satisfied that Boohoo did not intentionally allow poor conditions and lower payment for workers in its supply chain. She added that the fashion retailer did not generate profit from them as the company’s business model has not been based on exploiting the workforce in Leicester.

It is to be recalled that the fashion retailer had appointed Alison Levitt QC for conducting the assessment to consider its responsibilities and duties related to the workforce in its Leicester supply chain. The review mentioned that the measures being taken now by Boohoo to solve the issues in its Leicester supply chain was implemented about a year back. It added that the steps were a part of processes that the retailer had put in place by itself and not as a reaction to the negative publicity and allegations that the company had to face in July and August 2020. However, the processes could not advance quickly enough to bring the desired results.

Further, the company stated that Ms Levitt was confident that the alterations that Boohoo needed to make involved a relatively easily-achieved realignment of its priorities and governance systems. She felt that the company’s board should not feel discouraged, as the retailer has already started to put things right.

Boohoo said in a recently released statement on 25 September 2020 stated that the findings and recommendations of the independent review were evident. The retailer recognised that for bringing the real changes in the Leicester textile industry, it was necessary to undertake additional clear, strong, and measurable actions, besides those that the company had already employed. The Boohoo board has reviewed the recommendations made by Ms Levitt and plans to implement them completely.

Some key recommendations that Boohoo would undertake:

John Lyttle, Group CEO at Boohoo said that the review had presented significant and unacceptable issues in the retailer’s supply chain. Lyttle added that in addition to the measures already in place, the company required to further improve its governance, oversight and compliance.

Some of the key steps that the retailer plans to undertake.

• Corporate governance: Boohoo would appoint an expert to provide independent oversight regarding the implementation of its change agenda. The company board would have an independent director to oversee issues related to environmental, social, and governance (ESG) matters. The supply chain compliance committee would prioritise guaranteeing compliance in relation to COVID-19.

• Redefine purchasing practices: Boohoo would strengthen its sourcing with a focus on sustainability and compliance. Disciplinary action would be taken against placing orders with unapproved suppliers.

• Supply chain standards: Necessary actions and transparency around supply chain would result in improved conditions for workers. Boohoo has already appointed two external supply chain and compliance audit companies who recently visited the majority of the retailer’s Leicester suppliers.
• Supporting Leicester's workers and their rights: Since the review mentioned that some workers in the supply chain were not properly paid for their work, Boohoo would form a Garment & Textiles Community Trust. This Trust would be governed by independent trustees and provide it with start-up funding and annual support. The retailer would ensure that the workers understand and exercise their rights properly.
• Support for suppliers: The fashion retailer would like to work collaboratively with suppliers, colleagues, and other external organisations to support best practice operations.
• Demonstrate best practice: With the launch of a state-of-the-art manufacturing unit in Leicester, Boohoo would show best practice, besides developing skills and capabilities of its suppliers in the areas of core management systems d worker engagement.

Also read: Retailers adopt 5-pronged strategy to fight Covid-19 crisis: focus on TSCO, SBRY, and MRW

Recent financial updates from Boohoo

In mid-June 2020, Boohoo Group announced its trading statement for the three months ended 31 May 2020. The group posted total revenue of £367.8 million for FY21, up 45 per cent year-on-year (YOY) as compared to £254.3 million recorded in FY20. The retailer said that in the times of unprecedented crisis due to the coronavirus pandemic, its first quarter (Q1) trading has been very strong.

The Q1 results showed the determination and flexibility of its staff, company’s capabilities and preparedness to deploy required means of working for capturing and processing demand by using its flexible supply chain. From Hilco Capital Limited, the fashion retailer acquired the online businesses and entire IP (intellectual property) of well-known UK brands - Oasis and Warehouse, for £5.25 million in cash.

Boohoo started 2020 with sustained momentum after a strong finish to its previous financial year. Trading during mid-March 2020 through to early April 2020 remained mixed, due to the pandemic. The months of April and May 2020 presented a strong performance across all brands and geographies.

For the current financial year ending 28 February 2021, the company expects to deliver a strong performance in terms of growth and profitability. The growth in revenue is projected to be around 25 per cent for the current financial year, with an adjusted EBITDA margin of 9.5 to 10 per cent.

The stock performance of Bohoo Group

On 25 September 2020, the company’s stock (LON:BOO) closed at £374.50 up 15.44 per cent. The 52-week low-high range was recorded as 157.50 and 415.00. With a market capitalisation (Mcap) of £4,083.87 million, the stock provided a positive return on price, which was 25.21 per cent on a year to date (YTD) basis.

Conclusion

The independent review initiated by Boohoo after allegations regarding its treatment of people working in the garment industry in Leicester, identified some flaws that existed in its UK supply chain. The fashion retailer had put in place systems for compliance, corporate governance, and supplier code of conduct. However, as they did not bring the desired results timely, the fashion retailer has agreed to the recommendations provided by the review.