Sup­ply chain claims ‘may per­ma­nently harm Boohoo’

The Daily Telegraph - Business - - Business - By Laura Onita

BOOHOO could be per­ma­nently dam­aged by an al­leged pay scan­dal in its sup­ply chain, an­a­lysts warned as the fast-fash­ion seller vowed to set up a “model fac­tory” in Le­ices­ter.

A row over safety con­di­tions and claims of il­le­gally low wages at a sup­plier have sparked se­ri­ous con­cerns among in­vestors, ex­perts at Bar­clays said. Shares in Boohoo have dropped by more than a third since the Sun­day

Times claimed ear­lier this month that a Le­ices­ter gar­ment maker linked to the on­line re­tailer was pay­ing work­ers less than the min­i­mum wage.

It left Boohoo scram­bling to con­vince in­vestors of its eth­i­cal cre­den­tials. Boohoo is ex­pected to pub­lish a blue­print for its independen­t sup­ply chain re­view later this month, with the first up­date due in Septem­ber.

The Bar­clays an­a­lysts said: “Many ques­tions are yet to be an­swered. At this stage, we think the most pru­dent ap­proach is to look at a wide range of sce­nar­ios.”

If it emerges that low wages are a wider is­sue in Boohoo’s sup­ply chain then the cost of man­u­fac­tur­ing could be pushed up, dent­ing the com­pany’s profit mar­gins.

The re­tailer – which de­nies all wrong­do­ing – cur­rently makes 40pc of its clothes in the UK.

Bar­clays cut its fore­cast for the com­pany’s share price from 470p to 350p un­til the in­ves­ti­ga­tion is com­plete. Other re­views by coun­cils and Par­lia­ment could yet add to Boohoo’s woes.

Re­tail an­a­lyst Clive Black, of bro­ker Shore Cap­i­tal, said: “If the cost for a mean­ing­ful amount of prod­uct was moved away from Le­ices­ter and as­sum­ing [higher wages], then UK-sourced prod­ucts are likely to cost a lot more.”

This could ul­ti­mately force the com­pany to raise prices, harm­ing its com­pet­i­tive edge in a bru­tal mar­ket.

The firm said it was plan­ning to launch a “model fac­tory” in Le­ices­ter to en­sure work­ers were treated fairly.

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