Boohoo agrees settlement in $100m US lawsuit over ‘fake promotions’
Boohoo has reached a settlement in a $100m (£80m) US lawsuit that alleged the online fashion retailer used fake promotions to mislead shoppers.
The Manchester-based company said the settlement had been agreed “without admission of liability” and within its existing provision for legal costs of £18m, a figure that included costs from other more run-of-the-mill cases such as trademark infringements or employment claims.
In the case, brought in California, Boohoo and its brands PrettyLittleThing and NastyGal were accused of running sham sales and promotions in the US for at least four to five years.
The suit alleged discounts being offered to US shoppers were based on inflated, or “fake”, original prices that customers had almost never previously been asked to pay.
Boohoo’s share price fell more than 5% on Tuesday after it announced the settlement but analysts said this was part of a general downturn in online fashion retail stocks in reaction to lacklustre results from the German specialist About You.
Andrew Wade, an analyst at Jefferies, said it was a “marginal positive to have the issue resolved and covered by existing provisions”.
Settlement of the case comes as Boohoo attempts to move on from a difficult few years in which its reputation has been damaged by allegations of poor working conditions in its UK suppliers’ factories in Leicester.
The company instituted an independent review of its working practices and has implemented a number of changes including opening its own factory in Leicester.
Boohoo has indicated its clothing prices are likely to rise this year after profits almost halved amid weakening consumer demand and rising costs.
The online fashion specialist said pre-tax profits fell 94% to £7.8m in the year to 28 February. Sales rose 14% to almost £2bn but the pace growth was a considerable step back from more than 40% in the previous year, as deliveries overseas were held up by disruption to international shipping and wavering demand during the coronavirus pandemic.