Boohoo shares continued to slump this morning after more than three days of losses, following allegations of poor working conditions in the fast fashion firm’s garment factories that have weighed on analysts’ sales forecasts.
Shares slumped 17.7 per cent to 230p yesterday, after hovering around the 410p mark for the majority of June. Investors continued their sharp sell-off this morning, with Boohoo shares falling 5.7 per cent to 217p at 11.50am.
The steep share price drop comes after explosive allegations of working conditions at a factory affiliated to the retailer in Leicester, following a Sunday Times investigation that revealed workers were paid as little as £3.50 an hour.
Boohoo made swift efforts to distance itself from the Jaswal Fashions factory and its supply chain, adding that it was “shocked and appalled” by the revelations.
But the online retailer’s announcement on Wednesday that it will launch an independent review of its UK supply chain and plug £10m in “eradicating malpractice” did little to allay investors, causing one of its main shareholders to dump the bulk of its stock on Friday.
Standard Life Aberdeen (SLA), the UK’s largest listed asset manager, sold off shares in the fashion brand worth nearly £80m, after slamming Boohoo’s “inadequate” response to allegations around its garment manufacturing practices.
“Having spoken to Boohoo’s management team a number of times this week in light of recent concerning allegations, we view their response as inadequate in scope, timeliness and gravity,” said Lesley Duncan, deputy head of UK equities at Aberdeen Standard Investments, SLA’s fund management business.
SLA’s comments sparked a sharp sell-off in Boohoo shares, causing short-seller PSquared Asset Management to place bets worth more than £20m against the company’s stock.
Shore Capital analysts yesterday reiterated their stock rating for Boohoo, advising investors to sell shares in the firm after highlighting “growing difficulty” for investors in sustainable fashion brands.
“Having seen a significant shareholder being so vocal with their concerns surrounding working practices, we believe that there will be growing difficulty for [ethical] investors in this arena,” Shore Capital said in a note.
Meanwhile, analysts at Bank of America yesterday suggested Boohoo’s sales growth in the UK could be halved by negative publicity relating to the factory allegations, adding that the firm’s costs may increase by up to £20m a year as a result of efforts to weed out malpractice in its supply chain.
“In our view, part of the problem Boohoo has had through these accusations is that it does not appear to have full transparency on all of its supply chain, particularly its Tier 2 suppliers,” said Bank of America in an analysts note.
Major retailers Next, Zalando, Amazon and Asos all cut ties with the fast fashion brand last week, wiping £1.5bn from Boohoo’s market value in just two days.
It comes as a separate Boohoo warehouse in Sheffield was yesterday branded a “breeding ground” for coronavirus, after 25 workers tested positive for coronavirus and dozens more suffered symptoms.
Workers at the building, which distributes garments for Boohoo’s Pretty Little Thing label, said they were forced to continue working 12-hour shifts throughout lockdown despite social distancing rules.
Sheffield South East MP Clive Betts told the Sunday Times that 50 workers had contacted him to voice concerns about procedures at the warehouse.
Home secretary Priti Patel on Sunday said she feared “cultural sensitivities” have prevented police from cracking down on illegal sweatshops in the UK’s fast fashion industry amid concerns that they would be accused of racism.
Patel said she is now considering an overhaul to modern slavery laws over concerns that current legislation is “not fit for purpose”.