Boohoo to serve American customers … from Sheffield

Fast fashion retailer Boohoo is to close operations at its 1.1m sq ft distribution centre in Pennsylvania and claims it will  now fulfil all US orders from its “state-of-the-art automated” UK warehouse in Sheffield.

In a message to the stock market this morning the Manchester-headquartered business said the move would “broaden its product offering for US customers and expand its routes to market”. 

However, the dramatic about turn in its US strategy appears to be the latest in a series of steps to slash costs.

Executive chairman Mahmud Kamani has faced wave after wave of fresh challenges in recent months, including competition from Chinese brand Shein, ethical issues over treatment of suppliers and poor performance of the share price, which have been snapped up by rival retailer Frasers. 

When Boohoo opened the giant warehouse in Harrisburg as recently as August 2023 it was claimed it  had the potential to “transform its fortunes in that market as it will slash delivery times to American shoppers.”

Boohoo, pointed to the fact that orders placed in the United States, it’s largest overseas market with sales of about $400 million in the 2022/23 financial year, were picked and packed in the UK then sent by plane to the United States, with delivery taking eight to 10 days.

Boohoo now claims that an “encouraging” recent trial showed US consumers valued an increase in the product range available over speed of delivery.

“Before this trial, US consumers were being offered only around 60% of the styles on sale in the UK,” the statement said

It continued: “The Group remains excited about the opportunity in the US and has been developing wider routes-to-market strategies, the first of which is the recent launch of Nasty Gal in Nordstrom stores. The Group is also in advanced talks with major US brands with regard to new routes to market for other brands within the Group.”

The huge distribution centre is operated by a third party and is a property lease that boohoo will now sublet. It is anticipated that boohoo operations at the site will end by 11 November 2024.The moves will result in a write-down on the Group’s balance sheet against the investments and costs associated with the US operation as well as certain one-off exceptional cash costs. 

These changes will result in a significant reduction in ongoing costs over the medium term. The Company said further details will be outlined in the half year results.

Mahmud Kamani

The founding Kamani family is now only the second largest shareholder as Mike Ashley’s Frasers Group has steadily increased its stake in Boohoo to more than 25%, a move it only describes as a “strategic investment”.

In May, theBusinessDesk.com reported that Boohoo staved off a shareholder revolt by withdrawing its bonus scheme which was to have been approved by shareholders at June’s annual general meeting.

The bonuses of £1m in cash and shares were approved by the remuneration committee for founder Mahmud Kamani and Carol Kane, and chief executive John Lyttle, despite them having missed their actual targets.

Investment bank, Panmure Liberum, posted an update by researchers Anubhav Malhotra and Wayne Brown this morning following the announcement, saying: “Boohoo is shutting down its US distribution centre and will now fulfil all US orders from its automated UK DC in Sheffield.

“The US distribution centre, which had been live for just over 12 months, was previously seen by the group as key to improving US performance by significantly improving the consumer delivery proposition.

“This will mean a return to the old UK based distribution model which proved a major pinch point during the last supply chain crisis.

“We think that while the decision is made with the view to right size the cost base and improve US profitability, it does suggest reduced ambitions around scaling up the D2C US business, and a shift to exploring alternate routes to market in the US – the first of which is the recent launch of Nasty Gal in Nordstrom stores.”

They added: “We think the change will be underlying earnings enhancing and should also release cash from working capital, but will come at the cost of breaking the lease, sunk cost in capital investment, and some cash exceptionals.”