Boohoo undercover sting – reaction and response

Manchester-based fast fashion retailer Boohoo could face a consumer boycott following the revelations in a BBC Panorama last night where the company has come under fire for heavy handed treatment of suppliers.

The programme featured undercover footage which showed the increasing hands-on role of executive chairman Mahmud Kamani in the operations of the business.

Following a BBC Panorama investigation into Boohoo, reporters have uncovered the fast-fashion firm has broken promises to make its clothes fairly and ethically, despite a company pledge to overhaul its practices in 2020.

Javed Siddiqui, professor in accountancy at Alliance Manchester Business School, said the programme highlighted the imbalance of power in the fiercely competitive fast-fashion market, where buyers such as Boohoo have all the negotiating power over the suppliers.

“When the buyers ‘impose’ such prices in this way, many suppliers tend to outsource orders to indirect manufacturers further down the supply chain,” he said.

“These informal suppliers are not generally subject to the strict certification regime that direct suppliers are often required comply with, and violations of human rights in the form of poor wage rates, unacceptable working conditions, and absence of workers voice are common across these informal suppliers.

“This investigation shows that there is dire need to for brands to ensure that supply chain certifications incorporate issues such as working conditions and human rights, and are carried out further down the supply chain, to incorporate the informal suppliers who are generally below the regulatory radar.

“If Boohoo continue to use such tactics, they open themselves to the risk of a consumer boycott, which can be a very effective way of forcing brands act more ethically.”

Also commenting on the news, Eleanor Harry, chief executive of HACE: Data Changing Child Labour, said: “While all businesses are under pressure to reduce costs and increase margins, driving down prices can cause a ripple effect, and has the potential to impact working conditions within the supply chain. This therefore carries a bigger business risk than the intended top line cost savings.

“Companies can have an impact across their whole supply chain, forcing companies and suppliers lower down to cut corners to save money. This extends down to the bottom tiers where poor working conditions are likely to be present. For example, the ILO and UNICEF estimate that 1 in 10 children are involved in child labour globally across a broad range of industries, 70% of whom work in agriculture.

“Poor ethical practices are incredibly damaging to a business, and the reputation risk also extends to investment risk. Within the broader economic landscape, the investment risk to supply chain failings is colossal. Decisions and actions from one part of an organisation can also have an effect on its shareholders wiping millions off the value of a business overnight.”

The programme showed a supplier in Leicester scrambling to meet an order from Boohoo, and also found orders placed through Boohoo’s so-called flagship Thurmaston Lane factory in Leicester were in fact being made by factories in Morocco and another four suppliers in Leicester.

However, the share price suffered barely a blip yesterday opening at 32.85 and closing at 32.40, suggesting shareholders have priced in the risk of reputational harm and robust relationships with suppliers.

In a statement sent to theBusinessDesk.com, as a response to a request for a comment on the BBC programme, Boohoo said: “Boohoo has not shied away from dealing with the problems of the past and we have invested significant time, effort and resource into driving positive change across every aspect of our business and supply chain. 

“Alison Levitt KC conducted an independent review of our supply chain and made a number of recommendations to improve working conditions and transparency. With oversight from Sir Brian Leveson, we have implemented every one of these recommendations including improving corporate governance, strengthening the ethical and compliance obligations on those wishing to supply Boohoo, regularly publishing our full list of approved global manufacturers, responsibly exiting from relationships with suppliers where standards are found to have fallen short, supplementing audit processes with regular unannounced checks and more. The action we’ve taken has already delivered significant change and we will continue to deliver on the commitments we’ve made.”