Britain's Boohoo vows to ditch unscrupulous suppliers as shares hammered

LONDON (Reuters) - British online fashion retailer Boohoo will end relationships with any supplier found to have breached its code of conduct, it said on Monday following a media report about dire working conditions in one English factory.

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Boohoo shares slumped more than 23% after The Sunday Times newspaper said workers in a factory in Leicester, central England, making clothes destined for Boohoo were being paid as little as 3.50 pounds ($4.38) an hour.

It said the factory, which displayed the sign Jaswal Fashions, was also operating last week during a local coronavirus lockdown in Leicester, without additional hygiene or social distancing measures in place.

On Sunday, Britain’s health minister Matt Hancock said he was worried about factory conditions in the city.

The factory conditions of Asian suppliers of British fast fashion retailers have been in the spotlight for over a decade but in recent years a light has also been shone on the exploitation of low-paid workers in UK factories.

Fast-growing Boohoo, which sells own-brand clothing, shoes and accessories targeted at 16 to 40-year-olds, is by far the biggest company on London’s AIM market with a capitalisation at Friday’s close of nearly 5 billion pounds. That’s more than double the market value of Marks & Spencer, Britain’s largest clothing retailer by sales value.

“We are grateful to The Sunday Times for highlighting the conditions at Jaswal Fashions, which, if as observed and reported by the undercover reporter, are totally unacceptable and fall woefully short of any standards acceptable in any workplace,” Boohoo said.

It said its early investigations had revealed that Jaswal Fashions was not a declared supplier and was also no longer trading as a garment manufacturer, indicating that a different company was using Jaswal’s former premises.

Boohoo said it was trying to establish the identity of this company.

“We are taking immediate action to thoroughly investigate how our garments were in their hands, will ensure that our suppliers immediately cease working with this company, and we will urgently review our relationship with any suppliers who have subcontracted work to the manufacturer in question,” it said.

Analysts at Liberum downgraded their investment stance to “hold” from “buy”, saying Boohoo’s statement did not go far enough.

But Peel Hunt analysts noted that consumers have so far taken little interest in Environmental, Social & Governance (ESG) issues, whether at Boohoo or elsewhere.

“Investors are increasingly less tolerant, which is more likely to be a force for change,” they said.

Reporting by James Davey; Editing by Michael Holden, David Clarke and Emelia Sithole-Matarise