Why Boohoo Factory Abuse Is Still Making Headlines
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Since an undercover investigation of poor worker safety conditions and subpar pay in Leicester’s Jaswal Fashions factory, a subcontractor to Boohoo Group plc, the group has seen repeat headlines and continued investor fallout — with shares tumbling as much as 18 percent on Monday.
And the reckoning is likely to continue as the underlying reason has much to do with circumstance and perhaps more to do with investor change of heart, with the importance of sustainability metrics broadening across the mainstream financial sector.
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Karla Mora, a managing partner at Alante Capital, stressed it was the culmination of things contributing to Boohoo’s unfortunate spotlight, including the coronavirus and the halt to “business as usual,” as well as the momentum of the Black Lives Matter movement.
“Right now, people are paying attention and making stands about what they care about at a pace I’ve never seen in my lifetime,” said Mora, adding: “Ethics matters to business now — finally! And that matters to investors. So with more and more mainstream investors looking at environmental, social and corporate governance, or ESG, factors as determinants of risks, it simply makes opaque businesses too risky to invest in.”
Like coal financing, ultra-fast-fashion models are starting to get dropped by investors — in favor of investments with shared risk and value upstream. On Friday, Aberdeen Standard Investments, part of Standard Life Aberdeen, which is the U.K.’s largest listed asset manager, sold off two-thirds of its shareholding in Boohoo, to the tune of 27 million shares, over the allegations.
Retailers alike — including Next, Asos and Zalando — have dropped or slashed prices on Boohoo-branded apparel.
Just a few days prior, the group went into image repair mode, unveiling the launch of an immediate, independent review of its supply chain while pledging 10 million pounds to eradicate “workplace malpractice” and the shared sentiment of being “shocked, appalled and saddened.”
As a series of June announcements, including additional ESG-related small-cap and corporate bond funds would show, “ESG is a strategic priority” for the asset manager. As it is now with many others.
“Investor reaction is promising. Because as these brands begin to lose customers, if they can’t access the capital they need, we will see more go out of business and others pressured to further improve their business practices until we are at a point where ultra-fast-fashion simply cannot exist,” added Mora.
Analysts at Bank of America put out a note to shareholders on Monday warning continued negative headlines would not bode well for Boohoo, with potential revenue growth to slow to 15 to 20 percent this year, compared to 44 percent growth in 2019.
Boohoo owns PrettyLittleThing, Nasty Gal and Karen Millen, among other brands, and sources around 40 percent of its garments from the U.K.
With news of fast-fashion brand Quiz plc also investigating factories and hundreds of workers sick with coronavirus and four virus-related deaths at Dov Charney’s Los Angeles Apparel factory this past weekend, it is clear abuses are not isolated to those in Leicester.
Worker rights advocacy groups like U.K.-based Labour Behind the Label, which published a critical report on Boohoo and Leicester factory conditions at the end of June, and Los Angeles-based Garment Worker Center, which is pushing for passage of SB 1399, California’s Garment Worker Protection Act, are finally seeing their momentum building for garment worker justice after years of petitioning.
With more hyper-vigilant consumers online, human rights injustices in the supply chain are unlikely to disappear from headlines until the root causes are dismantled.
Bills like SB 1399 in California, which is home to the largest garment manufacturing industry in the U.S., aim to stop brands and retailers from turning to unauthorized subcontractors as their scapegoats, while also eliminating piece-rate pay.
It has met resistance from some industry groups, including the California Fashion Association (which counts Los Angeles Apparel as a member) calling for companies to “protect yourself” in a newsletter.
“Manufacturing jobs have a much higher economic multiplier effect than retail jobs, the debate around this bill should be about ethics and economics,” said Kristen Fanarakis, a founder of L.A.-based brand Senza Tempo Fashion, in response to the controversy.
For Fanarakis, the rampant abuses hidden in plain sight all while brands tout the “Made in America” label “hurts brands like mine who work with factories that pay their workers like they should — at the legal rate.” She has since been working with GWC to focus on collective action in the local industry.
When asked if the current strains spell disaster for ultra-fast fashion, Mora and Fanarakis expressed lasting thoughts. The consensus is that change will take time.
“It’s too easy for customers to just switch to the next fast-fashion label who hasn’t yet been so publicly shamed,” said Mora, who believes more mass behavioral change is needed at the consumer level, building upon the strides in rental, resale and “slow fashion.” With that, she believes reduced barriers to shift habits and increased “pressure to change from their own communities” is crucial.
In regard to the greater financial community, Fanarakis, a former Wall Street executive, added: “[Financial] regulation is likely to come at the tail end of this [pandemic],” explaining ESG is “not going away,” but will eventually lead to regulatory bodies like the Securities and Exchange Commission creating mandatory disclosure standards.
