Fashion retailer Boohoo reports major growth in 2020 despite COVID pandemic and controversial practices

Online fashion retailer Boohoo has defied the UK’s retail slump and posted a 51% rise in profit over the first half of 2020 – but Boohoo’s stellar financial performance isn’t without controversy.

Retail spending in the UK has been on a steady decline for more than a decade. According to researchers at Deloitte UK, 2019 had the slowest rate of retail spending since 2010 – which in turn has led to the loss of 85,000 jobs and the closure of more than 9,000 brick-and-mortar stores across the country.

But fast-forward to 2020, and the global COVID-19 pandemic has sent the UK’s crippling retail performance from bad to worse.

The Centre for Retail Research is now forecasting total 2020 retail sales in the UK to decline by 4.6% year-over-year. That equates to a £17bn sales gap – which is an all-time low for the last decade. As a result of that major blow, the UK’s retail market is expected to keep contracting right into next year, and won’t regain last year’s levels until 2022.

Against that rather depressing backdrop, the bar for success is now pretty low in the UK’s retail space where financial performance is concerned. That’s why Boohoo’s H1 (first half of the year) 2020 performance has lifted so many eyebrows.

Boohoo hasn’t just defied the UK’s declining retail market – the fast-fashion brand is actually setting new records.

Boohoo is performing better than ever

In the first six months of 2020, the Manchester-based company reported a 45% increase in revenue to reach £816.5m. Pre-tax profits rose to £68.1m in the six months to 31 August. That represents a 51% increase year-over-year, with several key markets posting a major increase in sales activity.

Revenue growth shot up by 83% in the United States. As a result of that surge, international sales now account for 47% of total group revenue – and in a tough retail climate in which many retailers are losing customers (if not closing entirely), Boohoo has attracted millions of new ones.

The company reported a 34% rise in the number of its active customers over the last 12 months, hitting 17.4m. Boohoo acknowledged that this “exceptional increase” was essentially a direct result of the UK Government’s lockdown restrictions in the spring of 2020.

It makes perfect sense. Social distancing measures and retail closures have pushed throngs of customers to alter their behaviour and take their spending online. That’s why Boohoo has reported a 10% increase in the number of items per basket and lower-than-average return rates – and rather than remain stationary, Boohoo has been using this surge of income to fund a series of strategic acquisitions.

Last year, the ambitious retailer acquired fellow fashion brands Miss Pap, Karen Millen and Coast. But in June 2020, Boohoo also went on to purchase the well-known women’s brands Oasis and Warehouse. And in May, Boohoo finally bought the 34% minority interest it didn’t already own in PrettyLittleThing – a full two years before its original 2022 option-to-acquire date.

When paired with existing brands Boohoo, BoohooMAN and Nasty Gal, that brings the company’s total brand count up to seven. Nasty Gal has been particularly beneficial in adding value for shareholders, with revenue up 106% year-on-year and an active customer base of 1.8m.

Yet while Boohoo’s upward trajectory shows no signs of stopping, the UK retailer’s meteoric rise has recently become tarnished with controversy around its fast-fashion practices and questionable working conditions.

Investigating working conditions at Boohoo

In July 2020, an undercover reporter working for the Sunday Times published a damning report on working conditions in a Leicester factory which supplies garments to Boohoo – and the findings of that report unleashed a storm of criticism against the online retail giant.

Although the UK’s minimum wage for workers aged 25 and over is £8.72, staff at the factory were being paid as little as £3.50 an hour. This revelation has subsequently stoked accusations that working for the brand is akin to “modern slavery”.

It’s likely these low wage offerings stem indirectly from Boohoo’s budget-friendly product line.

The company’s flagship brand is well-known for offering dresses that start from just £5. And while both environmental and human campaigners argue this practice is totally unsustainable, it’s these controversially razor-thin supply chain costs that are inevitably responsible for the company’s low prices and happy customers.

But supply chain management and human rights isn’t the only issue here.

In the Sunday Times’ report from earlier this year, workers were also found to have not been wearing any protective equipment to stop the spread of COVID-19, and there were no social distancing measures or additional hygiene measures being implemented to protect staff from contagion.

Unfortunately for Boohoo, July’s undercover report on unsafe and underpaid working conditions isn’t the first controversy to hit the company. Past reports suggest that employees have been unfairly punished or even had their contracts terminated for so-called infractions like smiling or checking the time on their mobile phones.

These revelations have pushed other big UK clothes retailers including Next, Asos and Zalando to announce their intentions to stop selling Boohoo clothes on their respective websites.

And while these controversies have undeniably wiped a lot of value off of Boohoo’s share price in 2020, they have clearly had a minimal impact on sales volume.

Accepting recommendations and making improvements

In the wake of July’s undercover report and the subsequent fallout, Boohoo ordered an independent review of its working conditions and supply chain led by Alison Levitt QC.

Because Boohoo is a publicly traded company, the results of that report were made public at the end of September 2020.

The findings indicated that there was no evidence the company or its officers committed any criminal offenses – but slammed Boohoo’s “weak corporate governance” and lack of supply chain management.

The report confirmed staff in Leicester (which were not direct employees of Boohoo) were indeed being underpaid, and it also found that Boohoo’s company directors knew there were issues around working conditions in Leicester and had not moved quickly enough to remedy the problem.

The report also declared that while Boohoo appeared not to take any responsibility for the workers at this particular factory, there was no evidence to indicate the company’s purchasing practices were responsible for the spread of COVID-19.

In the company’s H1 results, Boohoo’s management said that all of the recommendations made in this report have now been accepted and improvements in supply chain governance would be “implemented in full”.

Despite Boohoo’s controversial practices, it can’t be denied the online company is one of few financial successes to emerge from the UK’s crumbling retail market in 2020. Yet as sustainability continues to build momentum in terms of consumer demand, the long-term implications of these controversies and Boohoo’s ability to rebuild its brand reputation will remain to be seen.

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About the author

Nicholas joined in 2018 to set up the Company Secretarial Department in the group’s company formation divisions. After establishing the department, he was a key stakeholder in the development of Linnear CoSec. Prior to joining the group, Nicholas worked in a variety of client-facing positions at an international provider of corporate services, caring for a diverse portfolio of companies. He is a Chartered Secretary and Governance Professional, and holds a bachelor's degree in Politics as well as a Masters in Corporate Governance.

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