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Winter Is Coming for Britain’s Biggest Garment Hub

Boohoo has been canceling and reducing orders with its Leicester suppliers, but it’s not the only fashion e-tailer doing so, sources familiar with the matter told Sourcing Journal. Asos, Missguided, ISawItFirst, Quiz and others that rely on the English manufacturing hub to gratify the TikTok generation’s bottomless desire for cheap, trendy and quick-turnaround fashion are also pulling back in the face of collapsing customer demand and rising energy costs in the United Kingdom.

“Almost every brand is doing it at the moment,” said Sajjad Khan, founder and chairman of the Apparel & Textile Manufacturers Federation, a manufacturer trade group that launched at the Houses of Parliament in July. “The impact of the inflationary measures in the U.K. has had a knock-on effect, and that’s probably the reason why a lot of these guys are now not over-committing themselves. In the past, they would commit to that 12-week cycle, but now I think they’re not sure what will happen 12 weeks down the road.”

Leicester’s speed and proximity to these brands’ best-performing market—Britain, for instance, still accounts for more than half of Boohoo’s revenue—is also its Achilles heel.

“It means that we then get burdened with the short-term cycles of doing things to cater to demand immediately rather than having some forward planning,” Khan said. “The retailers know we’re here and they know that if they need something within a week or two, we’ll be able to deliver. And they can get the goods to them as soon as they need them, rather than have them sitting either in containers or being shipped in from other parts of the world.”

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One supplier was less diplomatic.

“Boohoo has canceled a load of orders,” the manufacturer told the Sunday Times, which first reported the nixed production over the weekend. “We are just here to do the fast stuff and when they don’t need it, they just stop it in its tracks.”

A representative from the retail giant, which also owns Debenham, Karen Millen, MissPap, Nasty Gal and PrettyLittleThing, told Sourcing Journal that the Sunday Times “really exaggerated” the situation and that in contrast to “much” of the sector is a “huge supporter” of British manufacturing.

“As is the case across the retail sector where everyone is currently navigating uncertain demand, we are constantly reviewing our requirements,” the spokesperson said. “We are fortunate to have very strong relationships with our supply chain and work closely with them to manage any change in demand responsibly.”

Asos, too, said that its “commitment to responsible manufacturing in Leicester remains unchanged.” A representative told Sourcing Journal that the e-tailer regularly reviews its current order book to make sure it’s appropriately sized but has no plans to cancel any completed stock.

A number of suppliers in Leicester are still reeling from the aftermath of the original Missguided’s bankruptcy, which left them with hundreds of millions of pounds in unpaid debts. The relaunched Missguided has been soliciting up to 80 percent in discounts for clothing they made but didn’t ship.

Boohoo, according to Dominique Muller, policy director of Labour Behind the Label, a Bristol-based workers’ rights group, has also extended its payment terms from 14 days to 30 or 60 days.

“There have been some concerns raised among suppliers as to whether or not Boohoo will pay or can pay for orders,” she said. As far as Muller can tell, however, the Kourtney Kardashian Barker collaborator hasn’t canceled orders that have already been shipped, though she doesn’t know how far along the aborted orders were. Nor, it would seem, has it asked for price cuts.

Asos said that it hasn’t changed its payment terms or asked for new discounts since February, while Boohoo did not answer questions regarding either. Missguided and ISawItFirst parent Frasers Group and Quiz did not respond to emails seeking comment.

On Wednesday, Boohoo cut profit guidance for the year after revenue in the first half to Aug. 31 fell tumbled by 10 percent. It now expects an earnings margin of between 3 percent and 5 percent, down from the previously estimated 4 percent to 7 percent. Asos also issued a profit warning earlier this month due to underwhelming August sales.

“There’s no doubt that consumer confidence is weak,” CEO John Lyttle told Bloomberg this week. “I don’t think any consumer is able to avoid the current inflationary pressures so everything, whether you go out for a drink or buy food at the supermarket, everything is impacted by inflationary pressures.”

Overall, there seems to be a sense of overwhelming desperation in Leicester, which makes more clothing than anywhere else in the United Kingdom. With the sinking pound, suppliers will be paying more for their fabrics and trims. They have to grapple with the soaring price of electricity, gas and everything else that the war in Ukraine has driven up. So far, brands don’t appear willing to pay the 30-to-50-pence premium on each garment, just so manufacturers can break even, Muller said. And so they’re taking their orders to “near-shore” destinations like Morocco, Turkey and Tunisia.

“Leicester has sort of been forced into this position where, for the last decade or so, it’s been developed by Boohoo and to a lesser extent other e-tailers as a really cheap sourcing place competing with Bangladesh and Pakistan rather than being allowed to make better-quality clothing that can withstand these price increases,” she said. “And it’s linked to the past 10 years of a government that has refused to hold business to account and at best is absent and at worst complicit in allowing big business to exploit workers and small producers.”

Labor costs in Britain have also shot up, which isn’t to Leicester’s advantage.

“Cheap fashion requires cheap production,” Khan said. “If you’re looking at labor costs, you’re talking about an absolute minimum of 10 pounds ($11) an hour. And when you add holiday pay, national insurance, etc., it equates to about 13 pounds ($14) an hour. It’s difficult to absorb that in cheap fashion consistently.”

What the city has become, he said, is a lab for the test-and-repeat model, which is the secret to many e-tailers’ success. Smaller batches of a wide variety of styles can be made in the city proper. When the most popular designs sell out and need to be made in greater quantities, they get “shipped off to other parts of the world to be made.”

There’s a reason Boohoo comes up a lot whenever garment manufacturing in Leicester is mentioned. In the city’s pre-pandemic heyday, when it was pumping out 2 million garments a week, the e-tailer claimed between 80 percent and 85 percent of its output. When reports of sub-minimum wages and life-threatening conditions at Leicester’s suppliers exploded into the mainstream in 2020, many of the so-called “sweatshops” were linked to Boohoo.

The scandal, plus Covid-19, has decimated Leicester’s landscape. In the aftermath, Boohoo slashed its U.K supply base from 400 to less than 80. (An updated supplier list on its website names just over 60.) Today, Khan estimates that Boohoo snaps up 30 percent to 40 percent of the city’s garments, with longer-term sourcing moving elsewhere.

But the company insists that it’s fully committed to Leicester. Last year, it helped establish the Leicester Garment and Textile Workers Trust to employ “guidance, advocacy and remedy” to tackle “some of the immediate and future needs” of the city’s workers. In April, it threw open the doors of a 23,000-square-foot space that will serve as a “center of excellence” for manufacturing on Thurmaston Lane. It created 180 new jobs for locals.

It’s difficult to ignore the struggles on the ground, however. Khan said that Leicester’s manufacturers are seeing production drops of 50 percent to 70 percent from what is typical this time of year. At one time, the city was home to 500 factories. In the past two years, it’s lost 350 of them. Thousands of workers have either been laid off or had their hours dramatically reduced. Six hundred of these were from the Missguided fracas, according to Labour Behind the Label.

“I think there will be another wave of losses simply because a recession is kicking in,” he said.

Khan said that brands appear to be taking a wait-and-see approach, which he said is “not the best practice.” Two major Leicester factories are shuttering next week because they “can’t see the near future”—that is, the next three months—of being able to continue paying their workers.

“The big failure on the part of the retailers, as far as we are concerned, is they have not been engaging with the manufacturers here,” he said. “So what they could have done is they could have talked to some of the manufacturers here and said, ‘Look, we know that there is a recession, we know you guys are struggling for production, so how about we give you a certain proportion of production that will at least help you to cover your costs and keep you in business, and then when we come out on the other side, you will be able to produce for us.’”

For Leicester’s suppliers, the lack of collaboration reeks of short-sightedness—to the brands’ detriment. Khan predicts that customer demand for fast fashion will ramp up again next year, not in spite of a recession but because of it.

“We’ve looked at this over a period of time; this [trend] happens over and over again,” Khan said. “In a recession, the short-term demand is actually what Leicester thrives on, and it will happen. The only downside to this is that if factories have to hold on for three, four or even six months, they will not have any production to keep their employees going. Either the employees will leave or the employers will get rid of those people because they’re not able to support the wages. And then when production picks up again, there will be nobody here to produce those.”

Right now, the city’s biggest manufacturers are all “crying out for work,” he added. Whatever business relief schemes the government has in the pipeline—such as a cap on energy bills—will only go so far. Khan’s organization is trying to convince legacy companies such as Tommy Hilfiger and Marks & Spencer to move some of their European or even Asian production to Leicester with a “vision of creating a state-of-the-art eco-park.” Creating higher-value products would be a boon to the suppliers, which would be able to better ride out price shocks. Businesses would also benefit from a shortened supply chain with fewer carbon emissions, lower freight costs and greater resilience to future disruptions.

“There is a real need to keep Leicester intact,” Khan said.