Boohoo’s stock, both fiscal and reputational, continued to plunge over the weekend as revelations emerged tying one of the ultra-fast-fashion brand’s co-founder to a factory accused of perpetuating poverty wages, endangering workers during a pandemic and contributing to a localized spike in coronavirus cases in Leicester, England.
The Guardian reported Friday that the factory, which Boohoo had previously called “totally unacceptable and…woefully short of any standards acceptable in any workplace,” is operated by Morefray Ltd, a Manchester-based firm with links to the I Saw It First, a separate apparel brand established by Jalal Kamani, who founded Boohoo with his brother Mahmud in 2006. According to Companies House, Britain’s registrar of companies, Morefray is 50 percent owned by I5 Holdings, another Manchester company that is in turn run by Shahzad Irshad, a director of I Saw It First.
“The complex ownership structure establishes ties between Morefray and I Saw It First, which Jalal Kamani founded in 2017 after helping establish Boohoo.com along with Mahmud,” Guardian reporter Rob Davies wrote. Jalal still owns a 0.65 percent in Boohoo, according to stock market filings, after he gave 63 million pounds ($80 million) to his adult children in 2018.
“Morefray is a recognised supplier to Boohoo and we have never previously been aware of any allegations of paying below the minimum wage until the media report,” Boohoo told the Guardian. “As a result of that report and subsequent discovery that it was Morefray and not the company in the media report, we are immediately visiting the Morefray site to investigate further.”
The Times added Sunday that 25 workers at a Boohoo warehouse in Sheffield, a 70-mile drive from Leicester, tested positive for COVID-19. Other workers experienced symptoms of the contagion but were not tested. “I caught it from the warehouse,” one of the workers, whose wife and son also tested positive for the coronavirus, told the Times. “There’s no way I should have been working. How is distributing cheap women’s fashion essential?”
Local Minister of Parliament Clive Betts keeps a database of some 50 workers who have complained about safety at the warehouse during the lockdown, with some expressing concerns that their lives were at risk. One worker called the Sheffield warehouse a “breeding ground for the virus” that needs to be immediately shut down.
Boohoo maintains, however, that it has always followed government guidance to retail businesses in keeping the warehouse open. A spokesperson said the warehouse, which was run by a third-party logistics provider, “operated in accordance with government guidelines” and that investigations by Public Health England concluded “transmission was more likely to have occurred within households.”
Still, Boohoo’s “sweatshop” woes, which have prompted retailers such as Amazon, Asos and Next to temporarily drop the brand and its subsidiaries PrettyLittleThing, Nasty Gal, Oasis, Karen Millen and Warehouse, have spooked at least one investor, despite efforts by the beleaguered e-tailer to launch an independent review of its U.K. supply chain, along with a 10-million-pound ($12.6 million) investment to “eradicate” supply-chain malpractice.
Edinburgh-based Standard Life Aberdeen (SLA), one of Boohoo’s biggest shareholders, wrote Sunday that it has sold two-thirds of its stake in Boohoo, amounting to 27 million shares worth 80 million pounds ($100 million), in light of the company’s “inadequate” response to claims about its supply chain, including allegations that its suppliers were paying workers as little as 3.50 pounds ($4.40) per hour, despite the minimum wage in Britain for those aged 25 and older being 8.72 pounds ($10.97).
“Over the years we have lobbied the company to improve working conditions,” Lesley Duncan, deputy head of UK Equities at Aberdeen Standard Investments, said in a statement. “However, in the last few weeks our concerns have grown on the progress being made. We view their response as inadequate in scope, timeliness and gravity.”
Boohoo said it was “disappointed” by SLA’s decision, noting in a statement that it believes recent actions “make it clear just how determined we are to ensure our entire supply chain adheres to our code of conduct.”
Home Secretary Priti Patel is reportedly mulling new laws on modern slavery amid concerns that the current legislation is proving insufficient. Fears of being labeled racist could have discouraged police from cracking down on sweatshops, which employ mostly South Asian immigrant workers, an unnamed source close to Patel told the Times. The Kamanis themselves are of Indian descent.
“This scandal has been hiding in plain sight and there are concerns cultural sensitivities could be in part to blame for why these appalling working practices haven’t been investigated,” the source said.
Fashion brand Quiz was dragged into the fray Monday after suspending activity with one its Leicester suppliers following similar allegations of low pay and unsafe conditions. An undercover reporter at the Times was told by a factory making Quiz clothes that she would be paid just 3 pounds ($3.78) per hour.
“We are extremely concerned and disappointed to be informed of the alleged breach of national living wage requirements in a factory making Quiz products,” CEO Tarak Ramzan said in a statement. “The alleged breaches to both the law and Quiz’s ethical code of practice are totally unacceptable.”
“We are thoroughly investigating this incident and will also conduct a fuller review of our supplier auditing processes to ensure that they are robust,” Ramzan added. “We will update our stakeholders in due course.”
Boohoo’s shares continued their downward slide from last week, shedding another 15 percent Monday. The company has lost roughly 2 billion pounds ($2.5 billion) in value since the imbroglio came to a head two weeks ago.
Bank of America wrote in a note to clients Monday that costs at Boohoo could increase by between 10 million pounds ($12.6 million) and 20 million pounds ($25 million) as it tries to rectify problems in its supply chain.
Boohoo’s continued negative headlines, Bank of America added, could slow its revenue growth by between 15 percent and 20 percent this year, compared with a growth of 44 percent in 2019.