Boohoo’s shares stumbled by more than 19 percent Monday morning—the most it has fallen on the London Stock Exchange since August—after the ultra-fast-fashion purveyor confirmed it’s looking for a new auditor following PricewaterhouseCoopers’s (PwC) decision to step down from the role at the end of its contract.
PwC, which served as the PrettyLittleThing and Nasty Gal owner’s auditor since 2014, will not be participating in the competitive tender process, Boohoo said in a statement, adding that the accounting firm had signed an unqualified opinion on the the e-tailer’s 2020 financial statements, marking them as fairly and appropriately presented. PwC has declined to comment.
The announcement came after the Financial Times reported Friday that PwC “signaled its intention” to quit over the past month, citing unnamed sources that said the risk of reputational damage by association proved too great. Though a recent independent review absolved Boohoo of any criminal culpability in widespread labor abuses in its Leicester, England, garment-producing supply chain, it also said that the Gen Z fave had known about the issues for years and failed to take the necessary action quickly enough.
“Boohoo has not felt any real sense of responsibility for the factory workers in Leicester and the reason is a very human one: it is because they are largely invisible to them,” Alison Levitt, a former legal advisor to the Crown Prosecution Service, wrote in the report, which she published in late September. “It is hard for people to empathize with the plight of those of whom they know little.” While there is no evidence that Boohoo had committed any criminal offenses, she added, reports about low wages and unsafe conditions were “substantially true” and the company’s own monitoring of the “many failings in the Leicester supply chain” proved “inadequate” because of “weak corporate governance.”
The Telegraph wrote Friday that BDO, Britain’s fifth-largest accounting firm by revenue, declined the job of Boohoo’s auditor after it was approached in recent weeks, with a senior source saying there were concerns about clothing seller’s governance and supply chains as well as reputational risks to any company working with it.
On Sunday, the Times reported that the National Crime Agency is investigating Boohoo’s suppliers on suspicions of VAT fraud and money laundering, following evidence from whistle blowers inside the factories.
“It appears that the criminality in Leicester’s garment supply industry extends much further than modern slavery and into endemic VAT fraud and money laundering,” said Andrew Bridgen, the Conservative Minister for Parliament for North West Leicestershire, who is assisting in the investigation. “Even more sinister are claims that much of the cash supplied to the fake invoicing companies originates from the sale of illegal drugs. So the VAT fraud allows money from this evil trade to be laundered at the same time.”
Boohoo told the Times that it “will continue to support any investigation by the authorities, including into allegations of money laundering and VAT fraud in any companies said to be in its supply chain.”
“Boohoo has not been nor will it be knowingly a party to any criminal conduct. Any direct or indirect supplier under investigation will have their contract suspended and any company or associated individual found guilty of criminal offenses will result in the relevant contracts being summarily terminated,” it added. “There is no excuse for such criminal conduct.”
Boohoo had appeared to shake off the scandal at the close of September, reporting a 51 percent uptick in first-half profits and raising full-year forecasts from a previous guidance of 25 percent to between 28 percent and 32 percent due to strong sales. It promised to implement the recommendations of the independent review to make “substantive, long-lasting and meaningful change that all stakeholders in the Boohoo group will benefit from,” including appointing a new group director of responsible sourcing, developing and implementing a new set of purchasing principles for its buying teams, incorporating an electronic audit program to monitor status and capacity across its supply chain, and establishing a Garment & Textiles Community Trust to provide “startup funding and ongoing annual support” to workers.
CEO John Lyttle said at the time that he was optimistic about Boohoo’s prospects because it is “well-positioned to continue making progress toward leading the fashion e-commerce market globally.”
“The resilience of our business model and the commitment and flexibility of our colleagues and partners has enabled us to continue to operate our business successfully,” Lyttle said.