Boohoo (BOOH.L) commissioned an independent review of its supply chain in Britain on Wednesday after a damaging media report about dire factory working conditions put the brakes on the online fast fashion retailer’s meteoric rise.
While factory conditions in Asia have long been in the spotlight, the exploitation of low-paid workers in Britain has also come to light in recent years, with a parliamentary committee examining the issue in 2019.
However, regular exposés into British and overseas supply chain conditions have had little impact on the popularity of fast fashion amongst consumers.
Boohoo (BOOH.L) shares have lost about a third of their value since The Sunday Times reported that workers in a factory in Leicester, central England, who were making clothes destined for Boohoo were paid as little as 3.50 pounds ($4.39) an hour.
The newspaper said the factory was also operating last week during a local coronavirus lockdown, without additional social distancing measures, while a workers’ rights group said that people at supplier factories were being put at risk of infection.
Boohoo, which sells own-brand clothing, shoes and accessories targeted at 16 to 40-year-olds, said on Wednesday that its investigation to date had not found evidence of suppliers paying workers 3.50 pounds an hour.
However, it had found evidence of non-compliance with its Code of Conduct and ended its relationship with two suppliers.
Boohoo shares were down 16% at 0942 GMT after Next (NXT.L) and Zalando (ZALG.DE) took its products off their websites.
The British parliament’s Environmental Audit Committee called on the government in February 2019 to end the era of throwaway fashion, although all its recommendations covering labour market practices were rejected.
Boohoo has grown rapidly since it was founded in Manchester in 2006 and at Friday’s market close was valued at nearly 5 billion pounds, more than double that of Marks & Spencer (MKS.L), Britain’s largest clothing retailer by sales value.
“We are deeply shocked by the recent allegations about the Leicester garment industry,” CEO John Lyttle said.
The review will focus on supplier compliance with minimum wage regulations, compliance with COVID-19 regulations, working hours and record keeping and right to work documentation and contracts of employment, Boohoo said.
It is being led by senior lawyer Alison Levitt with the board represented by Brian Small, Boohoo’s senior independent director.
The firm would also accelerate its independent third party supply chain review with ethical audit and compliance specialists, Verisio and Bureau Veritas, and would invest 10 million pounds to tackle the problem.
Boohoo said it would also work with interior minister Priti Patel and local officials on any future investigations.
“While serious questions will remain for some time, today is the first positive step forward in transparency,” Liberum analysts said.