Boohoo opens first owned factory in ‘new chapter’ amid international market challenges
As Boohoo opens its first owned factory in Leicester, the company will be hoping to take a positive step forward after a miserable two years.
The fast fashion retailer said its new 32,000 sq ft factory in Thurmaston Lane, Leicester, was “proof of its commitment to the city of Leicester and ethical British manufacturing.”
The new site has created 180 local jobs and has the capacity to make 25,000 garments per week.
The e-commerce brand fell out of favour with investors after it was revealed in 2020 that garment workers in factories used by Boohoo were paid as little as £3.50 an hour.
Following reports in the Sunday Times, an independent inquiry commissioned by Boohoo concluded there were “many failings” in the retailer’s supply chain.
However, the retailer has since pledged to make substantial changes to its supply chain and last year cut ties with hundreds of British suppliers.
Shares in the retailer were up on Wednesday as Boohoo chief executive John Lyttle lauded “an exciting new chapter” for the group.
Workers will be paid above the National Living Wage with guaranteed 40 hour contracts and 33 days of holiday.
Analysts said the new factory could be just what the group needs to woo ESG investors, although workers’ rights campaigners dubbed the opening “little more than a distraction”.
Elsewhere, Boohoo faces a tough time with global supply chain difficulties, according to analysts who have dubbed its international offering “uncompetitive.”
“If the Leicester factory is able to become a hub of ethical British manufacturing as management foresees, it would go a long way in shifting spurned ESG investors’ perspectives,” Laura Hoy, equity analyst at Hargreaves Lansdown told CityA.M.
If the firm can maintain its cheap prices and market position while operating a factory “held in esteem for ethical manufacturing,” it would highlight a strong improvement, she explained.
Hoy added: “However it does very little to erase the bigger-picture risk that Boohoo’s supply chain woes could create a major roadblock for future growth. Even if they’ve forgiven Boohoo, ESG investors are unlikely to return if the business is still struggling to get its international growth off the ground.”
The Royal Bank of Canada (RBC) this week forecast Boohoo’s revenue trends internationally to remain negative in the 2023 fiscal year. Boohoo’s brands continued to “offer longer delivery windows and charge higher fees compared to peers” in key markets, such as the US, analysts said.
Russ Mould, AJ Bell analyst, added: “Boohoo needs to prove that it can both source and ethically and maintain its margins, to look after both stakeholders and shareholders at the same time.
“Rising raw material and shipping costs are an added complication, as is the prospect of higher return rates of product, as online shoppers feel more comfortable about returning parcels. It won’t be easy.”
Little more than a distraction
Meg Lewis, campaign director for garment workers’ rights group Labour Behind the Label said the firm had “done little to show that the brand is best placed to run a new factory” given previous cases of worker exploitation.
The group has called on Boohoo to sign the Transparency Pledge, which was developed by human rights organisations as a “common minimum standard for supply chain disclosure.”
Lewis told CityA.M.: “It is also concerning that Boohoo has expanded rapidly into countries like Morocco and Pakistan, where labour standards are not adequately enforced.”
Boohoo published a full list of around 1,100 factories it uses last year, in a push to be more transparent over the production of its goods.
Labour Behind the Label criticised the firm for not taking any steps to remediate workers who were previously paid illegal wages by the firm’s suppliers, with estimates of millions of underpaid wages in Leicester. The new factory “serves as little more than a distraction,” Lewis added.
It also criticised Boohoo’s foundation of a garment and textile workers charitable trust alongside the new factory. “These new initiatives show that Boohoo is more interested in PR moves, rather than workers’ rights,” Lewis said.
Boohoo has donated £1.1m into the trust and commissioned Nottingham University’s human rights lab to research the needs of garment workers in Leicester.