Management gurus tend to blame company scandals on executives, noting that fish rots from the head. in fact, at fast-fashion retailer boohoo the decay comes from within. an independent report released on friday noted that boohoos top management did not do enough to end abusive labour practices of its suppliers. worse, its buyers were incentivised to put pressure on suppliers. those practices merit scrutiny.
Markets shrugged. its share price leapt 9 per cent. the truth is that boohoo skirts and tops are flying out of the warehouse, regardless of findings about worker treatment. management did not change its earnings outlook. it reports half-year results in a few weeks. sales are expected to climb nearly a third year on year. for good reason boohoo trades on a hefty forward earnings multiple of 44 times.
The independent report, paid for by its subject, landed a few heavy punches. boohoos governance processes have not kept pace with its extraordinary growth. its market value has more than quintupled to about 3.7bn since listing in 2014. chief executive john lyttle, in place since march 2019, has brought in more non-executive directors to dilute the influence of its founders mahmud kamani and carol kane.
The reports author, barrister alison levitt qc, makes clear that boohoo felt only superficially responsible for what occurred further down its supply chains in the factories of leicester. a group director of responsible sourcing, not a board position, comes soon to remedy that. part of the problem is how boohoos buyers are incentivised, thinks bernstein research. pay incentives for overly aggressive practices with suppliers will have to stop. it is likely that boohoos uk sourcing will fall from 40 per cent as more work shifts offshore. recent acquisitions, including karen millen and coast, already rely far more on foreign workers.
Boohoo will hope the sustainability report neutralises any lingering odour from its recent scandal. it cannot let its supplier issues fester any longer. the online retailer, like the young demographic it serves, needs to mature.
Our popular newsletter for premium subscribers best of lex is published twice weekly. please sign up here.