PAUL SCOTT Small Cap Value Report - comments today!!15 Jul 2020 23:25
Is BooHoo's business model shot to bits then? Of course not. If they can't buy garments in the UK at an attractive price, then they'll source them overseas. Reality check to everyone virtue signalling on social media about this issue - practically every garment that you've ever worn, was made by someone who was paid peanuts. That's how this (and many other) sectors work. There's a reason why clothing has barely changed in price (or even gone down) in the last 30 years - it's because globalisation has seen the production move to low wage economies. Therefore I suspect we'll see BOO move production elsewhere, or it could manufacture in small quantities in the UK (test and repeat model), then place a larger repeat order with a low wage overseas factory.
Boycotting BOO just means that lots of people who need the work are going to become unemployed. Of course it's not right to (allegedly) pay machinists £3.50 per hour. But there's a reason people work for that money - they can't get better paid work. The alternative is unemployment. The overall effect of boycotting BOO is to make poor people unemployed here, and to move production to sweatshops in somewhere like Bangladesh or Vietnam. How is that a positive outcome?
This is the (admittedly uncomfortable) truth. Is BOO unethical? I don't know. But its protestations of innocence look a bit weak, given that this Guardian article linked a former BOO Director to an apparently dodgy garment manufacturer in Leicester.
Should we all sell our BOO shares then? That's up to each investor to decide. I'm not. I'm in the markets to make money, not to virtue signal. Customers want cheap clothes, and it's not my job to police the working conditions of people who make them. That's what Governments and their various agencies are there to do. What seems to be happening is that ethical funds are selling out of BOO, creating a buying opportunity for the rest of us. Like all previous scandals in this sector, it's all likely to blow over quite quickly, and the share price is likely to recover over time. That's a buying opportunity in my book.
Before chastising me for being so ruthless, have you ever owned shares in tobacco companies, drinks sector, etc, which kill their customers? How about the supply chains for the electronics or car sectors - how many sweatshops provide components for them? Or as someone pointed out here, that nice shiny iPhone in your pocket was made in a factory where they had to install suicide prevention nets outside the building. The process by which poor people & countries achieve economic development, is by making stuff for richer people/countries. That can be an unpleasant process.
Bear in mind that BOO's brands sell internationally, so those overseas sales are not likely to be impacted by the allegations made in the British press. Hence I reckon BOO is probably facing nothing more than a temporary hit to profits this year. It's still delivering stunning growth, and bolting on brand after bra
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