Paul Scott comments - Small Cap Value Report -9 Jul 2020 20:49
I see the BOO issue as a massive storm in a teacup. Supplier/sweatshop issues are a long-standing, sector-wide issue. For decades now, occasional stories appear in the press about some retailer being embarrassed by its clothing or footwear having been made in sweatshops all around the world, but especially in the Far East. This applies to designer brands as much as cheap brands like BOO.
As I've mentioned before, from my experience in the sector, it's almost impossible for retailers to police their supply chains, because you're dealing with hundreds (maybe even thousands) of factories, and your UK supplier often subcontracts the work out, which retailers often have no knowledge of. They turn a blind eye, because it's impossible to police, without enormous expense of having inspectors on the ground in multiple countries. Even then, the suppliers & their subcontractors would probably bribe the inspectors to sign on the dotted line in order to appease the UK retailer.
In my view, it's the job of Governments to police working standards and minimum wages, not retailers, which simply don't have the resources to do it, given how tight margins are now.
There's some naive research circulating, calculating that BOO's margins are likely to be hit hard by extra costs. That's nonsense. All that's likely to happen, is the UK manufacturing base shrinks, and product is freighted overland from other countries like Turkey (only takes a few days in a truck to get it to the UK). Or any number of low wage countries (e.g. Bangladesh).
It slows the speed to market, but that could be got round by using higher cost UK factories for the initial small production run for each new style, then within a day or two, BOO would know if it's going to be a good seller or not, then get the factories in Bangladesh or Vietnam, or wherever, making a much bigger production run. Air freight in part of it, and put the rest on a ship.
That could have some impact on the figures, from the short term impact of customer boycotts (these things fizzle out in about fortnight usually), and some increased costs. But I don't think there's likely to be much (if any) lasting damage.
There are ways around all these problems, and I see what's happening now as a blip.
I can imagine what BOO mgt would say about social media influencers withdrawing their support. It would probably go along the lines of: F*#@ them, we'll pay some other talentless social media flash in the pan instead.
This is a wonderful buying opportunity for a world-class growth business, in my opinion. I've filled my boots, and will keep buying more it drops further.
Regards, Paul.
Sign In
Follow the stocks
