Paul Scott comments - Small Cap Value Report -6 Jul 2020 14:34
BooHoo has responded. It claims to not have had knowledge that some of its products were being made in a sweatshop. Whilst people might be cynical about this, there is actually some credibility to this. My experience in the sector is that orders placed with one supplier are very often outsourced to another factory, usually via family connections. Sometimes retailers are unaware of even what country their products are made in. Audit trails are a waste of time, because I found that suppliers will just sign anything. The only way to properly audit where & how garments are made, is to have physical boots on the ground, inspecting factories in person. With hundreds of suppliers, scattered around in multiple countries, that's complex & very expensive, hence why so many retailers don't do it.
BooHoo says it's working to raise standards, and details what is going to be done. The danger is that these repeated allegations may damage its brands, and lead to customer boycotts. Although in the past, the public have shown a very short attention span, with boycotts quickly fizzling out.
A dose of reality here - if you buy a garment at a remarkably cheap price, then the person making it is being paid very little - whether that's in the UK, or abroad. However, the person making it clearly needs the money, or they wouldn't be working for a low wage, and doesn't have an alternative, better paid, source of work. Therefore I always tell everyone who virtue signals about boycotting a particular shop, to make sure they donate money to a charity which will feed & house the people who are now unemployed because of their boycott.
Clearly BooHoo has to deny these allegations, and also has to take decisive action to sort out its supply chain. That's bound to hit its margins somewhat. Social media means that bad news travels further, and faster, than in the past. But with such a short attention span, the public quickly forget. Is this likely to damage BOO badly? I doubt it, once the dust has settled. It really is long overdue for sweatshops, and breaches of minimum wage regulations, to be properly punished. That is going to be tricky though, as sweatshops are adept at disappearing, then popping up again somewhere else, with the same people, but a new limited company. Sometimes retailers turn a blind eye, but sometimes they're unaware that orders have been subcontracted out to an unknown factory, that's the way this sector works. The rules have to be enforced, otherwise nothing will ever change. I expect customers might forward some outraged opinions, sign a petition online, and then carry on an usual after a few weeks. Hence I'd be more inclined to buy on today's drop, than to sell.
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