Boohoo shares surged nearly 17% on Friday, after an independent review of allegations about working conditions and low wages found “numerous failures” in the supply chain of fashion retailer Leicester.
But an investigation found that Boohoo had shown they were taking steps to fix the problem.
The newspaper alleges that workers at a factory in Leicester, central England, which sells clothes for Boohoo, are paid just £ 3.50 per hour. The minimum wage for those aged 25 and over in the UK is £ 8.72.
“Ms Levitt is satisfied that Boohoo is not deliberately allowing poor conditions and low pay to exist in its supply chain, it is not deliberately taking advantage of them and its business model is not based on the exploitation of workers in Leicester,” Boohoo said in a statement.
Boohoo shares were up nearly 17% in morning trade in London, before paring the gain to trade at 9.66%.
Several online retailers stopped selling Boohoo products from their websites after publication Sunday Times reports, including Amazon
which holds shares of fashion retailers and related brands as a result of historic agreements.
UK clothing retailer Next
also removed all previously sold Boohoo and Pretty Little Thing items from all of its websites, while Berlin-based online clothing store Zalando
removed all products of Boohoo and its subsidiaries, and ceased all new business with the company.
“The findings and recommendations of the Independent Review are clear,” said Boohoo Chief Executive John Lyttle.
“The Group realizes that to produce real change in Leicester’s textile industry, it is clearer, stronger, and measurable action needed in addition to what the Group does, “he added.
The review stated that “if Boohoo is willing to take a different approach to how Boohoo views and interacts with Leicester’s supply chain, it has the power to be a tremendous force for good.”
It recommends a series of improvements to Boohoo’s corporate governance, compliance and monitoring processes.
In response, Boohoo outlined six steps to improve governance, including appointing a new independent director to its board, making supply chain compliance a mandatory item on every board meeting agenda, and establishing additional board committees to enable it to better identify and monitor risk. it’s faced as a business.
The company says it will also ensure related supply chain compliance COVID-19.
AJ Bell investment director Russ Mold told Boohoo’s changes in the process can result in higher costs, which in turn can be passed on to the customer.
“Boohoo’s main attraction is its relatively low price, so management should consider whether the company will bear some of the extra costs to avoid alienating customers or whether it has a price-power miracle. The latter is when a business has confidence that it can raise prices without causing demand to fall, ”Mold said.
Analysts at Hargreaves Lansdown said Boohoo’s pledge to strengthen governance will also help Boohoo restore, and most importantly, maintain its reputation.
“It is not clear how the scandal will affect sales but Boohoo’s performance remains to be supported by its highly proficient digital platform and agile test and repeat manufacturing model,” they said.