Boohoo orders supply-chain review after retailers drop brand

Boohoo has commissioned a review of its UK supply chain after Next and other customers dropped the fashion brand because of allegations over treatment of workers in factories.

The company said it was "shocked and appalled" at allegations that factories in Boohoo's supply chain paid workers less than the minimum wage and forced them to work without protection during the Covid-19 lockdown.

The allegations have caused the company's shares to crash by 40%, wiping almost £2bn off its market value since the weekend. The shares fell almost 15% on Wednesday and leading analysts recommended selling the shares.

Boohoo has instructed Alison Levitt QC, a barrister specialising in business crime, to lead an independent review to examine compliance with the minimum wage and Covid-19 rules, working hours, record keeping, right to work documents and employment contracts. Boohoo's deputy chairman, Brian Small, will represent the company.

Next, Asos and other customers have withdrawn Boohoo products from their websites over the allegations about treatment of workers in Boohoo's supply chain in Leicester, the heart of the UK's garment-making industry.

"As a board, we are shocked and appalled by the recent allegations that have been made and we are committed to doing everything in our power to rebuild the reputation of the textile manufacturing industry in Leicester," Boohoo said.

Boohoo said some of the details of weekend media reports were inaccurate and that it had found no evidence of suppliers paying workers £3.50 an hour but that it had other violations of its code of conduct and had stopped using two suppliers.

The company said it would spend £10m to "eradicate supply-chain malpractice" including the cost of the review. It will also recruit two extra non-executive directors and take into account candidates' environmental, social and governance experience.

Boohoo is trying to salvage its reputation with the measures after a defensive early reaction to the allegations. The company said it made 40% of its garments in the UK and that it chose to do so to speed up delivery times.

The East Midlands city of Leicester has more than 1,000 clothing factories and about three quarters of clothes produced in the city are reported to be for Boohoo. Questions have been raised several times about conditions in the city's factories.

Boohoo's actions did not stem the decline in the company's share price, which fell for the third day running. At 09:41 BST the shares were down 14.7% to 223p, valuing the company at £2.9bn. Boohoo was valued at almost £4.9bn on Friday.

Shore Capital analysts cut their rating on Boohoo shares to 'sell' from 'hold' and said the company would struggle to draw a line under the matter. Young customers concerned about ethics could shun the brand, manufacturing costs could rise if suppliers have to pay workers more and compliance costs could be heavy, the analysts said.

"The genie is already out of the bottle and the company will need to be more transparent on sustainability and sourcing issues," Shore's Greg Lawless and Clive Black wrote in a note to clients. "We find it hard to believe that sales for the group’s brands won’t be impacted given the current media storm."