ALEX BRUMMER: Boohoo shows how when the share price is flying, investors can be reluctant to look too closely
The narrative of Boohoo is familiar. Modest beginnings on a market stall in Manchester to stock market star.
Marks & Spencer, Tesco and soft furnishings group Dunelm have similar inspiring back stories of rags to riches. Boohoo along with other breakthrough online retailers, Asos in fashion and Ocado in grocery, caught the zeitgeist in the lockdown.
When all is going well, investors are reluctant to look under the bonnet. But there are questions to be asked. Does too much power rest with co-founder Mahmud Kamani who is ‘executive’ chairman? Even with a reduced market value of £3.5billion, why is Boohoo still quoted on the less regulated AIM market?
Ethical practices?: On the supply front, the warning signs have been there for some time despite claims of creating ‘a sustainable business that minimises the environmental impact’
Boohoo’s 2020 report and accounts show a number of related party transactions and a restatement of past profits.
The firm’s auditors Price Waterhouse Coopers are also employed as consultants on tax and remuneration, creating potential conflicts. And Boohoo’s main domicile is, for unexplained reasons, in Jersey.
On the supply front, the warning signs have been there for some time despite claims of creating ‘a sustainable business that minimises the environmental impact’.
There should be no surprise about the sweatshop conditions in their clothing factories which were chronicled by the University of Leicester as far back as 2015.
Why have such working conditions and poor wages been allowed to persist for so long under the eyes of enforcers such as Health & Safety and HMRC.
It is not much use government raising the national living wage to £9.30 per hour (outside London) if employers and regulators do nothing to make sure it is paid.
What is particularly disturbing in Leicester is that many of those in pitiful working conditions are drawn from the South Asian community.
Admiration for the entrepreneurship of Boohoo founder Kamani and his family and designer co-founder Carol Kane is undermined by alleged malpractice in the supply chain.
Until recent disclosures, there was a tendency to give Boohoo’s claims of the highest ethical practices the benefit of the doubt. They say they did not know about the low wages or working conditions.
Standard Life Aberdeen (SLA) is the first big battalion investor to head for the door, and one cannot imagine it will be alone. Boohoo’s financial practices have also been under scrutiny during lockdown.
Hedge fund ShadowFall was critical of Boohoo’s £200m fund-raising in lockdown, ostensibly to take advantage of opportunities.
The first big one to come up was for the chairman to spend £269.8m (it could rise to £328.8m) on buying out a 34 per cent stake in Pretty Little Thing from his son Uma.
Top Boohoo executives then put in place a £150m ‘Persimmon style’ potential bonus scheme.
If ever there was an ill-timed moment for bosses to be rewarding themselves, it was in a pandemic at a company with mean wages in the supply chain.
The independent review led by Alison Levitt QC will probe regulations, working hours and bookkeeping. Most of this corporate activity may well pass by consumers of £5 frocks from Boohoo. But we know from other diminished fashion brands such as Ted Baker how quickly it is possible to go from hero to zero.
What began as a supply chain issue has hit Boohoo’s share price and could quickly metastasize into something far worse.