Allegations Of Worker Exploitation Strike A Blow To The Fortune Of Boohoo Fashion Line’s…

Fast fashion entrepreneur Mahmud Kamani has endured a week he’d rather forget after the value of his fast fashion empire plummeted following allegations of labor exploitation at a U.K. garment supplier surfaced last week.

The multi-millionaire mogul behind U.K. online retailers Boohoo, PrettyLittleThing and Nasty Gal has seen the share price of Boohoo, which he founded and is listed on the London Stock Exchange, fall by nearly 50% from a high of $5.24  (£415p) in mid June to a low of $2.64 (£209p) by Wednesday, wiping more than $300 million off the value of Kamani’s stake. The drop came in response to an investigation by the Sunday Times of London that found workers at a factory that supplies clothing to Boohoo were allegedly being paid far less than the national mandated minimum wage.

Kamani, who owns 13% of Boohoo, saw his stake fall from $758 million (£600 million) to $400 million (£319 million) at its lowest point on Wednesday. As of Thursday’s market close, the value of his stake rebounded to $553 million (£438 million). Analysts Peel Hunt published a ‘buy’ note for the company, telling Forbes that they “see the share price fall as a buying opportunity.” 

Pandemic Retail

Until Sunday, Boohoo had actually benefited from lockdown in the U.K., with revenues in the first quarter up 45% year on year to $450 million. The positive period had even prompted founder Mahmud Kamani to return to the U.K. government the furlough money his firm had taken to pay staff, confirming in a trading statement on the London Stock Exchange in June that “in light of the very strong trading performance we have not taken advantage of the available support.”

However, on July 5, The Sunday Times reveled that workers at a Leicester-based producer of clothes destined for sale on Boohoo were being paid as little as £3.50 an hour ($4.40), an amount significantly less than the £8.20 ($10.30) national minimum wage.

According to The Sunday Times, an undercover reporter spent two days working in the factory and was told to expect £3.50 an hour. The paper reports a foreman saying, “These motherf***ers know how to exploit people like us. They make profits like hell and pay us in peanuts.”

Home Secretary Priti Patel Patel sent a clear message to Boohoo, telling the Sunday Times, “Let this be a warning to those who are exploiting people in sweatshops like these for their own commercial gain. This is just the start. What you are doing is illegal, it will not be tolerated and we are coming after you.”

Boohoo released a statement on Wednesday saying it was “grateful” to the Sunday Times for “highlighting the conditions at Jaswal Fashions, which, if they are as described by the undercover reporter, are totally unacceptable and fall woefully short of any standards acceptable in any workplace.”

In the statement, Boohoo said that Jaswal Fashions, the Leicester-based producer identified by the Sunday Times investigation, is not a direct supplier, and that it is “taking immediate action to thoroughly investigate how our garments were in their hands.” Adding that, “a different company is using Jaswal’s former premises and we are currently trying to establish the identity of this company.”

Boohoo announced yesterday that it will launch an immediate independent review of its U.K. supply chain led by Alison Levitt QC and published alongside the half year results in September 2020. In a note on the London Stock Exchange Boohoo confirmed it would invest $12 million to “eradicate supply chain malpractice,” but added, “Our investigation to date has not found evidence of suppliers paying workers £3.50 per hour. However we have found other evidence of non-compliance with our Code of Conduct and the Group has taken the decision to immediately terminate its relationship with both suppliers.”

Nasty Gal, a part of the Booohoo group, added in a separate statement that it “does not allow any of its suppliers to pay less than the minimum wage and has a zero-tolerance approach to incidences of modern slavery.”

Keeping Watch On The Supply Chain

However, Rachel Atkins, partner at crisis response law firm Schillings, tells Forbes that for firms like Boohoo, it’s no longer enough to look at your own operations – retailers need to be confident all their suppliers are operating legally and ethically. In similar regard, retail expert Andy Barr tells Forbes, “there is really no choice but to consider these accusations an act of modern slavery. It’s 2020 and this treatment of employees, particularly regarding the poor health and safety conditions in the midst of a global pandemic, are totally inexcusable.”

Michael Harris, director of financial crime compliance at LexisNexis, tells Forbes “there is simply no excuse for a lack of due diligence to be taken in organization’s supply chains and particularly for organisations with significant resources such as high street brands that we all too frequently see being implicated in cases of labour exploitation.”

Harris adds that when you consider the true cost of these allegations to the organizations involved – loss of shareholder value, investor and public confidence, and reputational damage, then “thorough due diligence and site audits should be a no-brainer… the human cost is potentially far greater, as we’ve seen with worker exploitation cases in the past, such as the Rana Plaza fire,” in 2013 in Bangladesh, which resulted in the deaths of more than 1,100 workers.

“The risk to human life should outweigh the need to drive profit,” Harris says.

Likewise Vas J Morgan, a British TV personality and editor of Tings Magazine, addressed the issue of ‘modern’ slavery, writing on Instagram, “There is no ‘modern day’ twist on this; slavery is slavery and my heart hurts for the families that have suffered at the hands of companies that fail to do due diligence like this.” Morgan adds, “Although 80% of people working in these factories are women of colour; this is not about race, this is about human rights.”