Boohoo Cuts U.K. Suppliers as Part of Labor Cleanup Efforts
(Bloomberg) -- Boohoo Group Plc, the online fashion retailer, is cutting more than 400 companies from its supplier network following a critical report last year on labor practices at some of those businesses.
The fast-growing merchant on Thursday published a list of 78 approved manufacturers operating across 100 sites in Britain, a dramatic reduction from an estimated 500 suppliers identified in an independent review of the business by U.K. lawyer Alison Levitt last year. The action follows the termination of at least 64 factories that couldn’t meet new enhanced labor standards, the consolidation of some suppliers and the elimination of subcontracting.
The move is significant for Boohoo, which owns the Nasty Gal and PrettyLittleThing brands. Improving transparency and control over the company’s supply chain was a key recommendation in Levitt’s report, which followed a minimum-wage and safety scandal at supplier factories in Leicester, England, last year.
Boohoo shares rose as much as 3.7% in London Thursday, giving the company a market value of 4.3 billion pounds ($5.9 billion).
In her review, Levitt found that Boohoo had prioritized profit and growth, and ignored “red flags” about labor violations, but cleared the company of any direct involvement. Management has since taken a number of steps to improve its processes and governance, notably appointing U.K. Judge Brian Leveson to supervise the company’s “Agenda for Change” reform process.
Leveson, who published his second progress report on Thursday, said Boohoo should be given credit for strengthening its sourcing and compliance team, improving training processes for buyers, and auditing most U.K. suppliers twice during the last eight months, including in the evenings and on weekends.
Also, Leveson commissioned Tim Godwin, former acting commissioner of the Metropolitan Police, to carry out further inquiries to address any irregularities in the leadership and management of suppliers’ businesses. Leveson said Boohoo was trimming suppliers “responsibly,” honoring existing contracts and supporting manufacturing volumes in Leicester, a city that’s partly reliant on the garment trade.
Andrew Reaney, responsible sourcing director and head of ethical compliance at Boohoo, said the overhaul of the Leicester supplier network will “categorically not” impact Boohoo’s margins or the competitive pricing of the products it sells. He said the changes Boohoo is making will help factories in Leicester operate much more efficiently and benefit from greater economies of scale as the volume of garment production increases.
“We are saying to our current suppliers, ‘look at the growth curve this business is on, come be a part of our future,’” he said in an interview. “The factories can be run more efficiently and we see great opportunities for partnerships.”
Boohoo is carrying out a similar review of its international supply chain and plans to publish an approved manufacturers list by September. This marks a departure in practice for co-founder and Executive Chairman Mahmud Kamani, who has historically resisted publishing any details of Boohoo’s supply chain for commercial reasons.
John Lyttle, chief executive officer, said the company was facing up to the “problems of the past,” adding in an emailed statement, “This is the not the end of a project for us at Boohoo but the beginning of a new way of working with our suppliers.”
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