Boohoo calls for licensing scheme to ensure textile factories fit to trade

Boohoo has called on the UK government to introduce a licensing scheme to ensure that textile factories are fit to trade after allegations of malpractice by the online fashion group’s suppliers.

In a letter to Priti Patel, the home secretary, John Lyttle, the chief executive of Boohoo, said a “joint effort between industry and government” was required to revamp the UK garment industry and “provide an incentive for retailers and brands to invest”.

Patel is reportedly considering new laws on modern slavery because of fears that the existing legislation is “not fit for purpose”.

Boohoo said a licensing scheme would raise tax and “create a barrier that prevents rogue businesses from accessing the market and undercutting legitimate fashion manufacturing companies, creating a level playing field for businesses to compete fairly”.

He said the scheme should cover protection of workers from forced labour, debt bondage and mistreatment, ensuring payment of national minimum wage, VAT, PAYE, national insurance, holiday pay and health and safety..

The letter comes after weeks of pressure on Boohoo following allegations of malpractice in its supply chain. Analysts have suggested the firm could shift at least 40% of its UK production abroad if increased scrutiny leads to the closure of factories and rising costs.

Szilvia Bor and Simon Irwin, retail analysts at investment bank Credit Suisse, estimate that as much as 7% of Boohoo’s production is undertaken by unmonitored subcontractors in the UK – factories that help the company’s main suppliers but are not scrutinised by Boohoo.

The analysts said the transparency of Boohoo’s supply chain and its ability to trace where its goods were made was limited compared with industry benchmarks such as H&M or Zara owner Inditex.

Unmonitored factories, many of which are based in Leicester, are at the heart of allegations of malpractice in Boohoo’s supply chain. The company makes more than 40% of its goods in the UK, most of which come from Leicester.

Following the allegations of malpractice and a dive in its share price, Boohoo has launched an independent review of its supply chain. The terms of the probe are expected to be published by the end of July, and a full report is due next year. The company said it would invest £10m in improving conditions in Leicester.

“We remain firmly committed to UK manufacturing and enforcing the highest standards of ethics, compliance and transparency for the benefit of all garment workers,” Boohoo said.

The Credit Suisse analysts claim the scrutiny of the Leicester garment industry by regulators in relation to minimum wage, fire safety and human rights issues was likely to lead to factory closures and limit Boohoo’s ability to source in the UK.

The head of the House of Commons environmental audit committee has also criticised Boohoo for failing to take sufficient action after its 2019 report, for which Boohoo co-founder Carol Kane gave evidence, highlighted poor conditions in Leicester factories.

“The outcome is very uncertain but if the [audit committee’s] report is correct, significant abuses do exist, and some manufacturers may be shut down or forced to pay employees the living wage, national insurance, holiday pay, etc. Capacity may well be lost, and it seems very likely that the intense pressure on price may ease, leading to higher prices even from legally compliant manufacturers,” the Credit Suisse analysts said.

Any shift overseas would have major implications for Boohoo’s business model, which is based on testing out styles with shoppers and using nearby manufacturers to quickly remake bestsellers.

Credit Suisse estimates that as much as a quarter of Boohoo clothes made in Asia are air-freighted in at present, but points out that increasing this activity could be costly and also “run into ethical and sustainability compliance obstacles”.