Change Afoot at Boohoo, While Shein Has IPO Struggles

Vicki M. Young
·6 min read

Fast-fashion rivals Boohoo Group plc and Shein are each facing their own share of scrutiny, leading some overseas sources to speculate that a merger of the two could make sense.

However, a third player, Sports Direct owner Frasers Group, has continued to accumulate shares of both Boohoo and Asos adding confusion as to what comes next.

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Boohoo

It’s never a good sign when senior people are heading for the exit.

Boohoo said on Wednesday that former CFO Shaun McCabe stepped down “by mutual agreement and with immediate effect.” On the same day, the online fast-fashion retailer said named Stephen Morana as its new CFO, beginning Feb. 19. Group executive chairman Mahmud Kamani said Morana, who previously served on Boohoo’s board and “supported us through the IPO process,” is an accountant recognized for his e-commerce expertise.

McCabe wasn’t the only one headed out the door. Three directors—trading director Sam Brocklebank, wholesale and product operations director Marie Laskowski, and product direct Claire Asher—also exited Boohoo, according to a report, which added that MissPap CEO and Boohoo brand director Samantha Helligso is on her way out as well.

Separately from the management turmoil, Boohoo is set to shutter its Daventry distribution center, located in the village of Crick in England’s Northamptonshire. That shut-down sets the stage for a job loss of 400 positions. And Boohoo is rumored to be close to closing down its Leicester factory, about a 30-minute drive north of Crick, in another move to streamline operations.

Boohoo’s manufacturing standards continued to be beset by ethical questions connected to its production of apparel, not to mention treatment of workers. A BBC Panorama investigation, broadcast on Nov. 6, found alleged evidence that staff pressured suppliers to lower prices even after order agreements were in place. A subsequent story earlier this month alleged that Boohoo labeled items made in South Asia as “Made in the U.K..”

On Friday, the U.K.’s Environmental Audit Committee published correspondence from Boohoo’s CEO John Lyttle, who emphasized that “we have absolutely not reneged on any of the commitments we provided to you and the Committee in 2020. We have already delivered significant improvements within our supply chain and we remain resolutely determined to ensure that we continue to build on this.”

As for allegations of unfair reductions to prices, Lyttle said following a period of inflation, deflation is occurring across industries and sectors. He cited to a 61 percent drop in 2023 in the cost of sea freight and a 19 percent reduction in fabric costs, with global cotton prices down 20 percent.

“We had been absorbing cost increases, in order to shield our customers from these inflationary pressures. Now those costs have reduced, it is only correct that our suppliers should reflect that in their pricing. This is standard industry practice and there are numerous other examples of U.K.retailers taking similar steps,” Lyttle wrote, adding that the move was a temporary action to reduce costs.

He also addressed an allegation that the company tolerated non-compliance within its supply chain, such as forced overtime by one supplier. An investigation into the supplier led to its removal from its list of approved manufacturers, Lyttle wrote.

Lyttle also emphasized that the company is making significant investment in its ethical trade, sourcing and product compliance and sustainability teams, including conducting regular, unannounced factory visits and spot checks in key sourcing regions. He wrote that the company also established responsible buying principles, and provided Modern Slavery training for its buying and merchandising teams and developed new whistle-blowing programs. The company is also a signatory to both Bangladesh and Pakistan agreements to promote factory safety and improved working conditions.

Final results for the year ending Feb. 24, 2024, are slated for May. It’ll likely not be a positive report. Boohoo in October warned of a “slower volume recovery,” and projected that revenues for the year were expected to fall by 12 to 17 percent. The company said it’s in the midst of a turnaround strategy, but how it fared over the holiday selling season could end up determining what are its real options going forward.

Shein

Boohoo isn’t the only fast-fashion brand under the microscope as Chinese competitor Shein’s plan for a U.S. initial public offering has American lawmakers taking a closer look at its Xianjiang links connected to alleged forced-labor cotton. Shein has consistently said it has “no tolerance” for forced labor.

Now, the Chinese fashion e-tailer is facing other hurdles before it can proceed with its public offering. Founded in Nanjing, China, and now based in Singapore, Shein is being looked at by China’s internet regulator on its data handling and sharing procedures, including Chinese information that might be subject to scrutiny under U.S. law, which was first reported in the Wall Street Journal. While Shein doesn’t sell in China, the country is home to Shein’s suppliers.

TikTok’s most-buzzed brand reportedly was eyeing an IPO in early 2022, but that was shelved following the start of the Russia-Ukraine conflict. IPO rumblings resurfaced in June 2023, but a Shein spokeswoman denied that the company confidentially filed paperwork with the Securities and Exchange Commission in the U.S. Once valued at $100 billion, that figure was lowered to an estimated $64 billion following a $2 billion raise from an investor group in March that was led by private equity firm General Atlantic.

Word is now surfacing that valuations are closer to $45 billion to $55 billion, according to a Bloomberg report that investors are trying to unload their share at a 30 percent discount. The lower valuations are connected to concerns over regulatory scrutiny ahead of its planned IPO. In the years since the first disclosure of IPO plans in 2022, Shein is now also facing competition from Temu, which has accused it of anti-competitive conduct. Earlier this month, Fast Retailing’s Uniqlo sued Shein of copyright infringement over its round mini-shoulder bag. Shein is also the subject of a copyright infringement lawsuit filed by Swedish fashion retailer H&M.

Whether it pushes forth on IPO plans remains to be seen, but U.K. sources have said that Shein is looking at British rival Boohoo as a possible acquisition. But with Mike Ashley-controlled Frasers Group buying up shares of both Boohoo and its British rival Asos, that too has fueled speculation that he could be looking to merge the two competitors.

Frasers’ stake in Boohoo is now at 21.5 percent. Ashley became the largest stakeholder in October. Frasers’ stake in Asos, combined with investments in financial instruments, gives it a 26.1 percent stake in that brand. Asos’ largest stakeholder remains Aktieselskabet AF 5/5/2010, a wholly-owned subsidiary of Danish fashion group Bestseller, which holds a 27.1 percent stake.

Frasers has said that Boohoo’s target base is similar to its acquisitions of I Saw It First and Missguided. The two were later merged and the intellectual property was sold to Shein. Some are wondering if Frasers could use the same blueprint with Boohoo and Asos, or whether it could takeover Boohoo and then work on a collaboration of sorts with Shein.

Shein executives did not respond to a request for comment about either the reported 30 percent discount on investors selling shares or about rumblings that it is eyeing Boohoo as a takeover candidate.