Can Leicester Fix Its Boohoo Problem?
Before Covid-19 blazed into existence, some 700 factories in the English manufacturing hub of Leicester cranked out shirts, dresses and tank tops for popular domestic e-tailers like Boohoo Group and Missguided. Three years later, the number hovers at around 160.
Both the pandemic and a subsequent cost of living crisis, driven by the ongoing war in Ukraine, have altered Leicester’s landscape, perhaps irrevocably. Faced with growing bills, British brands that once relied on the Midlands city’s cheap prices and quick turnarounds to stoke local demand are increasingly shifting their orders to “nearshore” destinations such as Morocco, Romania and Turkey, where margins can be whittled further. Missguided’s bankruptcy in 2022 left many suppliers staring down millions of pounds in unpaid orders. When the company was snapped up by Frasers Group, its requests for discounts as high as 80 percent only added insult to injury. Boohoo, sources tell Sourcing Journal, has been asking to slash prices by 10 to 30 percent, with the directive apparently coming from “Mahmud” himself, meaning Mahmud Kamani, its executive chairman.
More from Sourcing Journal
422 Facilities Named on Pakistan Accord's First Supplier List
This Supply Chain Finance Firm Finds, Advises Suppliers' Pain Points
“Everything they do, they reference the fact that Mahmud has said this and Mahmud has said that,” said one factory owner, who requested anonymity for fear of reprisal. The requests—or more accurately, demands, as the supplier put it—come via video calls and phone, leaving no paper trail. Sources say there’s little in the way of negotiation: manufacturers that reject the rejiggered pricing structures are essentially closing the door on future patronage. At the same time, suppliers say they’re so squeezed that there’s simply no way they can cut prices further while still running an ethical business. Energy and wage costs continue to climb in the United Kingdom. Inflation, too, remains stubbornly high.
Boohoo didn’t comment on the discounts or Kamani’s role in negotiations, though it told Sourcing Journal that it has faced significant inflationary headwinds over the past 18 months and that it’s in conversations with suppliers to ensure that it can continue to deliver the “best prices” for its customers.
“Leicester has always been, and continues to be, an important manufacturing base for the Boohoo group, supporting hundreds of jobs in the city,” a spokesperson said. Though the company didn’t respond to questions regarding changes in its production strategy, it said that it works with manufacturers in many different regions as part of its agile sourcing model.
There’s a reason why Boohoo is such a byword in Leicester. The Nasty Gal and PrettyLittleThing owner works with just under 50 factories in the area, according to its supplier list, a far cry from the 500 it once contracted. Pre-imbroglio, it accounted for 70 to 80 percent of the clothes produced in Leicester. Even now, it’s the sole buyer for many of the suppliers it works with. Despite Boohoo’s oft-stated commitment to production in Leicester, a talking point it amplified after it was accused in 2020 of promoting sweatshop-like conditions through weak corporate governance, there’s no doubt its actions are having a knock-on effect, according to Sajjad Khan, founder and chairman of the Apparel & Textile Manufacturers Federation, a Leicester-based trade group.
“There are factors that will have a huge bearing on one, how many businesses will want to continue to survive and do business here and secondly, how many will want to continue to work with Boohoo,” he said. Manufacturers, facing diminishing orders on one end and the challenge of absorbing increased costs on the other, are looking to diversify with smaller brands, even though it also means smaller quantities than what they’re used to with Boohoo. There is a “smaller economy” in Leicester now, he said, and factory closures are likely to continue. The way the working model is evolving, Khan added, the city is becoming more of an R&D and dispatch center.
“I think is a general realization that [suppliers] must fend for themselves as well rather than just rely on Boohoo,” he said. “In order for them to survive, they need to find their own new customer base.”
Boohoo has its own woes. Sales have been slumping as shoppers continue to pull back on spending. For the year ending Feb. 28, Boohoo’s revenue tumbled 11 percent to 1.7 billion pounds, or $2.2 billion. In April, it agreed to fork out $197 million after a class-action lawsuit in California accused it of promoting products using fake markdowns. Last month, the company publicly feuded with affordable makeup brand Revolution Beauty, where it holds a majority stake, over its leadership. An acrimonious war of words ensued.
Samantha Taylor is a third-generation garment producer whose family has a storied history in Leicester. She said that the sector’s chief problem is that margins are thin to the point of being nonexistent. “We stripped everything out years ago,” she told Sourcing Journal. “There’s nothing left. So all that’s happening now is further exploitation of people.” Taylor said she’s hired someone from Leicester who’s been made redundant three times over the past five years. “It’s a really messed-up system,” she added. “It’s quite worrying, particularly because a lot of the workers are undocumented, and so they can’t access that support level.” Leicester boasts a large immigrant population, predominantly of South Asian origin.
Taylor said she recalled as a child a thoroughfare in Leicester lined with large, well-appointed houses. That’s where the factory owners lived. “That’s not the case anymore,” she said. “They’re not as well off as they used to be when I was growing up.” For Leicester to thrive, it needs government backing and genuine commitment from brands that are willing to cough up, Taylor said. Boohoo may just be a symptom of a larger zeitgeist, but it’s been the “final nail” in the city’s coffin. “We’ve seen how much money they spent on that Kourtney Kardashian enterprise,” she said. “This level of greenwashing has been to hide the…exploitation that they clearly continue to be involved in.”
Actions speak louder than words, agreed Dominique Muller, policy director at Labour Behind the Label, a Bristol-based workers’ rights group. She said that even as Boohoo was professing its dedication to U.K. manufacturing, it was pushing favored suppliers to open units in production countries with lax labor laws and even laxer oversight. (Boohoo, following the article’s publication, clarified its response to say that it refuted this.)
As a result, suppliers in Leicester “don’t know if they’re going to have orders next week, next month,” Muller said, noting a huge uptick in food bank users in the city. “Brands say that they are building up long-term relationships with suppliers, but in actual fact, suppliers are being treated like commodities that can be thrown away and workers are just suffering the impact.”
Since 2020, Boohoo has been on a charm offensive to repair its battered reputation. It launched into an ambitious Agenda for Change, staffing up its ethical and compliance departments, boosting its auditing program and inaugurating a 23,000-square-foot model factory, designed to serve as a “center of excellence” for manufacturing in Leicester. It signed the International Accord for Health and Safety in the Textile and Garment Industry, though not, as the Clean Clothes Campaign pointed out this week, its extension in Pakistan, where it works with a hundred or so suppliers. The Debenhams operator also poured 1.1 million pounds ($1.4 million) into the creation of the independently run Leicester Garment and Textile Workers Trust, which recently disbursed 343,000 pounds ($436,000) worth of grants to grassroots organizations that provide garment workers with training and other services.
Muller, however, is a skeptic. “It beggars belief that Boohoo had the audacity to form a charity that [appears to] alleviate the suffering that Boohoo’s own purchasing practices and business model is causing,” she said. When the allegations about working conditions at Boohoo’s suppliers emerged, many had been paying their workers half the minimum wage, Muller noted. By her estimation, workers lost 50 million pounds, or $63 million, in unpaid or underpaid wages. The Gangmasters and Labour Abuse Authority led a multi-agency investigation into the matter that concluded earlier this year with a view to reporting before the close of 2023.
Charity is often needed, Muller said. What isn’t, she added, is charity that emerges from an exploitative business model without the mitigation of said practices. Suppliers have told her that despite two rounds of large minimum-wage increases in the United Kingdom over the past couple of years, the majority of brands, including Boohoo, did not increase their prices.
“And now I think for Boohoo to turn around and say, ‘Well, no, we’ve had to cushion ourselves’ or ‘We’ve had to take the fall for rising prices,’ it’s simply not true,” Muller said. “They’re possibly a little bit shell-shocked by their latest financial reports. And they want to, once again, make sure that they can turn a profit for their investors.”
Factories in Leicester, she said, are fighting to stay afloat by doing test runs of garments for brands that don’t result in long-term commitments. If an item sells, she said, the retailer might choose to have it mass-produced by another, cheaper supplier overseas. Meanwhile, the U.K. supplier is stuck ponying up for an increasing number of audits that make the brand look like it’s doing its due diligence without a return on investment. “[Factories are] spending money on compliance but not getting any orders,” she said.
Boohoo said that any supplier that wishes to manufacture goods in a safe and compliant environment should expect to be subject to an audit. “We work in partnership with our suppliers to deliver great products to our customers and we are proud to have been at the forefront of efforts to improve working conditions in garment factories across the city and protect employment rights,” the spokesperson said.
Leicester’s struggles aside, Khan remains hopeful. He thinks that despite the shrinkage, there is an opportunity for a smaller but healthier Leciester that is geared more toward quality production than ultra-fast fashion. Factories, he said, need to look to brands that “aren’t dictating terms all the time” because “that’s a cash flow issue,” particularly when payments jump from 30 days to 60 days or even 90 days. Missguided’s bankruptcy and subsequent liquidation was a lesson hard learned, with multiple closures to show for it.
But Boohoo needs Leicester, he said, if only for its ability to provide speed to market. “It will continue to buy from here,” he said. “[The question is] whether it can afford to pay the price that it requires.”
