Investors in fast fashion giant Boohoo have shrugged off ethical concerns raised by an undercover BBC Panorama investigation.
Despite the issues raised in the report, the Manchester-headquartered group's share price remained static on Monday, November 6, before rising to its highest level in two months the following day. The move looks to signal that investors in the company are not too concerned about the findings and that any possible reputational damage has already been priced in.
The latest edition of the long-running programme states that an BBC undercover reporter working at the company's headquarters saw evidence of staff pressurising suppliers to drive prices down, even after deals had been agreed. It comes after the company pledged to overhaul its relationships with its suppliers in 2020.
READ MORE: Boohoo breaks promise to make clothes 'fairly and ethically' - reports
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In response, Boohoo said it hasn't shied away from the problems of the past. It added that it has driven positive change across every aspect of its business. Boohoo's full statement can be read here.
Despite the signals from some of Boohoo's investors, industry insiders and experts have warned the group that there could still be consequences in the future. Javed Siddiqui, professor in accountancy at Alliance Manchester Business School, said: "In a fiercely competitive fast-fashion market, buyers such as Boohoo have all the negotiating power over the suppliers. When the buyers 'impose' such prices in this way, many suppliers tend to outsource orders to indirect manufacturers further down the supply chain.
"These informal suppliers are not generally subject to the strict certification regime that direct suppliers are often required comply with, and violations of human rights in the form of poor wage rates, unacceptable working conditions, and absence of workers voice are common across these informal suppliers.
"This investigation shows that there is dire need to for brands to ensure that supply chain certifications incorporate issues such as working conditions and human rights, and are carried out further down the supply chain, to incorporate the informal suppliers who are generally below the regulatory radar. If Boohoo continue to use such tactics, they open themselves to the risk of a consumer boycott, which can be a very effective way of forcing brands act more ethically."
Shocking findings
Brie Read, founder and CEO of Snag, said: "It's disappointing to see the findings being released on Boohoo this week. Paying people fairly is not expensive and certainly doesn’t have to be hard, you just have to care enough to do it.
"We've prioritised creating an environment for our team that suits individual needs, and supports their career growth. This culture extends to our suppliers, and we have shown it's possible to create affordable clothes that fit, whilst not squeezing suppliers on cost price and delivery timings.
"With two million customers globally, we have demonstrated putting purpose over profit is possible at scale. We hope the shocking findings from this week will encourage the entire fashion industry to do better too."
Ripple effect
Eleanor Harry, CEO at HACE: Data Changing Child Labour, said: "While all businesses are under pressure to reduce costs and increase margins, driving down prices can cause a ripple effect, and has the potential to impact working conditions within the supply chain. This therefore carries a bigger business risk than the intended top line cost savings.
"Companies can have an impact across their whole supply chain, forcing companies and suppliers lower down to cut corners to save money. This extends down to the bottom tiers where poor working conditions are likely to be present. For example, the ILO and UNICEF estimate that 1 in 10 children are involved in child labour globally across a broad range of industries, 70% of whom work in agriculture.
"Poor ethical practices are incredibly damaging to a business, and the reputation risk also extends to investment risk. Within the broader economic landscape, the investment risk to supply chain failings is colossal. Decisions and actions from one part of an organisation can also have an effect on its shareholders wiping millions off the value of a business overnight.
"Solving unethical practices in the supply chain is complex, however businesses can begin with using fairer practices at a top-level which will reduce the pressure that is pushed down the supply chain. Unfortunately supply chain malpractice is widespread beyond fashion, it impacts most commodities and countries. For example, research shows at least 169 goods in at least 74 countries are produced with child labour.
"Root causes of supply chain abuses are not the same in every country and industry. Companies can leverage data, knowledge and technology to highlight where shortcomings are most prevalent and proactively address them. When a publicly listed company attracts negative public sentiment, it can impact many stakeholders, however there are steps that investors and financial services companies can take to engage in informed and meaningful dialogue with portfolio companies."
