Boohoo share price set to fall further after £1bn wiped off the stock within hours

Boohoo shares tumble 25% amid allegations of unlawful pay at one of its supplier's emerged over the weekend.

Boohoo has cemented itself as one of the UK’s online fashion giants with its own brand of fast fashion, as well as dozens of subsidiaries like Karen Millen, Nasty Gal and PrettyLittleThing. With online sales last year worth £856.9m, the stock has been riding the crest of a wave, steadily outperforming other online fashion retailers, namely ASOS and Zalando.

However, a recent report in the Sunday Times, which investigated one of Boohoo’s recent suppliers, exposed issues of unsafe and unlawful working conditions and employee wages.

Damaging supply chain revelations have hit the value of Boohoo hard

The undercover Sunday Times story investigated a garment factory in Leicester, called Jaswal Fashions. It revealed that some employees were being paid a meagre £3.50 an hour to handmake budget clothing for Boohoo’s Nasty Gal brand.

The Mail also discovered a second supplier to Boohoo claiming staff were also receiving just £4 an hour. Although Boohoo has responded by insisting that the Jaswal Fashions factory was not listed as a ‘declared supplier’, but that it would take ‘immediate action’ to ‘thoroughly investigate’ how its garments were ‘in their hands’.

There is a general feeling within the City that Boohoo will be forced to undergo a root-and-branch overhaul of its entire business model as a consequence of these revelations.

In an official statement, Boohoo intimated that it would be liaising with ‘any suppliers who have sub-contracted work to the manufacturer in question’.

The corporation will no longer be able to lean on suppliers offering cheap employees and garments, which will inevitably eat into Boohoo's profit margins.Will the Boohoo share price remain depressed?

Will the Boohoo share price remain depressed?

Investors were clearly unimpressed by the supply chain revelations, with Boohoo's share price falling by over 25% by afternoon trading on Monday. The plunge saw around £1.3bn of the company’s market value wiped in a matter of hours, with the stock sliding further on Tuesday.

Boohoo shares are down 2% to 288p per share at the time of publication.

Although Boohoo’s statement to the stock market reiterates the company’s commitment to UK manufacturing and trading standards, the Manchester-based brand faces an anxious wait to see if these reports cause long-lasting reputational damage.

Since Boohoo’s arrival on the stock market, it has been pretty much one-way traffic, with its share price soaring from 22p in 2015 to highs of 413p last month. As a long-term investment, the Boohoo share price has been a dependable choice amid the eCommerce boom.

As of the close of Friday’s trading session, the Boohoo share price was valued at 385p, but it ended Monday’s trading session at 297p per share. Early indications during Tuesday’s morning trading suggest that the value of Boohoo could fall further, with another 9% drop since the markets reopened.

It is common knowledge that Boohoo’s co-founders, Mahmud Kamani and Carol Kane, will receive £50 million each in bonuses if the Boohoo share price reaches 600p by the summer of 2023. ShadowFall, a company that investigates corporate accounts, also believes Boohoo has misrepresented its cash flow for the last six years. This revelation has also caused some nerves surrounding Boohoo’s shares.

Boohoo estimates full-year revenues for 2020 rising by around 25%, following a 45% rise in the number of sales in the three months to May worth almost £368 million. Providing it can maintain these figures and avoid long-term consumer reactions, the Boohoo share price should have the potential to rebound strongly.

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