Shares in fast-fashion online retailer Boohoo (BOO:AIM) fell as much as 9% to 312p on 2 March after media reports suggested the firm and its suppliers could face an import ban in the US due to widespread allegations of forced labour in its garment factories.

A petition by Liberty Shared, a group which campaigns against modern slavery, claims Boohoo has not done enough to stop forced labour being used in its Leicester factories, which make many
of its clothes.

Concerns over the firm’s suppliers using forced labour first surfaced in July 2020 when a Sunday Times report claimed workers in some factories in the East Midlands which make its clothes were paid as little as £3.50 per hour, well below the legal minimum wage.

There were also allegations that suppliers were forcing their staff to work during localised lockdowns in Leicester, in contravention of the law, without additional hygiene or protective equipment and with no social distancing in place.

The company initially responded by saying it would ‘drive up standards where required’ and ‘ensure everyone working to produce clothing in our supply chain is properly remunerated, fairly treated and safe at work’.

It also called the conditions at one of its main suppliers ‘totally unacceptable and woefully short of any standard acceptable in any workplace’ and thanked the newspaper for uncovering the conditions.

However, based on what it refers to as ‘the presence of criminal and unlawful activities and practices in apparel manufacturing’ among Boohoo suppliers in East Leicester, campaign group Liberty Shared has submitted two petitions to US Customs and Border Protection asking for a ban on imports of Boohoo clothes which may contain ‘in whole or in part materials made with forced labour’. For its part Boohoo said it was not aware of any US investigation and pointed to the work it had done to address supply chain issues.

The US is estimated to make up around a quarter of Boohoo’s group sales and while Numis analysts feel the direct risk to the company is ‘remote’, investors who may have been mollified by the company’s previous claims are now voting with their feet. With Numis acknowledging the development adds ‘a further element of risk to the equity story’.

Moreover, the reputational damage to the Boohoo group and its brands from the ongoing allegations is unlikely to be lost on an increasingly socially-aware generation of shoppers.

This could detract from the recent acquisition of assets from failed department store Debenhams which takes Boohoo into new markets including the sale of beauty products. A step which brings both opportunities and risks, Numis noting of the deal that it is ‘hard to quantifiably prove the chance of success, but we can’t help feel it risks distraction and dilution’.

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