How Government Regulation Could Hurt Boohoo’s Ambitions

A new investigation into Boohoo’s labour practices has put the entire fashion industry on notice.

US Customs and Border Protection is looking into allegations made by an anti-trafficking organisation that the fast-fashion giant has relied on forced labour to produce clothes at its Leicester factories. If the allegations are proven, the regulator would have the power to put a stop to US apparel imports from the region.

That’s a remote possibility, at least in the short term, and customs officials have yet to offer a timeline for their investigation. But an import ban is less far-fetched than it might have seemed even a few months ago. In January, US Customs halted imports of cotton products that could be traced to China’s Xinjiang province, after reports emerged of forced labour and internment of hundreds of thousands of Uighur Muslims in the region (a claim Beijing denies).

The US Customs investigation marks an escalation after nearly a year of scrutiny over the treatment of garment workers in Leicester, a manufacturing hub in the north of England, and by Boohoo in particular. Last summer, The Sunday Times reported workers producing clothes for the brand were paid as little as £3.50 ($4.39) an hour. Boohoo commissioned an independent review, which found the company knew about the mistreatment and did “too little, too late” to address it.

The latest allegations come from Liberty Shared, an anti-trafficking group, which sent two petitions to US Customs asking that they halt imports from Boohoo and Leicester apparel factories generally — with the exception of two named facilities: Basic Premier Limited and Ethically Sourced Products Limited. In a February 22 letter reviewed by BoF, the regulator said the petitions contained enough information to trigger an investigation.

“This isn’t a criminal investigation,” said Duncan Jepson, Liberty Shared’s managing director. “This is simply about — from a US perspective — [whether] they want these goods in their country. They’ve made a choice; they’re not going to give it the benefit of the doubt, they’re going to [act on] reasonable suspicion.”

Boohoo told BoF it had not been notified by US Customs about an investigation, but said it would work with authorities “to assure them products from our supply chain meet the required standard.”

“We are confident in the actions that we are taking to ensure that all of our products meet and exceed the CBP criteria on preventing the product of forced labour entering the US (or any of our markets),” the company said, adding that it had improved oversight over its Leicester factories since last year.

The investigation threatens what has become one of Boohoo’s biggest markets. The US accounted for £263.6 million ($367 million) in sales last year, or about 21 percent of total revenue. Nasty Gal, an American brand Boohoo acquired in 2017, is growing fast.

There is also risk to Boohoo’s reputation with its UK customers, though the brand has yet to see a significant sales impact from last year’s investigations. Shares have fallen by about 4 percent since the first media reports about Liberty Shared’s petition on Tuesday.

The Customs investigation has industry-wide implications. Boohoo isn’t the only brand to face accusations of ties to forced labour. The problems aren’t limited to fast fashion, with some luxury labels accused of mistreating workers.

Many countries have introduced regulations to pressure brands to examine their supply chains for abuses. The UK passed the Modern Slavery Act in 2015, which requires companies with an annual turnover of at least £36 million to publish yearly statements on how they address the risk of forced labour in their business operations. However, the law doesn’t require companies to guarantee their supply chains are free of forced labour.

Public attention to the abuses in Xinjiang, as well as the US ban on cotton from the region, have put pressure on governments to go further. The UK government recently introduced plans to fine companies that fail to publish the annual statements required under the Modern Slavery Act. The European Commission is drafting a law to require human rights disclosures. Germany is considering fining large companies up to 2 percent of annual turnover for human rights violations.

Mostly, however, it’s left to the public to force companies to clean up their supply chains, one reason the recent actions by US Customs are so noteworthy.

“Where their disclosures are inadequate, [businesses] are being called out by civil society and by investors, but that is very different to the guillotine coming down and saying, ‘You shall not import the following goods,’” said Sam Eastwood, a London-based lawyer at Mayer Brown.

Related Articles:

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What the Latest Clampdown on Xinjiang Cotton Means for Fashion