Slave labour and supply chains

Boohoo hit the headlines recently following allegations of exploitation in The Sunday Times newspaper that factories in their supply chain were paying workers as little as £3.50 an hour (the minimum wage is currently £8.20) and were not enforcing safe working practices or social distancing measures. The Leicester factories have also been implicated in accelerating the spread of COVID-19 within the community, which led to the first local “lockdown” in the UK.

The practices have been labelled as “slave labour “ at worst and exploitation at best. Modern slavery laws are taken seriously, with the Home Secretary, Priti Patel, making clear that practices like these are illegal and a hard line will be taken – commenting to the Sunday Times, “let this be a warning to those who are exploiting people in sweatshops like these for their own commercial gain”.

And commercial gain there has been. Boohoo has been a rising star during the COVID-19 pandemic with online sales rocketing. However, the impact of the Sunday Times article has been swift and devastating. It is not just reputational damage that Boohoo has suffered. Approximately £1.5 billion was wiped off its share value within days. Other big name brands like Next, ASOS and Zalando have been very quick to distance themselves from Boohoo, by almost immediately dropping Boohoo’s clothes from their websites. The biggest blow is likely to have been the withdrawal of the support of its largest investor, Aberdeen Standard Investments, which sold its £27 million shareholding in the business on 10 July 2020.

This is not the first time Boohoo has been implicated in poor working conditions in its supply chain in Leicester. In 2017, the Channel 4 documentary, Dispatches, found that factories supplying Boohoo (as well as other well-known high street names) were paying less than the minimum wage. At the time, Boohoo stated that the work had been subcontracted without its knowledge. Questions will therefore be asked as to what steps have been taken between now and then to address the issues identified.

In response to the current allegations, Boohoo launched an independent review to be headed up by Alison Levitt QC into how the garments ended up in the hands of Jaswal Fashions, who are also not an approved supplier. It has also pledged £10 million to eradicate supply chain malpractice.

Boohoo had been lucky up to this point, in that seven separate investigatory bodies had found no evidence of modern slavery, and in response to this and Boohoo’s statement, some city brokers backed the online retailer, with the share price bouncing back.

The Levitt report was issued on 25 September 2020. It “identified many failings in the Leicester supply chain and recommended improvements to boohoo’s related corporate governance, compliance and monitoring processes”. Boohoo has said that it is “ wholly supportive” of the report’s recommendations and has committed to “ implement these in full”.

The perception of exploitation will, however, be a hard one to shake and although the Sunday Times article may have precipitated this saga, the story has been spread far and wide on social media, which is more difficult to control.

Even if investors are persuaded to continue to support the brand, ultimately, customers will ‘vote with their feet‘ and we will have to wait to see what the longer term impact on consumer engagement is.

The importance of knowing your supply chain cannot be overestimated, and Boohoo’s recent experience demonstrates this. Businesses have already been seeking advice on this issue in the light of Brexit, amid concerns that changes to customs duties and trade agreements might mean they cannot rely on their original suppliers. In a world in the grip of a global pandemic, there has been a renewed focus on supply chains, many of which have been disrupted or prevented from operating at all, as a result of COVID-19.

It is important to remember though, that in the rush to replace existing supply arrangements and keep the business going, full compliance with existing laws and regulations must be prioritised. Rigorous processes and checks will need to be made to ensure, amongst other things, that workers are properly paid and working in safe conditions.

Comment 

A good starting point for businesses who are keen to mitigate against the abuses of “slave labour” of the type described above, would be to address the issue early and focus on how suppliers work with recruiters. This includes understanding how the recruitment process has worked, how the recruiters/business communicate terms of employment to workers and whether or not workers can raise concerns once employed. This is a practical and proven approach to highlighting the potential for abuse, of the type the modern slavery legislation is seeking to counter.

Read other items in Commercial Brief - September 2020