What is special about the city of Leicester
The dark side of super fast fashion: exploitation in the middle of England
In sewing shops in Leicester there are abuses like in Asia. The recent revelations have suddenly interrupted the success story of the acclaimed fashion retailer Boohoo. There has been criticism for years - but it has always been ignored.
Several reports of disclosure have reminded the British of a large stain on the vest of their textile industry. Not only in Asia, fashion chains have cheap clothes made under sometimes exploitative conditions, but also on the British Isles. In the English city of Leicester there are hundreds of textile factories which not only have precarious working conditions but also pay less than the minimum wage to workers. These are the allegations and they do not come out of the blue.
Fast money with fast fashion
The criticism focuses on the fashion retailer Boohoo, which has production in Leicester. Boohoo sells fast fashion, i.e. very quickly changing, very affordable collections for the small budget and the great need for recognition of mostly young buyers in a world of short-lived fashion trends. As far as sales are concerned, Boohoo is the opposite of the world-famous fast fashion giant Primark: Primark only sells stationary in branches - and Boohoo only online. The success is remarkable. Boohoo was only founded in Manchester in 2006. In the past financial year, the company's turnover already amounted to £ 1.2 billion (CHF 1.4 billion).
Boohoo shareholders are now experiencing that securities can also quickly go out of style. They are not used to that: In line with the company's success, the Boohoo shares on the London Stock Exchange had climbed to 320 pence by February 2020. This was followed by the broad Corona slump on the financial market, which also did not spare Boohoo - but then there was an even faster recovery. The online business model seemed like it was made for a world in which stationary shops have to close. The share price soared to more than 400 pence by mid-June. Market capitalization reached over £ 5 billion. Boohoo was more than twice as heavy on the stock exchange as the retail veteran Marks & Spencer.
One-two punch for Boohoo
The spotlight on the conditions in Leicester has suddenly ended the soaring. An investigative report was published in the Sunday Times newspaper at the beginning of July. An undercover reporter had been offered to work in a shop that packs clothes for Boohoo for £ 3.50 an hour. Just a few days earlier, the non-governmental organization Behind the Labor had accused the textile retailer of continuing to work normally with its suppliers regardless of the pandemic. Investors' receipt: On Friday, Boohoo shares were trading at less than 230 pence.
Share on the roller coaster
A sharp increase in corona infections had been recorded in Leicester in the past few weeks. A local lockdown has been imposed on the city, the first of its kind in the UK. Some analysts fear that the conditions in the textile factories could be as problematic as the conditions in slaughterhouses elsewhere. "Covid-19 has turned the well-documented exploitation of workers in the Leicester textile industry into a public health issue that politicians, authorities and business owners cannot ignore," said Alexander Trautrims, an expert on supply chains at Nottingham University.
Leicester's Renaissance - At What Price?
Until then, ignoring was the order of the day because Leicester did not want to lose its legacy. The textile industry had been established in the city since the 16th century. When production migrated to Asia in the last third of the 20th century, a new business model developed: sewing for fast fashion providers, not in large factories, but in small factories that mostly employ and often exploit unqualified immigrants from Asia . There are 700 sewing shops in the city that employ around 10,000 workers, according to a parliamentary report from the beginning of 2019.
The factories in Leicester are a curiosity in the Western European industrial landscape. Textile production in Europe was mostly only preserved in niches with high-priced products - but in Leicester, of all things, with suppliers for fast fashion, where the goods should be as cheap as possible and the cost pressure is greatest. The logic of the fashion chains: The geographical proximity to the sales market allows them to forego pre-orders in Asia, long delivery times and high transport costs and thus react even faster and more flexibly to demand trends. Leicester made super fast fashion possible.
Boohoo sources around 40% of its textiles from Great Britain, the majority of which from around 150 companies in Leicester. The company tests new models on its website and, when demand increases, places larger production orders that need to be served quickly. However, production always has to be cheap, and the biggest adjustment factor is labor costs. Experts criticize that the price pressure ultimately borne by consumers does not allow sewing shops to pay their workers appropriately.
Bank Morgan Stanley has calculated from sales data that Boohoo pays its British manufacturers an average of £ 5 for a piece of clothing. The minimum wage is over £ 8 an hour. In the textile industry in Asia, it takes 30 to 60 minutes to manufacture a piece of clothing. Even if Leicester sewing is as fast as Vietnam, analysts say "it is hard to believe how Boohoo can get £ 5 clothes if manufacturers keep the wage floor".
Great damage to image
Boohoo announced an investigation into the allegations and has canceled contracts with a supplier and a subcontractor. The company now wants to strengthen its own supervision, expand the board of directors and spend £ 10 million to rectify grievances in the supply chain. Retailers such as Amazon, Zalando, Asos and Next have suspended the sale of Boohoo products. Although the company sells 95% of its goods via its own website, the damage to its image is great. Well-known “influencers” on Instagram have already announced their displeasure.
It is the biggest setback to date for company co-founder Mahmud Kamani, who made Boohoo a millionaire. The 55-year-old Kamani started out as a handbag seller in markets before he went into business for himself with a textile manufacturer. The argument that he is not familiar with the processes in the industry is therefore of little use. With Boohoo, Kamani said goodbye to production and became the dominant textile buyer in Leicester. Boohoo also invested the profit in acquisitions, so that brands like Pretty Little Thing and Nasty Gal are now part of the empire.
Boohoo picked up
During the corona lockdown months from March to May, Boohoo saw sales jump 45%. The overall outlook for the current financial year is still conservative with a plus of 25%, commented the investment bank Liberum at the time. Boohoo is now the outstanding leader in women's clothing in Great Britain, according to Liberum, and has a market share of just under 5% in the online fashion segment. In the meantime, these arguments are no longer so bright: Standard Life Aberdeen, the largest British asset manager and also the third largest independent shareholder of Boohoo, has now sold almost all of its shares. Boohoo's response to the allegations was inadequate, it said.
Working without a contract
For a long time, however, investors and consumers were not bothered by the situation. A study by the University of Leicester already found in 2015 that the majority of textile workers in the city received less than the minimum wage and no employment contracts, had hardly any rights and had to sew under excessive working hours and poor conditions. Later there were allegations that workers should report to the social welfare office as underemployed in order to receive government support. In the Corona crisis, manufacturers are said to have officially registered short-time work, although they continued to work as usual.
The newspaper “The Times”, the sister paper of the “Sunday Times”, reported last weekend about illegally low wages at a supplier to the fast fashion chain Quiz. There the workers are said to have received as little as £ 3 an hour. Quiz investigated the case and announced that the supplier had in turn employed a subcontractor contrary to agreements.
In 2018, a parliamentary committee examined the conditions in the fast fashion industry. A manager of the Missguided fashion chain said it was normal for workers to be underpaid. The journalist Sarah O’Connor of the “Financial Times”, who had researched the topic, said: “The most strange thing about the whole thing is that it is a completely open secret. The government in London knows and the local government knows. All retailers know. "
Anders Kristiansen, the current head of the Esprit fashion house, said of his time as CEO of the British fashion chain New Look from 2013 to 2017, according to Morgan Stanley: “When I came to the UK and saw what was happening in Leicester, I thought it was unbelievable: It happened in front of everyone, and nobody does anything about it. How can society and the government accept that? "
Bid at the lowest price
According to O'Connor, Boohoo held weekly meetings at which the textile manufacturers bid about who could produce which garments at the lowest price. Boohoo defended itself at the time with the argument that the low prices for selected goods were special lure offers that should attract customers to the website. The company bears the losses and the suppliers are reimbursed for their full costs.
In the wake of the latest allegations, the health and safety authority GLAA announced that it had visited companies in Leicester, but did not discover any violations. The British tax authority HMRC is responsible for violations of minimum wage payments. But mathematically, due to staff shortages, a company is only checked once every 500 years, even the director of the state supervision for occupational health and safety admitted, and the fines are relatively small.
You can follow Benjamin Triebe, business correspondent for the UK and Ireland, on Twitter.
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