Boohoo, the online fast fashion giant, is facing a $100m lawsuit in the US over claims it has used “fake promotions” to lure shoppers.
Documents filed in a Californian court by US law firms allege that Boohoo, PrettyLittleThing and Nasty Gal, engage in deceptive pricing by running fake sales and promotions, The Telegraph has reported.
The documents in the civil claim allege that the brands’ sales are a “scam”. “All the reference prices on Boohoo’s website are fake. They are not original, regular, retail or former prices. They are inflated prices posted to lure unsuspecting customers into jumping at a fake ‘bargain’,” the documents say.
Boohoo could suffer damages exceeding $100 million if the claims succeed, the law firms say.
The Manchester-based company says it is aware of the case and said: “We are focused on bringing our customers designs that they love at affordable prices, and running promotions is just one of the ways that we invest in our customer proposition.”
Last week Boohoo was hit by claims from hedge fund and activist shareholder Shadowfall that it had exaggerated its free cashflow by £32m partly because it failed to take into account its tax payments. It also alleged that it was treating cash that was generated by its PrettyLittleThing subsidiary as if it owned the business entirely, despite at the time only having a 34% minority stake.
Boohoo denied the claims and just one day later announced that it had acquired the remaining shares in PrettyLittleThing, which was established by Boohoo founder Mahmud Kamani’s son Umar Kamani, for £269.8m. The figure may rise by £54m if the deal can help Boohoo shares hit 491p a share for a six-month period at some point over the next four years.
Earlier, Boohoo had raised £200m for acquisitions from a share placing. The funds to buy PrettyLittleThing were not taken from this amount, which it hopes to use to buy brands that fall into distress during the COVID-19 crisis. It is very unlikely to take on stores, preferring convert brands into online only propositions, as it did with the Karen Millen and Coast brands, which it acquired last year. Industry watchers suggest it could have struggling young fashion brand New Look in its sights.