Boohoo refuses supplier payments over "poor quality"
Online fast fashion retailer Boohoo is reportedly in a financial stalemate with suppliers after refusing to pay for poor quality clothing.
Boohoo has withheld payments from manufacturers whom it claims are responsible for producing high volumes of low quality or faulty goods and is refusing to pay them until such issues have been resolved, The Telegraph reported.
According to a source close to the company, the decision is part of "a three-month programme of work to improve quality following a marked increase in faulty goods being delivered by a small group of suppliers".
"These involved very high levels of faulty goods" and Boohoo was "contractually entitled" to withhold money, the same source told the news outlet.
Boohoo has been experiencing significant financial challenges since 2021. The company officially reported a loss for the first time in a decade for its financial year ending in February 2022.
The loss was attributed to several factors, including rising supply chain costs, increased returns, and inflationary pressures. Executive Chairman Mahmud Kamani (Co-founder of the business) has faced challenges related to the ongoing pandemic and issues surrounding its supply chain ethics, which impacted its sales and reputation.
The company reported a pre-tax loss of £4 million for the 2021-22 financial year, marking its entry into the red. Boohoo’s share price has plunged more than 90pc from its pandemic peaks.
In May, the e-tailer posted widening losses that had jumped from £90 million to £160 million in a 12 month period. Turnover had plummeted 17pc to £1.5 billion. Retail analysts have suggested that a key contributor to these numbers is Boohoo’s unenviably high returns rate. This has fallen slightly in its most recent results.
Boohoo, which was founded in 2006 by Kamani and Carol Kane, is set to engage in critical debt negotiations in the coming months as it seeks to persuade lenders to refinance over £300 million in existing loans. Both founders and CEO John Lyttle experienced backlash from shareholders, after rewarding themselves £1 million in bonuses. These were later waived.
Both Boohoo and its creditors have hired specialist debt advisers to oversee the discussions, a move that analysts at Shore Capital told The Telegraph was "concerning".
It "signals perhaps a weaker financial constitution," the broker added. However, the discussions "could provide greater reassurance around liquidity and finance costs," if they are successful, it added.
The online retailer has a £325 million unsecured overdraft, which it has drawn down fully and must be repaid in two instalments over the next 18 months. After the banks refused Boohoo’s request for an extension, £75 million of this must be repaid next year. The remaining £250 million is due in 2026.
This is not Boohoo’s first flirtation with supplier-based scandal. In a BBC Panorama documentary last year, an undercover reporter working at the brand’s Manchester headquarters claimed to have seen evidence of staff pressuring suppliers to lower prices.
After also facing furore in 2020 over the sub-par working conditions at many of its factories, Kamani had promised to "make everything better".
In response to the documentary, Boohoo told the BBC that costs had been inflated and as prices had lowered, the budget retailer had asked suppliers to reflect this through discounts of between 1-10pc. According to Boohoo, these savings were passed on to customers.
A spokesperson for Boohoo told TheIndustry.fashion: "Boohoo Group is committed to delivering product of the highest quality to its customers. We are currently talking with a very small number of supplier partners where, unfortunately, the product supplied was not of a high enough standard. We are working collaboratively with them to remedy the situation and ensure this does not happen again."