Boohoo faces supplier standoff amid financial troubles

Boohoo says it is holding back payments as part of a three-month plan to improve quality.

• Pramod Thomas
• 21 August, 2024

By: Pramod Thomas

FAST-FASHION retailer Boohoo is engaged in a standoff with some of its clothing suppliers over quality issues, reported the Telegraph.

The company has reportedly withheld payments to certain manufacturers it alleges are responsible for producing a high proportion of faulty goods, as part of a broader effort to improve product quality.

A source close to Boohoo described the decision to withhold payments as part of “a three-month programme to improve quality following a marked increase in faulty goods being delivered by a small group of suppliers.”

The source claimed these suppliers were producing “very high levels of faulty goods” and that Boohoo was “contractually entitled” to withhold the money owed to them until the problems were resolved.

This supplier standoff adds to the long list of challenges facing Boohoo’s executive chairman, Mahmud Kamani. The company has grappled with poor trading performance, fierce competition from Chinese fast-fashion brands, and a share price plunge of over 90 per cent from its pandemic highs.

The ongoing dispute with suppliers concerns about 10 clothing manufacturers out of an estimated 500 globally. While Boohoo mainly sources from China, it also collaborates with at least 40 factories in the UK, most of which are based in Leicester.

In its latest annual results, the company reported widening losses of £160 million, up from £90m the previous year, as revenue tumbled 17 per cent to £1.5 billion.

Analysts have flagged Boohoo’s high rate of returns as one of its key issues, although this did see a slight improvement in the most recent reporting period.

According to the report, Boohoo faces crucial debt negotiations in the coming months as it seeks to convince its lenders to refinance more than £300m in existing loans.

Both the company and its creditors have brought in specialist debt advisers to oversee these discussions, a move that analysts at Shore Capital described as “concerning” and potentially signalling “a weaker financial constitution.”

The company’s £325m unsecured overdraft, which it has fully drawn down, must be repaid in two instalments over the next 18 months, with £75m due next year after banks refused Boohoo’s request for an extension. The remaining £250 million is then owed in 2026.

This tough financial situation comes after Boohoo swung from a positive cash position of £6m to £95m in net debt in its latest financial year – a net cash outflow of £101m, although the company points out it still had £200m in cash on its balance sheet as of February.

Boohoo’s supplier issues are not entirely new, as the company was previously accused of squeezing its manufacturers in a BBC documentary last year.

An undercover investigation claimed to have found evidence of staff pressuring suppliers to lower prices, despite the company’s pledge to overhaul its practices following criticism in 2020 over poor working conditions at some of its clothing factories.

“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,” a spokesman for Boohoo was quoted as saying.