Boohoo’s festive sales rise might have allayed investor fears that it was going to repeat Asos’s shock profit warning, but the millennial-focused fashion brand is stoking a wider debate about the bigger cost of fast fashion. Few fashion retailers can afford to sell dresses for £5 a pop. The question is should they even be trying?
The rise of social media has meant fashion has become even more disposable, with younger customers saying that once a picture of their outfit has appeared on Instagram, or Snapchat, they don’t want to wear it again. Previously the only dress women would boast about wearing just once would be their wedding dress. Now, a shopper can order a dress online and have it delivered in time for the following night out.
Since mobile shopping has stripped out all human interaction, aside from finger scrolling and tapping out credit-card security codes, shoppers are not really thinking about how Boohoo and its rivals can sell clothes so cheaply. Carol Kane, co-founder of Boohoo, told MPs in November that it doesn’t make money on a £5 dress but revealed it cost just £2.50 to make one. The so-called “loss-leader” dresses are designed to attract shoppers to its website and be lured into buying its more expensive range of £24 platform boots or £10 tracksuit tops. At those prices it’s no wonder high-street fashion chains can’t compete.
Two years ago it emerged that textile factories in Leicester – not China, or Bangladesh or Vietnam – were paying workers just £3 an hour to make garments in appalling conditions. Since then little has been done to solve the dark underbelly of the UK’s fashion market. Boohoo has said it audits its supply chain and has a “demanding set of procedures and policies to which all suppliers must adhere”. It has invested heavily in its HR functions and hosts conferences for suppliers and asks them to sign compliance letters. But the big issue within the UK’s textile industry is rogue subcontracting, whereby above-board factories are granted contracts with retailers but are not able to fulfil all of the order so field out work to smaller firms, often with less reputable standards. Leicester accounts for a third of the UK’s textile market.
A Leicester-based factory I talked to said they couldn’t work with Boohoo’s demands to make dresses so cheaply, pay their staff the appropriate wage and keep the lights on. But they didn’t think it was the company’s fault for subcontracting or poor standards. Instead, they argued there were plenty of existing laws – including HMRC powers on minimum wage – not being enforced.
Meanwhile, the early easy wins of being an online fashion retailer are becoming harder to replicate. Shoppers want cheaper prices than ever but retailers are having to invest heavily to keep up with the rapidly changing demands. If they don’t discount hard enough or can’t send out clothes fast enough, it takes just two seconds for shoppers to click on to another website that can. Asos suffered that hit last month and accounts from online retailer Missguided revealed how losses can quickly balloon if managers take their eye off the ball. Boohoo might be on a roll now, but as it presses ahead with an international expansion there are going to be even more balls to juggle.
Death by a thousand cuts
“It’s the creeping death of the high street,” was how one retail boss described the relentless rate of shop closures across the country. M&S yesterday revealed the locations of the next 17 shops earmarked to shut in the “third stage” of a programme that seems to gets bigger every year. Like many others it is trying to unwind decades of expansion as it struggles with dwindling shopper numbers as online steals a greater slice of the market and property costs continue to rise.
The situation has already proven untenable for many retailers like HMV, Toys R Us and Maplin. Then there are the chains which have turned to company voluntary arrangements, like Carpetright and Mothercare, to close a slew of stores to survive. As we reveal today, greeting-cards retailer Paperchase is the latest to consider a CVA to fix its bloated UK store estate.
Then there’s the “death by a thousand cuts” approach of retailers such as M&S as they implement store closures or decline to renew leases. It’s the right thing for retailers to do because their scattergun store estates are a hangover of a bygone era. But for the towns left behind, the loss of an M&S store is a big blow.
In Luton, where unemployment is already higher than the country’s average, M&S was an anchor tenant. If that shop shuts, there will be even less of a draw for shoppers to come into town. As a result, footfall to the neighbouring shops will also decline, meaning lower sales for those retailers too despite property costs still rising, which will lead to those retailers having their own discussions about store closures to safeguard their survival. This is happening up and down the country and we are sleepwalking into a crisis. Restructuring experts say they haven’t been so busy since the recession.
Last year there were 93,000 fewer retail jobs according to the BRC. Meanwhile, the Centre for Retail Research reckons the number of closures and job losses will rise by another fifth. The retail sector is still the UK’s biggest private employer but for how much longer?