One UK company’s story illustrates how the world is changing – and how the old and new ways are colliding. All of the issues are here: Covid-19; the role of social media; extractive capitalism; winner takes all; the demise of traditional retailing; data analytics; and the environmental impact of fast fashion and sharp business practices. We even get a glimpse of something most of us thought extinct: investigative journalism.
Boohoo is an online retailer of fashion clothing, targeting the under-30 market. Its registered address is in Jersey while its head office is in Manchester. It sells in more than 100 countries. Next-day delivery is a key part of its offering as is a massive marketing budget.
The company spends a lot of money on social media influencers on all the usual platforms. This is how you make money if you have starred on Love Island and gained millions of Instagram followers. Beautiful people aspire to become Boohoo global ambassadors. At least they did until controversy recently engulfed the company over employment practices in England.
The company has grown rapidly since its founding in 2006. Its strategy includes buying established brands and then scaling them on its digital platform. The pandemic, initially at least, boosted Boohoo’s sales. The switch from high street to digital predated the virus but has been accelerated by the pandemic. It’s a trend that has got many retailers worried and has left plenty of town centres with shuttered shopfronts and too many charity outlets. Boohoo’s sales during the early months of the pandemic took off.
Harold Evans, who died this week, is remembered as a pioneering investigative journalist. He led the Sunday Times for many years and is famous for exposing the Cambridge spy ring and the thalidomide scandal. He would have enjoyed the newspaper's story in July about pay and working conditions in Leicester at factories that supply Boohoo. Poor working environments are said to have included lack of social distancing. Minimum pay rules were alleged to have been ignored.
A just-published independent review conducted by Alison Levitt, a leading lawyer, has concluded that no crimes were committed, nor were low pay and poor working conditions deliberately allowed or intentionally profited from. Part of the story appears to have roots in all that rapid growth: governance processes were unable to keep up.
Fashion democratisation
Boohoo is a great example of innovation, entrepreneurial skill and the democratisation of fashion. The factories concerned were mostly suppliers to Boohoo rather than directly owned: integrated supply chain management is a feature of many of today’s successful industries.
Quality clothing available at cheap prices to people on modest or low incomes is clearly a good thing. Boohoo is able to use its ever expanding databases to give customers what they want. Orders grew 38 per cent last year with an average value of £43.50 (€47.60) across three items per delivery. But environmental campaigners fret about almost every aspect of Boohoo’s business model.
Policymakers worldwide are worried about the negative productivity effects of so-called “zombie companies” being kept alive with subsidies. Boohoo definitely isn’t one of these.
Levitt found that the allegations about working conditions and low pay in Leicester were “substantially true” and that senior directors knew about these issues last December but “didn’t feel responsible for them”.
The reason given goes to the heart of all this: workers in Leicester were so far down the supply chain they were “invisible” to Boohoo’s senior management. And to others who also should have known better: the local council, tax authorities and the health and safety agency. Vulnerable employees didn’t get the protection they needed and deserved.
Boohoo’s annual report reads like most corporate documents these days. Lots of stuff about reducing environmental impact and how employee engagement surveys reveal a happy workforce. The report claims, no doubt with complete accuracy, that “all of our hourly-paid employees are paid above the minimum wage”.
That neatly sidesteps the issue of pay in supplier companies. We learn about director compensation: there is a lot of it and at least one of the owners is a billionaire. The winners are obvious and they do take a lot, if not all. How much of this is deserved in some ethical or philosophical sense?
A pragmatic economist would try to ask different questions, ones that can be answered without too much controversy. And frame the answers around practical policy.
Innovation needs to be rewarded. Excess profits and incomes, particularly of the monopoly kind, need to be either regulated or taxed away. So far so orthodox. If inequality is to be properly tackled, minimum and living wages need to rise substantially. For garment workers, health workers, delivery drivers and for all those other people who we are about to discover, for the second time this year, how essential they are. The challenge for policymakers is to figure out how to do that without harming employment – but it must be done, even in the recession plagued world we now live in.
Companies, and individuals, make all sorts of claims about sustainability and how they contribute to it. Corporate guff in annual reports is almost impossible to decipher. The only real solution has been known for years: tax emissions, particularly carbon, properly. Half-hearted and haphazard carbon taxes need to be rationalised and raised everywhere. By about a factor of four in Ireland. And pretty much everywhere else.
