October 23, 2024
Corporate restructuring lawyers are likely to be involved as online fashion retailer Boohoo take steps towards improving their business model.

Who are Boohoo?

Boohoo are an online fashion retailer based in the UK (specifically, in Manchester). The business was founded in 2006 by Mahmud Kamani and Carol Kane (both of whom are still on the board of directors to this day). Early on, they supplied goods to budget high street fashion chains such as Primark, before moving towards becoming a retailer in their own right. 

Instead of opening high street stores, Boohoo focused on developing a strong online presence, while still maintaining a focus on keeping prices as low as possible. 

A key business strategy in recent years has involved the company buying up the rights to numerous household name brands. Boohoo now owns Oasis, Coast, Dorothy Perkins, Burton and Debenhams (to name just a few from its huge roster). Boohoo Group also runs a number of subsidiaries, including PrettyLittleThing (which was initially founded by Kamani’s two sons back in 2012, before being bought out by Boohoo completely in 2020).

An initial public offering (IPO) in 2014 saw the company valued at around £600 million – a number which it has fallen below in recent years (after peaking in the summer of 2020 – perhaps no coincidence considering the growth of online shopping during the lockdowns associated with the Coronavirus pandemics).

Why are Boohoo in financial difficulty?

First of all, the slowdown in online shopping which boomed during the pandemic has naturally hit Boohoo very hard – this appears rather obvious considering its share price peak during the lockdowns. 

Another key factor has been the growth of even cheaper online competitor fashion retailers from China – namely Shein and Temu. 

Boohoo has long been criticised for its contribution to the ‘fast fashion’ system (cheap clothing goods which are quickly disposed of, thus using up a great deal of energy, labour, materials, etc – for a very short lifespan). As a result, the company has attracted quite negative ESG perspectives for a number of years.

While this has kept some potential customers at a distance, the ones who were less concerned by this are now equally happy to shop at Shein and Temu. They attract similar criticism, but offer goods at even lower prices as a result of their ‘direct to consumer’ model, while maintaining far lower marketing costs than Boohoo, who have splurged on partnership deals with everyone from Paris Hilton and Nicole Scherzinger to Khloe Kardashian and Hayley Bieber. 

On the ESG point, it is not only environmental concerns on the table – numerous allegations of worker exploitation abroad (mostly in Pakistan) have also been circulating for a number of years. This is something which fast fashion houses are now becoming particularly aware of, and adapting their marketing materials to attempt to counter.

Other issues often cited include a high number of product returns – in recent years, online retailers have noted significant losses via this process. A few months ago, a number of online fashion retailers including ASOS and PrettyLittleThing (a Boohoo subsidiary) announced that they were looking to end free customer return programs.

This business model had, according to many of these companies, ended up costing far more than they used to, and were simply unsustainable long-term. Consumer backlash has led many to question whether this was the right move – only long-term sales numbers will give us a definitive answer to that question.

The results of all these issues have become quite obvious. In May, the company revealed net debts of almost £100 million (with losses widening by 76% compared to the year before). Early attempts to stem the tide included the decision to cut more than 1,000 jobs back in May, which does not appear to have fixed the problem entirely.

A month later, a £100 million FSMA lawsuit against the company from its own investors came to light, alleging that a failure to disclose information regarding staff wages ended up negatively affecting share prices. This is a relatively rare example of social governance being used in the context of British share price disputes, which some commentators are speculating could become more commonplace in the future.  

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What are the proposed solutions to Boohoo’s problems?

The recent news story surfacing in the past few days is that Boohoo are considering drastic measures in order to turn the tide on the business’ fate, which currently appears quite bleak. While it is hardly time to call in the administrators, the business does clearly need pretty significant restructuring in order to get back on the right tracks. 

The most likely next steps are some form of breakup (the opposite of an M&A deal, you could say – fragmenting the business into smaller parts). The most likely next steps, according to financial commentators, are dropping Debenhams and Karen Millen (since those two brands have historically been less appealing to younger audiences, which Boohoo are trying to hone its attention onto).  

How will future lawyers be involved in the Boohoo breakup story?

There are a number of points here that aspiring lawyers can discuss on their upcoming applications. This story is likely to be particularly relevant to the corporate law solicitors of tomorrow (likely applying for vacation schemes and training contracts) – think Magic Circle, elite US, etc. 

Generally, this story involves deep analysis of commercial awareness – understanding not just the legal issues which could arise, but also the reasons for the financial difficulties in the first place, future decisions which could lift Boohoo out of this situation, the impact of changing ESG perception on their business model, and many, many more talking points. Having these discussions demonstrates key skills which firms are always on the lookout for in their applicants.

There are, of course, legal issues here too, though. If the company does want to significantly restructure, restructuring lawyers will be at the heart of that process. Splitting up various brands will require an in-depth understanding of IP (intellectual property) law. If more redundancies are unfortunately on the horizon, employment lawyers will need to provide expert advice on contract obligations too.

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