Boohoo riding the wave

Boohoo riding the wave

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Boohoo – also known as or Boohoo Group plc, is a UK-based fashion retailer. The company has been mentioned frequently in the news throughout 2020 and at the start of 2021. This is mainly due to its rapid expansion and revenue growth despite the COVID-19 pandemic.

How did the new star rise at the time when so many retailers struggled? Was this another “overnight success” story? Will the growth continue?

Let’s have a closer look.

The beginning

The company is now by no means a “start-up” – it was actually founded in 2006 by Mahmud Kamani and Carol Kane. Mahmud got his start in the industry early on, helping out with his father’s textile business as a kid. Carol, on the other hand, specialised primarily in design and sales. The two founders would end up complimenting each other’s strengths quite nicely. Carol would handle everything to do with product design and sales. Mahmud on the other hand would utilise his connections in the industry. Building on top of an existing infrastructure and supply chain would yield huge dividends long-term.

The company focused on the so-called “fast fashion” concept. The idea is that due to cheap manufacturing costs, Boohoo was able to put out new designs quickly and see which of the garments resonated with their audience – primarily a female audience in the age group of 16 to 30.

Early success and IPO

Between 2012/2013 and 2013/2014 the company’s revenue more than doubled from £67,282 million to £109,791 million. In 2014, the company had its IPO on the London Stock Exchange. For two years the shares’ price would stay roughly at the same level of 50 GBX, beginning to grow at the end of 2016.

Over time, the company’s revenue would almost 13x between 2012 and 2019, with the last report indicating turnover of over £856 million. By June 2020, the share price of Boohoo would rise to 412.00 GBX, returning a healthy 8x profit for any early believers – or Kamani himself, who sold a total of £36.6 million shares in 2017.

In 2019 the group reported a full year adjusted EBITDA of £84.5 million, improving on the previous year’s £56.9 million.

Between 2017 and 2020 Boohoo has invested heavily in acquiring some of the other brands to help boost its sales and increase its UK market share. Nasty Gal (2017), Karen Millen (2019), (2020) and Oasis Fashion (2020).

In 2021, it would make the news once again with its acquisition of Debenhams (that has fallen into administration during the 2020 pandemic crisis)… Mainly Debenhams’ IP. Boohoo founders made sure that they would not have to figure out the “closed-stores problem”. Instead they would choose to build on Debenhams’ image and acquire its customer base.

Any problems?

Yes. Going public means your company’s practices will be scrutinised every step of the way. In 2017 Channel 4 discovered that Boohoo sourced the majority of its products from factories in Leicester. What’s the problem? Wage issues. Workers were found to be paid below UK’s minimum wage.

In 2020, with COVID-19 raging in countries worldwide, these issues came to light again, in an investigation by Guardian, alleging that workers also were not protected adequately from the virus. An enquiry into the matter would send Boohoo’s valuation and shares price tumbling down to 229.50 GBX from an all time high of 412.00 GBX in July 2020. Some of the value would be recovered however, by January 2021 (362.30 GBX as of January 8th, 2021).

The above does however explain how the company managed to stay profitable and source cheaper materials – the key to any successful textile business.

Is the company’s growth sustainable?

One major factor that has been brought by mainstream media is Boohoo’s emphasis on its e-commerce store, rather than physical locations. Thanks to its online sales, it was able to distance itself from its high street rivals, who suffered greatly in 2020, due to stores having to close during UK-wide lockdowns. Thanks to their strategy, Boohoo managed to maintain and grow its young audience. This is the audience that will only be spending more with time (as the average income per customer grows). If Boohoo manages to sustain its “fast-fashion” approach (criticised by many environmental groups), it will likely have a loyal customer base for years to come.

Recent acquisitions by the company couldn’t come at a better time. Boohoo’s executive team has really capitalised on the pandemic in 2020, as it managed to capture a large market share from high street boutiques (see above). Provided the company can maintain this growth, the outlook is bright. However, things might get tricky once the shops are allowed to open again in 2021…

The scandal around Leicester factories will not go away easily. If the company is forced to look elsewhere to source materials, its profit margins could drop dramatically. The fact that one of its founders also sold his shares early on during 2017 is also a warning sign, indicating that the company’s meteoric rise may not last for too long.

At the moment though, Boohoo is riding the wave and having the time of its life. It will likely dominate the online garment market for the next couple of years. Afterwards, depending on their strategy, unless it continues its aggressive acquisition strategy, it will likely give way to other new players in this ever-changing market.

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