Executives of online fashion giant Boohoo are considering breaking up the business due to pressure from shareholders to improve its profits.
It was reported that shareholders urged the board to spin off or sell its top-performing brands – including PrettyLittleThing, Debenhams and Karen Millen – as the company tries to boost its share price, following its losses of more than £160 million and over 1,000 jobs cut this year.
Boohoo’s situation is a far cry from its online boom during the COVID-19 lockdown period. But why is the company falling into a fashion fiasco?
Gen Z buyers are flocking to Shein
It may be controversial for its environmental impact and questionable labour practices, but Shein has risen as a major player in the online fashion industry and a significant rival for Boohoo and other brands.
“Shein has been a clear threat, capturing market share from Boohoo,” Yanmei Tang, Analyst at Third Bridge explains. “Our experts note that Shein’s affordability and successful TikTok campaigns make them more appealing to young customers.”
Gen Z buyers are considered a significant driver of Shein’s success, with 73% being aware of the brand and 34% making purchases within the year. It was also reported that nearly half of Gen Z customers (44%) make at least one purchase on Shein monthly, followed closely by Temu at 41%.
Boohoo’s return charge
Boohoo’s latest return charge also hasn’t been a hot look for the company. Introduced in July 2022, customers are now charged £1.99 when they make a return, which is deducted from the refund amount.
Unsurprisingly, Boohoo customers were dissatisfied with this announcement. The company cited shipping costs as the reason for this charge, though experts told MailOnline that retailers are battling with “spiralling costs” and struggling to stand out from an increasingly competitive market.
Retail expert John De Mello commented: “Given low margins online and the cost of processing returns, it’s no surprise that – given rising cost of sales – even online pure plays have started to charge for returns.”
Similarly, fellow fashion retailer ASOS also introduced a £3.95 fee to customers who frequently return large amounts of items, unless they keep up to £40 worth of their order.
Gen Z may be going back to the high street
While many see the high street as being in shambles, studies have suggested that young buyers are leaning towards shopping in-store.
According to statistics, just over one-third of Gen Z consumers in the UK chose the high street as their first choice when needing to buy something. It was also reported that 44% of Gen Z shoppers said that they liked to go to physical stores for inspiration.
Greggs and M&S have been particularly successful in attracting young buyers to their stores. For example, M&S’s fashion line – which was once seen as dumpy and outdated – was able to turn itself around by investing in social media such as TikTok and Instagram, improving its clothing range and offering more affordable prices.
According to the M&S website, this led to an increased market share to 10.0% in the 52 weeks ending March 2024. It also hit a “record 38% market share” in May for its lingerie range, with 30% of those customers now aged under 30.
Boohoo’s past backlash
Boohoo’s past controversies have also left a permanent stain on its reputation.
PrettyLitteThing deactivating customer accounts
Earlier this year, customers of the Boohoo-owned PrettyLittleThing brand hit out at the company for deactivating their accounts due to “unusual high returns activity”. The reason for these bans was to reduce the high amount of “bracketing”, where customers would buy an excessive amount of clothes from the website, only to return them shortly after.
However, customers argued that the brand should expect a high number of returns due to its fast production cycle. Anecdotally, others also claimed that they rarely returned items, with one customer reporting that their account had been deactivated, despite their last return being three months ago.
Unfashionable labour practices
An investigation by BBC Panorama revealed that Boohoo had failed to uphold its promise to make its products ethically.
The company was previously under fire when it was reported that workers at its Leicester factory were paid less than the minimum wage and weren’t supplied with masks to protect themselves from COVID-19 at the time.
Following this investigation, executives and co-founder Mahmud Kamani, claimed they were “fixing” these issues, with Kamani stating: “I want to make Leicester right, I promise you.”
However, the BBC’s 2023 investigation – where a reporter worked undercover as an admin assistant – discovered that those promises were consistently undermined. With relentless demands for suppliers to reduce prices, unrealistic timescales to create garments and mandatory overtime imposed on workers, the reality of the retailer’s Leceister warehouse far from matches the promises made by its executives.
But this is just a loose thread in the unravelling of Boohoo’s business plan, as major competitor Shein has also garnered an unfavourable reputation for its supply chain practices, including allegations of child labour and inhumane working conditions.
While breaking up hasn’t been officially confirmed yet, the future of Boohoo and its brands remains uncertain. With young shoppers leaning towards cheaper alternatives like Shein or heading back to the high street, the relationship remains rocky, and Gen Z could well be falling out of love with Boohoo.
