Will Boohoo’s bubble soon burst?

It’s fair to say that Boohoo was the success story of 2019. It achieved staggering growth and is now worth more than Marks and Spencer – an incredible achievement for a relatively nascent brand. But, as it continues its market domination, you do have to wonder when the good news cycle will end. We have been here before with ASOS, and it’s not unfair to assume that Boohoo may start encountering the issues which have affected rivals which previously wore the crown as darlings of the stock exchange. 

There’s also the pressure of Boohoo being the market leader – it’s the one to beat and will be under more scrutiny than previously. On paper it looks strong – automation enabling efficiency, a UK manufacturing base driving 50% of its output to reduce lead times, international growth – I could go on. But it also has what could be described as a very healthy marketing spend.

Celebrity tie ups are all very well, but they’re also dependent on Love Island stars remaining flavour of the month, and shoppers resonating with Instagram posts from brand ambassadors. They may be driving record breaking sales now, but considering the fickle nature of consumers, it’s dangerous to commit such a high marcomms spend when international warehouses will soon need accommodating to support growth. We saw how ASOS struggled with this balancing act, so Boohoo can’t afford to fall into that trap. 

There’s also the sustainability issue; as fast fashion and being environmentally friendly are antitheses. The ‘Greta effect’ can’t be denied, and as consumers jump on the increasingly popular ethical wave, the likes of Boohoo will come under the spotlight.

Encouraging customers to buy a cheap dress and then throw it away for another is not a way of life that many would encourage. Additionally, cost cutting via using cheaper materials or suppliers will be difficult due to the negative supply chain connotations. The textile industry creates 1.2bn tonnes of CO2 a year, and third of microplastics in the ocean are from synthetic clothing.

Long-term profitability could also be an issue. Operating in such a discount-heavy environment, cutting margins any finer will lead to cost-to-serve issues, as material costs have not gone down. When you add together the marketing spend and the risk of consumers moving away from cheap fashion towards more sustainably-sourced materials, Boohoo could very quickly run into trouble if an abrupt downturn struck.

Whilst it seems like Boohoo is currently untouchable, with a strong stock-market performance and sales figures to boot, there are some warning bells which will be gently ringing. Growing pains are not uncommon in the fashion industry, so the brand must be prepared for future issues such as warehousing and stock disruption, alongside the changing shopping habits of consumers which are evolving all the time.

The acquisition of Karen Millen and Coast was a shrewd move, as it takes the pressure off constant customer acquisition amongst its target demographic, moving loyal shoppers along as their tastes and lifestyles change. However, to be a long-stay of the fashion industry it should consider the potential hurdles it faces, as even though appointing sustainability directors and embracing automation are great first steps, it doesn’t act as a failsafe.

Mel Tymm, Industry Principal, Maginus