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Yesterday Boohoo revealed it is closing the US distribution centre that CEO John Lyttle said would be “a complete gamechanger for us just a year after its opening, in a move that\u00a0analysts think will cost it a minimum of \u00a334m.<\/p>\n
It’s not the first time the embattled fast fashion retailer has made such a u-turn. Earlier this year, it revealed it would close its Daventry warehouse in the UK less than three years after it opened, putting 400 jobs at risk.<\/p>\n
And in another about-turn, it brought back PrettyLittleThing founder Umar Kamani to lead the Boohoo-owned business, who immediately reversed the brand’s decision to scrap free returns for its loyalty members just three months after it made the move.<\/p>\n
Kamani also vowed to review \u201csome of the more drastic changes made in recent times\u201d.<\/p>\n
As Boohoo faces plummeting profits, fierce competition from Shein and a looming debt deadline, Retail Gazette looks at what’s going on at the business amid a series of confusing u-turns.<\/p>\n
Boohoo’s US U-turn<\/h3>\n
Just over a year ago, Boohoo revealed plans for its new US distribution centre which it said would be a “significant game changer” for its business there.<\/p>\n
The retailer claimed the one million sq ft warehouse had the potential to \u201ctransform its fortunes in that market as it will slash delivery times to American shoppers”.<\/p>\n
It was be able to serve 95% of the US within three days compared with an up to 10 day delivery window over the past couple of years.<\/p>\n
However, the retailer revealed that it will cease supplying US customers from the Pennsylvania distribution centre and shift fulfilment of all US orders to the UK.<\/p>\n
The group said the closure reflects a “strategy to reposition the group for sustainable, profitable growth”, as it would lead to “a significant reduction in ongoing costs over the medium term”.<\/p>\n
Boohoo also said the shift would give US customers access to a broader product offering.<\/p>\n
It said a recent trial showed US consumers valued an increase in the product range available over speed of delivery.<\/p>\n
\u201cBefore this trial, US consumers were being offered only around 60% of the styles on sale in the UK,\u201d it said<\/p>\n Shore Capital equity analyst Katie Cousins is unimpressed with the shift. “To us, the change short life of the US warehouse (previously stated as a key pillar of growth for Boohoo) is concerning, highlighting a naivety of the American market, along with a waste of time and resources.”<\/p>\n Cousins believes the group has struggled to gain traction in the US, despite investing to grow market share and improve delivery times for consumers.<\/p>\n While it has not published any recent detailed performance figures, last year\u2019s annual results highlight the struggles the group has had maintaining momentum across the pond.<\/p>\n US sales nosedived 29% to \u00a3177.4m in the 12 months to 28 February.<\/p>\n Peel Hunt explains that Boohoo\u2019s decision to launch a direct US distribution centre “was based on sales numbers from three years ago” when the group saw double-digit US growth with revenues of \u00a3450m.<\/p>\n However, Boohoo insisted it \u201cremains excited\u201d about the opportunity in the US and has been developing wider routes-to-market strategies, including its recent launch of Nasty\u00a0 Gal in Nordstrom stores.<\/p>\n The group is also in advanced talks with major US brands with regard to new routes to market for its other brands.<\/p>\n The 180 degree US shift its not an isolated incident. Boohoo also closed its Daventry warehouse in Northamptonshire back in January which had only been operational since 2021.<\/p>\n That move came just a month after it was revealed it was closing its Wellingborough distribution centre in Northamptonshire.<\/p>\n However, with mounting losses and debt pile to refinance Boohoo is looking to trim costs where it can.<\/p>\n In its last full year, losses swelled to almost \u00a3160m as it encountered \u201cdifficult market conditions\u201d caused by high levels of inflation and weakened consumer demand. Sales were down a whopping 17%, which it said reflected its increased focus on profitability alongside the challenging market conditions.<\/p>\n Meanwhile, the fashion giant, which is working with bankers at Rothschild & Co, has a \u00a3325m unsecured revolving credit facility, of which \u00a375m is due next year and \u00a3250m in 2026. It was reported earlier this year that some lenders rejected its attempts to extend the repayment deadline on its debt.<\/p>\n The retailer\u2019s creditors have hired FTI Consulting to \u201ctackle talks\u201d about refinancing part of its \u00a3325m debt wall.<\/p>\n Cousins says she has “concerns” about Boohoo’s debt maturities and said news of its debt negotiation earlier this year “signals perhaps a weaker financial constitution”, although she added that if successful it could provide “greater reassurance around liquidity and finance costs”.<\/p>\n It’s clear the group is exploring many avenues to raise cash, and is currently mulling a sale of its London Soho office building that it snapped up in 2021 for \u00a372m, which it plans to lease back.<\/p>\n In another development for the business, this week, Boohoo-owned PrettyLittleThing’s founder Umar Kamani revealed he was returning to the fast fashion retailer, vowing to make the brand special again.<\/p>\n Kamani, who stepped down last April, said his return \u201cmarks the beginning of a new chapter for the fashion giant\u201d as he looks to \u201cput customers at the forefront\u201d of every PLT business decision.<\/p>\n He vowed to review \u201csome of the more drastic changes made in recent times\u201d\u00a0 and will focus on \u201cprioritising customer needs, ensuring that every decision reflects their best interests\u201d.<\/p>\n One of his first actions will see the reintroduction of free returns for members of PrettyLittleThing\u2019s loyalty programme just three months after the retailer scrapped the perk.<\/p>\n Under his leadership, PrettyLittleThing grew into a global fashion leader known for its collaborations with celebrities including Kylie Jenner, Jennifer Lopez, Naomi Campbell,\u00a0Doja Cat and Molly-Mae Hague, who it later\u00a0appointed as creative director.<\/p>\n But its profits have waned since then.<\/p>\n For the year to February 28, 2023, revenue fell from \u00a3712.2m to \u00a3634.1m while pre-tax profits plunged from \u00a375m to \u00a322m.<\/p>\n Kamani’s return is a signal that Boohoo is looking to take radical action to improve trading.<\/p>\n With its half-year results published next month, we will have a clearer picture of what is happening on that front. But the market has not been kind of late, and the unseasonable summer weather which has hit even Primark, will not have helped its turnaround efforts.<\/p>\n The recent update by Asos – which is in a remarkably similar position to Boohoo as it looks to both turnaround the business, and refinance – showed that although profits would come out at the top end of estimates, sales fell “slightly below” expectations.<\/p>\n For now, it’s clear that Boohoo is looking forensically at costs and is unafraid to scrap investments, no matter how recently made. However, investors will be asking why such big bets were made in the first place.<\/p>\n<\/div>\n![\"\"](\"https:\/\/www.retailgazette.co.uk\/wp-content\/uploads\/2024\/09\/shutterstock_1929800969-scaled-1-1024x683.webp\")
Trimming costs and raising cash<\/h3>\n
Changes on the horizon<\/h3>\n
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