Is Boohoo About To Turn? Stake Building And New Factory Maybe?

Trade Boohoo Shares Your Capital Is At Risk
Tim Worstall
Updated: 8 Apr 2022

Key points:

Boohoo (LON: BOO) shares have not done well by shareholders over the past year or so. In fact, the loss of value has been significant. The big question is though, well, will this turn around? That requires thinking about what did go wrong and then what might be done – or is being done – by the company which might revive Boohoo shares.

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The difficulty is in working out whether Boohoo has been hit by cyclical problems – things that will turn, can be solved – or structural. In the past there have definitely been cyclical problems. As varied report about below minimum wage at Lesicestor subcontractors came out, a couple of years back, buying the dips proved very profitable. For the customers of Boohoo didn’t change their buying habits in the face of the revelations – they were not, that is, material.

Then came lockdown and like all online retailers Boohoo was able to make hay. The end of lockdown created two different sets of problems. One was, well, if the lockdown boom was cyclical will trade fall away as physical retail reopens? The other was that the global problems of ending lockdown – freight chaos and so on – affected trade. Or, of course, it’s also possible that there’s a structural problem here, Boohoo shares have had their day in the Sun and now it’s just not that exciting a business.

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What the company has been doing is attempt at least to address those logistics problems. There’s been work on US warehousing for example, so that orders are dispatched in-country rather than one by one over the Atlantic. It’s possible to see the opening of their first directly owned factory in the same light. If global supply chains don’t quite work any more then bring at least some of the work in-house. So, that Boohoo has started production at its new Leicester factory is at least evidence that they’re addressing that potential problem.

It’s worth noting that this now mimics a part of the Inditex (Zara, Bershka, etc) supply chain. Bulk orders are made in the Far East, China, Bangladesh etc. But there’s production in Iberia (largely Northern Portugal and Spain) as well. That European production is more expensive but also much shorter lead times and delivery. So, items that are selling well, stock can be topped up quickly from there, still retaining the price benefit on the majority of sales.

It’s possible to think that this is all the start of a resurgence at Boohoo. Some do seem to think it is. Norges Bank is changing its holding for example. Others aren’t so sure, T Rowe Price has reduced.

The jury’s simply out on this. We just don’t know. There’s a possibility that the internal changes will boost business and thus Boohoo shares. Equally, that they won’t. Any trading position will depend upon which way you think it’s going to go.

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