Can the fashion company rebuild its reputation?

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Key points:

  • Boohoo shares fell 28.3% in 2022 but could have bottomed out.
  • Shares of the fast fashion company are positioned to continue rising.
  • Yet it faces intense competition from less-guarded Chinese companies.

Boohoo Group PLC (LON:BOO) share price fell 28.3% in 2022, bringing its total losses over the past 12 months to 74.1% despite the fast fashion company‘s performance which remain superior to those of its peers.

Also read: The best clothing stocks to buy.

Earlier this year the company unveiled its first manufacturing capacity on Thurmaston Lane in Leicester to clean up its image and demonstrate to investors that it had left its troubled past in its rear-view mirror.

Yet investors remain unconvinced that the company’s suppliers to more than 1,000 factories around the world are following the same strict rules laid out at the Booho factory in Leicester. So while the decision to open the UK factory was hailed as a brilliant move, the discussion quickly shifted to Boohoo’s future profitability.

I’ve mentioned in previous posts that the fast fashion company has had to deal with a lot of returns from its international customers combined with long delivery times for items shipped internationally. Still, it is working hard to resolve its supply chain issues.

What about Chinese competition?

Another emerging factor in Boohoo’s story is the strong competition it faces from Chinese fast fashion companies in most international markets. While Boohoo faces significant scrutiny of its operations, Chinese companies are not subject to the same level of scrutiny.

Boohoo must ensure that its suppliers pay their workers at least minimum wage while ensuring that their working conditions meet strict standards. In addition, employees are also entitled to certain rights, such as paid holidays, which is not the case in China.

Shein is one of Boohoo’s main competitors in the fast fashion industry, given its vast network of seedy workshops in Guangzhou, China, which make up the bulk of its supply chain. Shein reportedly raised $1 billion earlier this month, valuing the company at $100 billion.

However, as Chinese companies such as Shein come under less scrutiny, the tide could turn in Boohoo’s favor as customers raise questions about Shein’s supply chain and labor practices.

BOO shares are currently trading below the 100p resistance level, and the current price action indicates that the shares could break above the level triggering a new phase of rally. After breaking through the 100p level, the next critical level is at 126p, after which the rally might move to the 180p level.

There are few obstacles at Boohoo, given the steps the company has taken to increase transparency in its supply chain. What’s more, the move should pay off hugely, as its Chinese competitors are under intense scrutiny from their Western and global customers.

*This is not investment advice. Always exercise due diligence before making investment decisions.

Boohoo stock price.

Boohoo share on 21-04-2022
Source: commercial view

Boohoo shares fell 28.26% in 2022 but recently rebounded off the 64.38p level. BOO shares rose but failed to break above the 100p level, an important resistance area.

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