LONDON – British online fast-fashion retailer Boohoo says it plans to increase near-sourcing from the United Kingdom, Europe and northern Africa to cut supply lead times. The company announced the news as it published its full-year results which showed its profits before tax slumped by 94 per cent to £7.8m in the year to the end of February.
Overall, Boohoo’s sales rose 14 per on the year to £2bn. But pandemic-related challenges, including rising shipping costs and overseas delivery delays, will continue this year.
Like most fashion retailers, increased freight and transport costs, as well as delays, have been the main challenge since the pandemic began. Costs have increased for shipping as well as airfreight, and even the latter has offered no guarantee of rapid delivery in recent months. Boohoo CEO John Lyttle said he expects shipping costs to come down. At an investor call, he said: “Will prices come down from what they are today? I definitely believe so. If that is not the case I think we will need to be … looking at else we can do so maybe there comes an opportunity … [is it] time for us to ask do we need our own aircraft in terms of [being] in control of that.”
The move to nearer-shoring would reduce Boohoo’s exposure to heightened inbound air and sea freight costs from Asia, with supplies from Europe being trucked.
“Our Asia sourcing is still very fast in comparison to most retailers,” said Lyttle. “It’s really just that availability of aircraft and the cost of air freight and sea freight.”
The CEO said Boohoo suffered during the 2021 peak season as delays getting supplies to Asian ports and airports and onto ships and planes was adding weeks to lead times.
The easing of lockdown restrictions has led to customers going out more and return rates have been rising.
Boohoo said customers had returned items faster than expected in the second half of the year, with the rate now higher than it was before the pandemic.
Tomas Formanek, CEO, Inventoro explaind the impact dead stock has on company profits and marketing budgets. He said: “As a top ecommerce retailer, Boohoo is likely be affected by the same issues that the wider ecommerce sector is currently facing. We see the same trend with our customers, especially with goods people don’t necessarily have an instant need for, like fashion, furniture and accessories.
“The story goes like this – ecommerce was booming over the last two years due to Covid-related lockdowns, and retailers thought, “booming tastes good.” So, they started to invest in their inventories, piling up warehouses and even buying or renting more warehouse space. Then suddenly one black swan flew away as the pandemic eased and people went back to brick and mortar, and another black swan landed in the form of a global conflict, energy prices and inflation, all leading to people saving money and a subsequent drop in sales.
“The result? E-shops with piled-up warehouses. The first thing retailers would do to tackle the issue is increase ad budgets to keep the demand high. However, this is only a short-term solution that will eventually lead to price reductions and lowering of margins – hence the bad results.”