Despite being one of the standout performers during the pandemic, Boohoo has shown it’s not immune to mounting inflationary pressures. How do its bosses plan to turn the fast-fashion giant around?
- Marketing budgets have been scaled back in a bid to focus on the loyalty of existing Boohoo customers
- Charging for returns means people “think about it before ordering three different styles and sending back two”
- The retailer is looking to minimise the impact of the currency crisis by focusing on Boohoo’s brands as one group
- Boohoo is investing in automation in its distribution centres in both the UK and the US
However, alongside the financial turbulence – which is at historic levels – Boohoo is dealing with some problems of its own making. Notably, sky-high returns rates and glacial delivery times to international customers, which have meant its hard-won crown has started to slip.
“It’s tough out there. We’re dealing with it,” says Boohoo co-founder Mahmud Kamani succinctly.
“We’re in control of more or less everything internal; it’s external factors that change – in Covid, they were changing daily and now they change weekly, but we deal with it.”
Can Boohoo turn things around and entice cash-strapped customers back to the fashion category in the crucial second half of the year?
Focus on value
Boohoo co-founder Carol Kane says that, in the face of external financial pressures and collapsing consumer confidence, the fashion giant is stripping back its marketing spend and is instead seeking to focus on amplifying its value positioning.
Kane says that 80% of new products this season will be priced at £25 or less, which will ensure the latest trends are accessible to all.
“We’re emphasising our value credentials at a time when our customers are feeling the pressure, which we believe is the right thing to do,” she says.
“We just need to do our job from a marketing perspective to make sure that when they have got that £50 a month to spend they’re trying to spend it with one of our brands.”
However, marketing budgets are being scaled back as part of a “targeting efficiencies” cost-cutting campaign.
Rather than spend big money on acquiring new customers, Kane says the retailer will instead focus on keeping existing customers shopping.
“We’re playing our marketing strategy very, very close to the season. We’re deploying spend week to week, but instead of spending so much on marketing and customer acquisition, we’re going to be mining the customers and talking to them about price,” she explains.
“If you are coming into the new season, do you need a new coat? Well, we can tempt you to buy a new coat because it’s a great price point.”
“It’s really about getting them to shop with us and being the best price in the market for your coat, for your boots, for your new dress – whatever you’re going to buy this season – because there’s fear out there.”
Kane kept her cards close to her chest about what other ‘efficiencies’ are being targeted in the business, but chief financial officer Neil Catto is open about the retailer’s battle to bring down returns.
Returns had a 14 percentage-point impact on the sales top line in the first half of the year.
“We’ve started charging for returns,” says Catto. “It makes people think about it before ordering three different styles and then sending back two.
“We’re also focusing on making sure the fits are consistent, as ever. But we’re also seeing a higher proportion of loyal customers, who are returning more, and our premier customers, who shop with us many times a year – they’re returning a lot.”
With surging shipping costs showing no signs of slowing, many retailers are looking to source closer to home. Boohoo is no exception, having now moved around 60% of its sourcing nearshore from closer to 40% in May 2022.
“We want to remain very flexible and very agile,” says Boohoo chief executive John Lyttle. “If you look at China, at the moment its lead times are back to where they were pre-peak last year, but it still has a very expensive freight charge.
“It’s all about agility, keeping the stock low and being able to chase into it – the good thing with the nearshoring is that it’s all truck. So whether it’s North Africa, whether it’s Turkey, it’s all coming by truck, so you don’t have that expensive sea-freight or air-freight charge.”
Lyttle adds that almost every country it sources products and materials from is also experiencing cost inflation. To combat this, Lyttle says Boohoo’s teams are being instructed to recognise where they can make potential savings by buying in bulk.
“Where can we buy yarn in bulk? Where can we buy fabric in bulk? How can we actually make our efficiencies and our margins and our cost as best as possible?” he asks.
Boohoo has also been hit by the impacts of the depreciation of the pound against the dollar.
While some of this can be solved through nearshore sourcing in Europe, in instances where Boohoo can only source in China, Lyttle says the retailer is endeavouring to think about orders as a group rather than by individual brands – such as PrettyLittleThing, Karen Millen and Debenhams.
“If you look at shoes, for example, you know that pretty much all [of that] is coming out of China,” explains Lyttle.
“That’s mostly in dollars so that’s got us playing with our volumes, trying to get the brands focused as one group in terms of our capacity on our bulk purchasing. Every brand will buy something different but, actually, we can be strong with one supplier.”
Boohoo is also ensuring that every container it ships is 100% full.
“We don’t want to ship fresh air,” Lyttle quips. “We’re looking at lots of ways that we can minimise the impact of the dollar.”
Driving efficiencies is key across Boohoo’s business and core to its plans.
While these may incur some initial costs, the retailer expects longer-term payback from selective investments in automation, distribution centres, wholesale relationships and in Debenhams, the former department store chain it purchased as a marketplace platform in 2021.
Boohoo has invested in the automation of its Sheffield distribution centre and is targeting a five-year payback on the £125m investment, driving efficiencies in its distribution.
In the US, Boohoo’s new distribution centre is on track to open in the first half of the next financial year and will subsequently also undergo an automation transformation.
The opening of the US distribution centre will drive down delivery times, which Lyttle says is a major blockage to customer acquisition in the region currently as delivery times extend to up to 10 days.
After its launch, 95% of customers will receive their orders within three days or less, with many eligible for next-day delivery.
Looking to other international markets, Boohoo is also expanding its reach through wholesale partnerships.
Boohoo has partnered with Alshaya in the Middle East, fashion brand About You in mainland Europe and Very in the UK.
“We have a large wholesale footprint internationally,” says Lyttle. “One of our focus areas is expanding these partnerships, allowing us to enter new markets and increase brand awareness within those markets, while also offering a new route to market for the group’s brands.
“In turn, our wholesale partners get access to our short-lead-time model and our diverse and established range of suppliers through our sales portal, allowing them to select from the same ranges that our teams are buying and benefit from our model.”
In its own business, which includes 14 brands, Boohoo’s key focus is on the Debenhams online department store offer.
“What we see is that marketplaces offer consumers around 50 times the choice and deliver around two times the rate of growth of pureplay offerings, while accounting for around 60% of online revenues,” adds Lyttle.
“This is clearly a great opportunity, and a huge and rapidly growing market to tap into for Debenhams. Our philosophy is about more partners, more brands and more products, by refining and speeding up the onboarding process and investing in the back-end technology.”
“Marketplaces deliver around two times the rate of growth of pureplay offerings”
John Lyttle, chief executive, Boohoo
Like the rest of the fashion sector, Boohoo is undoubtedly feeling the pinch of the post-pandemic shopper’s concerns and smaller wallets amid the cost-of-living crisis.
However, unlike some of its competitors, one thing on Boohoo’s side is its cross-category, cross-generation appeal to those on a budget.
Over the past few years, Boohoo’s group has grown its active customer base from 13 million to 19 million. With its brand acquisitions, Boohoo says its addressable market has soared from 100 million to 500 million.
Looking at it like that, Lyttle says the retailer has “barely scratched the surface” of its potential. Yet, with bosses not expecting any real upturn before the end of the year, Boohoo may be faced with some tough decisions to ensure that potential can be reached.
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