Cut-price fashion retailer Boohoo ordered an independent review of its supply chain after allegations workers at the factories of its suppliers were being exploited.
The company said it cut ties with two suppliers after it was embarrassed by revelations of illegally low pay and poor practices in the English city of Leicester, where the UK government imposed new lockdown measures because of a sharp increase in Covid-19 cases.
The value of the UK-listed fashion brand has halved to £2.7 billion (Dh12.5bn) since trading closed on Friday before a newspaper report detailed sweatshop conditions in one of the city’s estimated 1,500 garment workshops that supplied the Boohoo brand.
Amazon temporarily suspended sales of Boohoo products.
Boohoo commissioned a lawyer to review its supply chain amid concerns that it faces a formal investigation under the UK’s Modern Slavery Act.
The group said it was investing a further £10 million to tackle malpractice in its supply chain.
Critics have long complained that Boohoo’s cut-price offerings, such as £5 dresses, were incompatible with labour rights. Campaigners claimed that some workers in Leicester were paid £3.50 an hour – less than half the mandatory £8.72 minimum wage for those over the age of 25.
Staff in factories that supplied Boohoo said they were being forced to work despite suffering Covid-19 symptoms and with few measures to ensure social distancing, according to a report last month by campaign group Labour Behind the Label.
Worker abuse in the sector has been reported for years and campaigners say the UK government has done little to tackle the problem. Last week, Home Secretary Priti Patel ordered a police investigation into modern slavery in Leicester because of concerns about working practices.
"As a board we are deeply shocked by the recent allegations about the Leicester garment industry," Boohoo chief executive John Lyttle said.
We wish to reiterate how seriously we are taking these matters and we will not hesitate to terminate any relationships where non-compliance with our code of conduct is found.”
Charities gave a warning that labour exploitation could increase if diplomatic and trade disputes with China forced cut-price fashion retailers to source more clothing in the UK, an anti-slavery charity said.
The Covid-19 pandemic and worsening relations with Russia and China created "challenging conditions" for cut-price retailers in Britain, said Neil Wain, international programme manager for anti-slavery charity Hope for Justice, which is working with Boohoo.
“It could well be that they draw back into UK manufacturing because of those difficulties in international relations and supply chains," Mr Wain said.
“Maybe this is a wake-up call. This is an opportunity to have a good look at the situation.”
The industry in Leicester employs about 10,000 people and has continued to operate during the pandemic. On Sunday, British Health Secretary Matt Hancock said he was worried about employment practices in some factories.
One man told the BBC he sat close to colleagues who did not wear gloves or masks, and that a single garment could be touched by up to 40 people. “I carried on working because I have three children, a wife and parents to support back in Afghanistan,” he said.
Police visited nine factories last week with immigration and health officials but none was ordered to close.
Boohoo, which makes 40 per cent of its products in the UK, said that it had severed links with a supplier and subcontractor that had sent products to Morocco to be made.
The company told MPs investigating industry practices that its discount prices were not to blame for unlawfully low wages in the city’s garment factories. It told MPs in 2018 that its cheapest £5 dresses were a “marketing tool” to attract customers and were sold at a loss.
Leicester has been identified as a human-trafficking hot spot and has a higher proportion of ethnic minority residents than most other British cities of its size.
The garment industry is among those abusing cheap labour, said Stop the Traffik, which campaigns against modern slavery.
Complaints about how some factories were operating during the height of the lockdown in April are already under investigation, the city’s council said.
Leicester’s Deputy Mayor, Adam Clarke, said officials had found “no evidence to suggest the rise in coronavirus cases in the city was linked to the textile industry”.
The new lockdown in the city was imposed on July 4 after infection rates hit 135 cases for every 100,000 people, nearly three times the level that restrictions are imposed in Germany. On Tuesday, Mr Hancock said the rate had fallen to 117, but it was not clear when the restrictions would be lifted.