The spectacular rise and fall of Boohoo: Does it have a future?

Boohoo (LON: BOO) share price has entered a deep slumber mode since June as investors wait for the next catalyst. The stock has dropped by more than 38% from the highest point in 2023. 

The rise and fall of Boohoo

Boohoo is a fast fashion company started in 2006 and Mahmud Kamani and Carol Kane. Its business model is fairly simple: produce fashionable clothes and sell them in its website. This model has been used well over the years by companies like Zara and H&M for years.

Boohoo has grown its business over the years both organically and through acquisitions. For example, it acquired PrettyLittleThing in 2020. PLT was established by a family member of Kamanis. It also acquired digital assets of Debenhams during its bankruptcy. Other acquisitions were Dorothy Perkins and Burton Menswear.

Boohoo has become one of the most popular e-commerce companies in the UK. Data compiled by SimilarWeb shows that it is the tenth most popular fashion website in the UK, attracting over 16.2 million visitors in July.

Boohoo established itself as one of the fastest-growing companies in the UK. As shown below, its revenue jumped from over 67 million pounds in 2012 to 1.9 billion in 2021/22. This growth accelerated during the pandemic as more people shopped online.

Boohoo’s fall started at the height of the pandemic when the company was accused of poor work conditions in Leicester. In the aftermath of that report, the firm was forced to conduct an audit and implement expensive changes. 

Boohoo has faced other challenges as well. It was affected by the cost of living crisis and rising competition from Chinese companies like Temu and Shein. As a result, its revenue and profitability has dropped in the past few months. Its stock has also dropped by ~92% from its peak.

The future of Boohoo

Boohoo’s management is implementing a turnaround strategy as it seeks to grow its sales and profitability. As part of this strategy, the firm is investing in the US, where it has opened a new distribution sector. It has also invested in improving its supply chains. As a result, the management believes that it will return to growth this year.

As I have written before, I believe that Boohoo has a bright future after going through a rough patch in the past in the past few years. It still has over 18 million customers and website traffic has been stable despite the challenges. 

While Boohoo can exist well as a standalone company, I believe that the management should explore strategic alternatives from UK or international investors. My thesis is that potential acquirers would seek to build a company that is a real alternative to Shein, the fast-growing Chinese company.

It is worth noting that Boohoo insiders are still optimistic about the company. Public disclosures show that Mahmud Kamani has not sold shares as many executives do during a bear market. And most recently, Umar Kamani, the founder of PrettyLittleThing added to his stake, acquiring shares worth ~15 million pounds or 3% of the company.