The boohoo share price is down 60%. Is fast fashion dead?

Concerns around operational challenges have annihilated the boohoo share price this year. Is this a blip, or is fast fashion doomed long term?

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The boohoo (LSE:BOO) share price hit some glorious highs during the pandemic. Young consumers used retail therapy to good effect to soothe their boredom. But was this the crescendo for the seismic growth story of fast fashion? I feel it could be.

Since the New Year, Boohoo’s share price has been slashed by more than half (65%). I think the fall is indicative of the sun setting on the fast fashion growth story. I anticipate companies like boohoo becoming the sector’s biggest casualties over the long run. Yes, I no longer consider boohoo a growth stock, and I will detail why.

Is the party over?

Fast fashion is exactly what it says on the tin. The sector is built on constantly churning out cheap, trendy clothing inspired by celebrity culture. The fashion is ‘fast’ because it is delivered at breakneck speed to the consumer.

However, the ‘fast’ nature of it is being challenged now. The churn of the speedy delivery is becoming more expensive. This is because high freight and container costs have been eroding gross margins. Meanwhile, the delivery times for the goods have extended.

Frankly, I feel this undermines the whole business model. And all the while, customer returns are increasing. These factors are the bane of an online retailer. Clearly, they have been the bane of the boohoo share price, too.

Analysts at UBS seem aligned with me regarding the sector’s challenges over the long run. The bank has forecast revenue declines of up to 30% over the next five years for the sector.

Long-term outlook for the share price

Of course, I could be wrong about the direction of the boohoo share price. The company has rather bullishly been on an acquisition spree recently. The spree has armed the Group with several brands that cater to slightly different customer segments. A diversified business model will never be a bad move in my eyes.

Reassuringly, the company also has a relatively strong balance sheet. Financial resilience is what this company will need. I am pretty sure the cost-of-living challenge will see a sharp cut back on fast fashion spending from young consumers.  

However, the most tantalising part of boohoo’s upcoming interim results this Wednesday will be its outlook. I expect to see its management strike a cautious tone regarding the medium-term prospects.

What the interim results will not highlight

Most pertinently, I believe there is a separate issue putting pressure on the boohoo share price. This relates to charges of ESG malpractice against the company that have been lingering for some time. I am seeing it have an effect on the tastes of young consumers. The sarcastic reaction on social media to the Group’s appointment of Kourtney Kardashian as its sustainability ambassador does not bode well with me as a potential investor.

I understand this is an issue boohoo is trying to mitigate. However, its efforts have landed them in hot water with the authorities regarding greenwashing before. ASOS too.

Certainly, I see changes in consumer behaviour as being more powerful than companies’ ability to respond commercially. I think this, combined with the operational challenges, will continue to weigh negatively on the boohoo share price.

Overall, I must conclude fast fashion shares have no place in my portfolio for the foreseeable future.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Henry Adefope has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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