The boohoo (LSE: BOO) share price has declined by a staggering 85% in just two years. I think that calls for a repeat of the Jeff Bezos famous word with which he started his annual Amazon shareholder letter in 2000: “OUCH“.
Now, I’m not a trader, but I did manage to save myself from some big paper losses here by selling boohoo shares at the start of 2021. The reason was that I was worried about the increasing competition the online fast fashion specialist faced.
In February, however, boohoo management set out a new and ambitious “growth share plan“. This involves returning the company to a £5bn market cap. That would be a 660%+ increase from today’s price of 52p per share.
Should I buy the shares again in case this target is reached? Let’s explore.
The new scheme
Announcing the new plan, co-founder and executive chairman Mahmud Kamani said: “As boohoo’s largest shareholder I wholeheartedly endorsed the growth plan, recognising the importance of aligning the interests of all shareholders with those of our hardworking boohoo colleagues.”
This hints at a major problem public companies face when their share prices collapse. That is, the retention of highly-skilled executives and employees. A fast-sliding share price obviously benefits nobody at a firm, and can seriously hinder the recruitment of top talent.
I make this boohoo’s third bonus plan to be rolled out in four years.
Tough times
The company has faced an almost perfect storm in the last couple of years. First, it was under increasing pressure from Chinese fast fashion rival Shein, which is known for its extremely low prices.
Like boohoo, it makes use of algorithms and big data to predict fashion trends. But unlike the UK firm, it has gained nearly 60m app downloads across the world this spring, according to Statista.
Furthermore, inflation has wreaked havoc at boohoo. Manufacturing, delivery costs and employee pay have all gone up while its consumers remain sensitive to price rises. And a sluggish economy certainly isn’t helping.
Its revenue fell 11% year on year to £637m in the four months to 31 December.
Competition remains problematic
Shein was recently set to raise around $2bn in a new funding round and is said to be aiming for a US listing in the second half of this year. That will give it a massive cash advantage over boohoo.
On the flip side, it will have to prove its increasing profitability to the public market. That means it could raise prices, which could benefit boohoo. Also, it’ll almost certainly face scrutiny over its supply chain and the generic wholesale factories it uses to keep costs at a minimum.
So yes, the Chinese fashion e-commerce platform will almost certainly raise a load of money when it goes public. But I think Shein becoming a public company (and all the scrutiny that entails) could actually level the playing field somewhat for boohoo.
That said, I don’t find the fast fashion market in general an attractive one. I prefer to invest in companies that have pricing power and a wide moat.
As things stand, boohoo has neither, so I don’t see the share price reaching 395p any time soon (if ever). I won’t personally be buying the shares.
