Small Cap Value Report (1 Feb 2017) - BOO, EPWN | Paul Scott

1st Feb '17 by Paul Scott

42 comments 20323 reads

Good morning,

Boohoo.Com (LON:BOO)

Let's start with a few comments on the latest Dispatches TV programme. I think it's a good thing that Dispatches is keeping the pressure on the rag trade - because it's notorious for having a supply chain where conditions for workers can often be very poor.

Warehouse management procedures have come under criticism for Sports Direct, JD Sports, and now BooHoo. The trouble seems to be that the workforce is transitory - with agency temps being extensively used, to boost the workforce during peak times.

Overall though, despite the TV peoples' attempt to dramatise things, BooHoo didn't seem to be doing much wrong. Specifically, these struck me as the main negatives;

Docking pay by 15 mins for being 1 min late - clearly unfair, and should not happen.
Long queues for bag-checking, and workers unpaid whilst waiting - again, clearly wrong, needs to be rectified.

Other than that, the following points were presented as terribly negative, but which strike me as being par for the course;

Long shifts (12 hours), involving extensive walking - that's what warehouse work is like. So it's only suitable for people who are fit & active.
Workers being pressurised to meet targets - it was filmed at peak trading, and everyone would understandably be under pressure to reach peak productivity.
3-strikes and you're out, with strikes being for quite trivial things. The company has denied this is their policy. However, when there is plenty of supply of willing agency workers, employers will naturally keep the most productive, and want the least productive replaced.

It's a fine line between urging staff to work hard, and crossing a line into bullying & maltreatment. The BooHoo supervisor filmed by Dispatches actually seemed quite polite in the way he spoke to agency staff, I thought. Certainly I've seen, and been personally on the receiving end of far worse treatment when working in warehouses! Bullying supervisors are a widespread problem.

This type of Dispatches programme can cause a lot of brand damage, so I think it's important that BooHoo properly reviews how it's treating agency staff. Overall though, on my visit to BooHoo HQ last year, I was highly impressed with how professional everyone was. So the culture of the company is good, in my experience.

The issue of goods being manufactured in factories where workers are underpaid, is an ongoing problem for the whole industry. The big problem is that…

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Calalily

1st Feb '17

John
I totally get that. We are in construction and cheap European labour has crucified not only the skill but the wage. The problem is while it's allowed there's noting that can be done and they are working in line with requirements.

Laughton

But Boohoo.Com (LON:BOO) says that they pay ALL their staff more than the National Minimum Wage and "on average 12.50% above the National Living Wage" which in itself is above the NMW - so the 15 minute pay for 1 minute or more late is unlikely to cause any legal problem.

Only playing Devil's advocate here.

How many minutes late would you think should be allowable?

Gostevie

I pity anybody who took part in the Autins (LON:AUTG) IPO as recently as last August. Already we have a profit warning and the sudden departure of the Chief Executive just nine months later:

http://www.investegate.co.uk/autins-group-plc--aut...

Share price down over 30% at the time of writing.

Interesting bit of commentary over at ShareProphets:

http://www.shareprophets.com/views/26906/autins-group-five-months-in-and-huge-revenue-warning-and-ceo-leaves-under-cloud-hmmm

Steve

Disclosure: No position

hayashi22

Yes you have the nail on the head there. Blair's open immigration policy made him feel good about himself but has had the effect of destroying the living standards of the people he was supposed to represent (protect). In essence he also finished off the residual powers of the Trades Unions via support for globalisation. It is strange how the impact of legislation like many other things in life has the opposite effect to what was originally intended.

peterthegreat

Hello Paul,
Thanks for your comments on Epwin and Entu. For my own part, the reason I invested in Epwin but not Entu is that Epwin serves trade as well as retail customers and seems to have a strong position within the trade. As far as I am aware, Entu has a much heavier reliance on retail customers. My perception is that businesses serving trade customers often seem to do well (this is why I hold Howdens) but I am not sure why this is. Perhaps there is less of a need to spend on advertising, marketing and glossy premises and customers tend to be more loyal? I also like Epwin because its merger with Latium was subject to a Monopolies Commission enquiry which would indicate to me that it must have a good competitive position. Also the company appears to be quite a straightforward business which is easy to understand.

For the sake of fairness, here is a link to another's take on the Boohoo.Com (LON:BOO) Dispatches programme (which I should say I did not watch).

Not recommended for holders of a nervous disposition.

http://www.shareprophets.com/views/26865/tom-winnifrith-bonus-bearcast-boycottboohoo-the-shameful-and-unacceptable-face-of-capitalism-exposed

Effortless Cool

"It exposed Boohoo.com (BOO) and to a far lesser extent ASOS (ASC) for the way they treat management. Boohoo was truly shamed".

Read it carefully. I think perhaps Tom is confused?

melody9999

Delighted to hear that TW is 'exposing' BOO again. The SP has come a long way since his last spat which I think also involved Paul.

It re-inforces my hold position on the stock - you only have to look at ASC to accept the valuation for what it is and continue to hold for long term gains. Until there is a shift in something fundamental such as consumer buying patterns or some change in the US, just ride the wave!

ganthorpe

I worked for many years in the clothing manufacturing industry. Pilfering has always been a big problem , from petty pilfering for family and friends up to stealing for sale on to dealers.We only searched when we had reason to suspect someone smuggling out of the factory in their bags or clothing , but every now and again we got nasty shocks when police or outside agencies caught staff who had upto then "got away" with it - and not only the lowest paid.
I don't agree with searching every day but spot occasional random searches were a big deterrant. and certainly staff should be paid whilst waiting .Branded goods are a big target as they command a good price in the "no Questions Asked" sector of retailing.
Just my experience at the sharp end.

smatthews1

i think it can be managed in a more sensible manner most places have some form of clocking in cards/system, now if you start 10-15 mins early no one will batter and eye lid but its soon noticed if your 1 minute late.

if you clock on early by 10 mins this minutes should start to be accrued, towards their normal working day/week. Not only does this incentivize you to get work on time but it allows flexibility as you can still complete your required hours.

Sean.

Beginner

Flapping about the availability of cheap migrant labour is a bit nonsensical. If there is a need it will be filled. Across the last century we saw (in rough order of arrival) the Irish, East European Jews, West Indians, Indians, Pakistanis, assorted Eastern Europeans. This is one area where supply and demand really works (at least for employers).

(Do you really expect the numbers of nurses registering in a summer month to be the same as at Christmas? Any shortage here will be filled from Ireland and Asia, as it traditionally has been since the NHS started).

Trouble then is that the person or machine doing the job before you "on the production line" hasn't clocked on 10 minutes early so there's nothing for you to do until they start at the correct "start" time.

Presumably "to complete your required hours" you would then be in favour of this person clocking off 10 minutes early on this day or some other day in that week or month in order that they don't work more hours than they should?

As one quite clever current TV advert says "that way madness lies".

yes I agree it gets tricky when you manage people on production lines with strict shift patterns. it will have to be tailored to suit.

However the frustrating part is these decisions are made by people not on the minimum wage. Treat staff fairly and reduce the chance of damaging their brand/reputation.

Virgin has created an excellent reputation for treating the staff well across the board, and as a whole they have created a very powerful brand behind it.

sevenccc

Interesting how easily we can jump to conclusions without the full picture. So why has the CEO quit? What is his state of health? Has this been caused by business pressure? Who is/was the driving force behind the business?

May I suggest this may not be all it appears on the surface? I don't know the details but the likes of shareprophets wouldn't let a bit of humanity get in the way of an opportunity to slate someone would they?

jonesj

Some good points made earlier.

Boohoo do not run a car production line, where everyone needs to start on time so the parts are fitted in the correct sequence (try fitting the carpet after the seats & rubber door seals when making a car).
Since they clock in, clock out and monitor people's pick rate electronically, what is the problem with slight flexibility where people can clock in a few minutes either side of the target & the same for clocking out ?

2nd Feb '17

Clothing Manufacturing IS a production line job these days , so lateness does have knock on effects if more than a few minutes.

martinmullane

Paul,
What are your views on PMG & ETO?

Boohoo were not manufacturing on the site subject to the documentary.

Paul Scott

3rd Feb '17

I think everything has to be done very efficiently within a warehouse.
BUT the staff have to be treated fairly and humanely at all times.

In my experience, things can easily cross the line.

So BOO have to be 100% sure that they're the right side of the line, all the time. That needs mgt focus. Otherwise brand damage is bad.

PP.

gus 1065

6th Feb '17

Looks as though the Boohoo.Com (LON:BOO) bid to acquire assists from the Nasty Gal estate is going through uncontested. RNS out this morning.

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/BOO/13117798.html

Gus.

Small Cap Value Report (1 Feb 2017) - BOO, EPWN

Boohoo.Com (LON:BOO)

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Paul Scott

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