City comment: Nightmare before Christmas for fast fashion players like Boohoo

Boohoo lived up to its name this morning, leaving its investors in tears.

Shares sunk after the company slashed its sales guidance, saying higher returns and costs and longer shipping times are all hurting its business.

The Manchester-based business used to be a stock market darling thanks to its shockingly fast sales growth. At its height, shares would fall if the company did anything less than double sales - was that all?

The phenomenal growth was driven by Boohoo’s ability to deliver on-trend clothing faster and cheaper than anybody else — even Zara.

Cracks in this model started to emerge last year when the retailer found itself in the dock over conditions in its supply chain. That prompted much soul searching and a costly clean up job to satisfy the ESG brigade.

This year has really done for the business. Longer freight times are deadly for fast fashion players like Boohoo. As the name suggests, shoppers want their items now — waiting a few weeks won’t do.

Higher costs are also a turn off. With inflation running rampant, businesses like Boohoo are being forced to swallow the higher costs.

The final straw is a cancelled Christmas party season due to Omicron. Would-be revellers are returning dresses in droves.

Boohoo insists that these factors are temporary and should ease in the New Year. Even if they do, it won’t be an easy ride. While Boohoo has been cleaning house, a new challenger has emerged in the form of China’s Shein. It can deliver tops that are — you guessed it — cheaper and faster than rivals.

Boohoo shares are now down over two thirds since the start of the year, suggesting investors have yet to see the light at the end of the tunnel. Today’s update suggests it’s a way off yet.