More than £1bn wiped off Boohoo value as it investigates Leicester factory

The online fashion retailer Boohoo had more than £1bn wiped off its value on Monday as it pledged to investigate how its clothes came to be made at a Leicester garment factory where workers were paid less than the minimum wage.

Boohoo, which owns brands such as Pretty Little Thing and Nasty Gal, said conditions at the factory were “totally unacceptable and fall woefully short of any standards acceptable in any workplace”. It promised to terminate relationships with any suppliers who fell short of its code of conduct.

Related: Boohoo booms as Leicester garment factories are linked to lockdown

It comes after an undercover reporter for the Sunday Times found staff being paid as little as £3.50 an hour in the factory, even though the minimum wage in Britain for those aged 25 and over is £8.72. The report found that staff were not wearing protective masks to stop the spread of Covid-19.

Clothes made by suppliers in Leicester have helped fuel rapid sales growth for Boohoo, with sales proving particularly strong during lockdown, putting its bosses in line for bonuses worth up to £150m. Shares in Boohoo slumped by 23% to 297p on Monday, the first day since allegations about its supply chain came to light, as investors digested the potential impact of the revelations. The share slump knocked £1.1bn off Boohoo’s value on the AIM market in London, reducing it to £3.7bn.

The company said in a statement it was not sure who was supplying all of its garments. Jaswal Fashions, which was initially named as the supplier in the Sunday Times report, told the Guardian it had not traded from the premises for two years.

The Guardian has obtained the name of a company that leased the premises from Jaswal Fashions but its sole director did not return a request for comment, passed on via an accountancy company where his business is registered. Boohoo declined to comment on whether this second company was indeed a supplier.

“Our early investigations have revealed that Jaswal Fashions is not a declared supplier and is also no longer trading as a garment manufacturer,” Boohoo said in a statement to investors in the company, which floated on the stock market in 2014.

“It therefore appears that a different company is using Jaswal’s former premises and we are currently trying to establish the identity of this company.

“We are taking immediate action to thoroughly investigate how our garments were in their hands, will ensure that our suppliers immediately cease working with this company and we will urgently review our relationship with any suppliers who have subcontracted work to the manufacturer in question.”

A spokesman for Jaswal Fashions said: “Someone is using our name under false pretences. We ceased trading two years ago. We don’t do anything there, don’t work from there.”

Labour rights experts said the existence of opaque supplier networks had created a risk of exploitation in the fashion industry.

“It bothers me greatly that the emergence of a new garments industry in the UK is being built around the same production model and lack of accountability that we’ve seen leading to big problems with exploitation in the global south,” said Peter McAllister, the executive director of the Ethical Trading Initiative.

“We have just reimported all the worst things about that model to the back streets of places like Leicester instead of saying let’s develop a domestic fashion industry that doesn’t offer low prices by exploiting people but uses world class high-tech and ethical models of doing things.”

Thulsi Narayanasamy, a labour rights researcher at the Business & Human Rights Resource Centre, said: “We’ve got an extraordinary situation where some of the UK’s biggest, most profitable fashion brands are sourcing much of their clothing from UK factories where there is no transparency, no unions, and where they are under less scrutiny and are failing to disclose less about their supply chain than brands who source from places like Bangladesh and Cambodia.”

Priti Patel, the home secretary, asked the National Crime Agency to investigate modern slavery in Leicester’s clothing factories last week, after whistleblowers raised the alarm about conditions.

Leicester has been the site of a localised coronavirus outbreak, with cramped conditions and lax safety measures in some garment factories thought to have played a role in transmission of the virus.

Boohoo had previously said none of its suppliers had been affected.

On Monday the company said: “We are keen and willing to work with local officials to raise standards because we are absolutely committed to eradicating any instance of noncompliance and to ensuring the actions of a few do not continue to undermine the excellent work of many of our suppliers in the area, who provide good jobs and good working conditions.”