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London (CNN Business)Online fashion retailer Boohoo is launching an independent review of its UK supply chain after a media report revealing dire working conditions at a factory caused sellers including Amazon to drop its products.
Boohoo said in a statement on Wednesday that it takes "extremely seriously all allegations of malpractice, poor working conditions, and underpayment of workers."
The Sunday Times reported over the weekend that workers at one factory in the English city of Leicester were being paid as little as £3.50 ($4.39) an hour to make clothes destined for Boohoo. The UK minimum hourly wage is £8.72 ($10.94).
The factory continued operating during a local coronavirus lockdown in the city, where there has been a spike in infections, without additional hygiene or social distancing measures in place, according to the newspaper.
Shares in Boohoo, which owns brands including PrettyLittleThing, Nasty Gal and Karen Millen, have fallen 43% this week in response to the news report.
The UK National Crime Agency told CNN Business that a number of business premises in Leicester have been visited in recent days and it is assessing "concerns of modern slavery and human trafficking." Companies face potentially unlimited fines for these offenses under Britain's Modern Slavery Act.
Amazon (AMZN) said it had suspended the sale of Boohoo brands because "selling partners are required to follow all applicable laws, regulations, and Amazon policies." It later clarified that it holds Boohoo stock as a result of historic agreements and through third-party sellers, rather than any current arrangement with the company.
Berlin-based fashion retailer Zalando (ZLNDY) said it will take down more than 300 Boohoo products in response to "allegations against Boohoo regarding worker rights." The company said it will distance itself from partners that do not prioritize worker safety. A third retailer, ASOS (ASOMY), has temporarily suspended its relationship with all Boohoo brands.
Boohoo, which does not own or operate any manufacturing facilities, said it will terminate relationships with suppliers that do not comply with its code of conduct and committed £10 million ($12.5 million) toward eradicating supply chain malpractice. It said it has already canceled contracts with two suppliers that were in breach of its policies.
The company last year hired an ethical audit specialist, Verisio, to supplement its compliance team and said it conducts unannounced visits to audit supplier facilities. "We are committed to doing everything in our power to rebuild the reputation of the textile manufacturing industry in Leicester," it said.
In response to the allegations, UK Home Secretary Priti Patel said that she will not tolerate "sick criminals forcing innocent people into slave labor and a life of exploitation."
"What you are doing is illegal, it will not be tolerated and we are coming after you," she said in a statement.
Britain's garment factories have been the subject of previous media investigations. The Financial Times reported last year that part of Leicester's garment industry has become detached from UK employment law, quoting one factory owner who described it as "a country within a country," where "£5 an hour is considered the top wage."
Boohoo said that about 40% of its products are manufactured in the United Kingdom "supporting thousands of jobs in this country that may otherwise be lost to overseas markets."
The company reported revenue of £1.2 billion ($1.5 billion) for the 12 months to February, a 44% increase on the prior year. It said that its wholesale operations accounted for less than 4% of sales with almost all revenue generated from own brand websites.
