**H&M Promises Change as Slow Sales Undermine Profit Boost**
Swedish fashion retailer H&M is undergoing significant changes to enhance its efficiency and responsiveness to fashion trends, as revealed by CEO Daniel Erver during a recent interview. This announcement comes in the wake of the company's report detailing a slowdown in sales, particularly in Western Europe, its largest market.
Since taking the helm in January 2024, Erver has overseen an improvement in H&M's profitability. The company's third-quarter profits were notably boosted by a one-off refund related to U.S. tariffs, which increased operating profit to 6.04 billion Swedish crowns (approximately $608.63 million), up from 4.91 billion crowns in the same period last year. This figure also surpassed analysts' expectations, which had forecasted a profit of 5.14 billion crowns.
Despite this profit increase, H&M's sales have stagnated, particularly in Western Europe, where they declined by 1%. Erver attributed this decline to the ongoing financial pressures faced by consumers in the region and the competitive landscape, which includes formidable rivals like Shein and Inditex, the parent company of Zara. "Consumers have been under a lot of pressure for a long time," Erver noted.
In response to these challenges, H&M is implementing strategies to adapt to fast-moving fashion trends and unpredictable weather patterns. The company is focusing on sourcing clothing with shorter lead times and from factories located closer to its primary markets. Erver emphasized the importance of agility in the current retail environment, stating, "We are able to get product from having a first rough idea to the customer in six weeks." This approach aims to increase the share of products bought with shorter lead times, thereby improving responsiveness to market demands.
Additionally, H&M is facing logistical challenges, including the recent closure of its Belgian warehouse, which has further impacted revenue. The company is also contending with rising transport costs due to geopolitical tensions, such as the ongoing U.S.-Israeli conflict and its implications for shipping routes. In light of these challenges, H&M is collaborating with suppliers in Bangladesh and other regions to transition to renewable energy sources, which Erver believes will enhance resilience against geopolitical disruptions while also reducing carbon emissions. He confirmed that H&M plans to eliminate coal-fired boilers from its supply chain by the end of this year.
Looking ahead, H&M's sales projections for September indicate a modest increase of 1% in local currencies, mirroring the growth rate observed during the June-August quarter. This growth rate is significantly slower compared to the 9% sales increase reported by Inditex earlier this month, further highlighting the competitive pressures H&M faces.
In response to the evolving retail landscape, H&M has been actively reducing its store footprint while refurbishing existing locations. The company has improved about one-fifth of its 4,000 stores and is investing in logistics to accommodate the growing demand for online sales, which now account for over 30% of total sales. New warehouses in Europe are set to come online this year and next, aimed at enhancing capacity and product availability.
Erver also expressed support for the European Union's recent decision to impose customs fees on low-value e-commerce packages, a move he believes will level the playing field against platforms like Shein and Temu. However, he tempered expectations regarding the potential impact of these fees on H&M's sales.
In a notable development, the billionaire heirs of H&M's founder, Erling Persson, have been gradually increasing their stake in the company, leading to speculation about a possible move to take the group private.
As H&M navigates these challenges and opportunities, the company remains committed to its mission of becoming a more agile and customer-focused retailer, with a clear emphasis on sustainability and innovation in its operations.