Fashion retailer: H&M under pressure from Inditex and Shein: Persson family owners have to change course

Stockholm The success of H&M has made Karl-Johan Persson’s (47) family rich. The head of the supervisory board and his parents, aunt and siblings are all among the wealthiest Swedes. The fashion brand H&M is probably the best-known company in the country worldwide – next to Ikea.

But the success story has recently cracked. This is shown by the figures presented by the fashion giant on Friday: the annual operating profit has fallen by more than half to 7.2 billion crowns (640 million euros). The group is not only burdened by the high energy costs and the strong dollar. Above all, it is the changing tastes of the customers.

CEO Helena Helmersson spoke of a “difficult year”, but was cautiously optimistic about developments in the current year. “External factors remain challenging, but development is going in the right direction,” she said. The head of the supervisory board, Persson, seems to have a similar view, because the dividend should remain unchanged at 6.50 crowns despite the weak result.

The group faces increasing competition from new players such as China’s Shein. But the Spanish competitor Inditex is also in a better position, according to Stefan Wenzel, retail expert and digital consultant, who was previously Head of Germany at Ebay and Head of Digital at the fashion brand Tom Tailor.

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Decreasing relevance in the target group puts a strain on sales and, with high fixed costs, also puts pressure on the gross margin, “which is eight percentage points behind the Primus Inditex by a world,” says Wenzel.

Profit warnings and job cuts

H&M is also suffering from the weak Swedish krona. Because unlike its competitor Zara from Inditex, H&M mainly produces in Asia and has to pay the bills in dollars.

Achim Berg, partner at McKinsey, meanwhile, sees that interest in nearshoring is increasing in the fashion industry, “because the reaction time is shorter and the CO2 footprint is better”. “However, the significantly higher production costs would still have to be paid for in dollars. This does not solve the problem of currency costs.”

The Swedes were punished on the stock exchange: last year the share was at its lowest level in 18 years.

>> Read here: The retail sector faces a tough year of consolidation

It was clear early on that 2022 would not be a good year for H&M. The company had to issue a profit warning twice in the past year. The reason was the reluctance of many customers to buy due to high inflation, the corona pandemic and the withdrawal from Russia.

Therefore, the costs are to be reduced by around two billion crowns (179 million euros). H&M cut around 1,500 of the 155,000 jobs and closed some of the 4,465 branches.

A great new vision is missing

To this day, nothing works in the group without the Persson family. Karl-Johan succeeded his father Stefan to the helm of the company in 2009. In 2020 he replaced him as head of the supervisory board. Most recently, the Perssons expanded their power in the listed family company: They bought a further 16 million H&M shares for 1.65 billion crowns through various subsidiaries.

Karl-Johan Persson and his siblings Charlotte and Tom as well as their father Stefan Persson and his sister Lottie Tham hold a total of 52.95 percent of the capital and 77.13 percent of the voting rights.

Karl Johan Persson

The current head of the supervisory board gave up management of the fashion group H&M in 2020.

(Photo: Reuters)

So far, however, they have not used their voting rights to take action or implement a major new vision. It is only known that father Stefan and son Karl-Johan want to strengthen online trading, which currently accounts for around 30 percent of the business.

Industry expert Wenzel explains the challenges: “Inditex shows how to use a model similar to H&M to align itself more closely with market demand,” he says. It’s about quantities, but also about trends and designs.

At the same time, the Chinese real-time fashion provider Shein is overtaking the Primus Inditex. “Environmental and ethics officers get sick at Shein, but Gen Z is very willing to compromise and very willing to buy.”

Despite all the justified criticism, Shein shows how demand and required quantities can be better understood through a consistently data-based approach. Shein also shows how social media tactics can quickly become the leading brand on the major platforms.

Greater focus on sustainability

The Persson once invented fast fashion, says an industry expert who does not want to be named. In 1947, grandfather Erling Persson opened his first women’s fashion store in the small town of Vasteras, west of Stockholm.

Customers loved the sporty range offered at reasonable prices, which later expanded to include men’s and children’s fashion. In 1982, his son Stefan took over the operational management of the company, which had meanwhile grown into a fashion chain.

Stefan Persson continued to expand the business, opened up new markets and consistently focused on expansion in the very best business locations. Chic and cheap should not be a contradiction in terms. Since 2009, Karl-Johan has managed the business and developed H&M.

Passing the baton at the Persson family (archive)

In 2009, Stefan Persson (left) handed over management of the company to his son Karl-Johan.

(Photo: imago images/TT)

He further established the somewhat more luxurious brand COS (Collection of Style) and the interior design brand H&M Home and boosted the online business just in time. The group also focused more on sustainability under Karl-Johan Persson’s leadership. However, how well the eco-fashion business is doing is a trade secret.

But after initial successes as boss, Persson Junior found himself exposed to increasing criticism. Analysts complained that the competition was quicker to implement new trends and also had the edge in the fast-growing online business.

Little good news for shareholders

H&M shareholders have had little joy since Karl-Johan Persson took the helm in 2009. By the time Persson Jr. resigned as H&M boss in 2020, the share price had risen by just 20 percent. The main index of the Stockholm Stock Exchange rose by 120 percent in the same period.

The pressure on Persson Junior increased and in January 2020 Helena Helmersson became the new CEO. Karl-Johan Persson became head of the supervisory board and replaced his father there, who since then has only been pulling the strings in the background.

Now it’s up to Persson Junior and Helmersson to get the lurching giant back on track. But at the moment it is apparently unclear even among the analysts what H&M currently stands for: “If you don’t stand for price, quality or trends, why should you go to H&M,” asked Danske Bank analyst Maria Landeborn this week in the Svenska Dagbladet newspaper.

A question to which the Chairman of the Supervisory Board, Karl-Johan Persson, now has to find answers.

Cooperation: Anja Müller

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