People walk in front of the H&M clothing store in a shopping area in Beijing, China, March 30, 2021.
Kevin Frayer/Getty Images
H&M's new boss faces a thorny dilemma: raise prices and lose more money to online fast-fashion rival Shein's budget, or cut prices and risk profit margins falling below target.
Daniel Herbert, 42, recently took the reins at H&M after Helena Helmerson resigned in a sudden announcement that sent the company's shares down more than 10%.
At the same time, H&M said sales continued to decline in the key holiday trading months of December and January, raising questions about how much revenue the retailer is sacrificing in pursuit of higher profit margins. He said that this is occurring.
“It seems like what they're doing is raising prices quite aggressively in a variety of markets, and of course they can do that. If they do that, “Trade volumes will fall and profit margins will rise.”
“The key question is: Does H&M have brands that charge much more than they currently do?”
The Swedish fashion retailer is known for jeans for $19.99 (R380) and dresses for under $15, but it also sells leather trousers for more than $300, and its Cos brand also sells coats for R1,190. We sell it for a dollar price.
Shein, which sells $8 dresses, $5 T-shirts and $2 jewelry, is eating into H&M's share of the low-end market, while larger rival Zara is taking over the fast-fashion luxury market. monopolized.
The challenge for Herbert is to show that H&M can grow profits while getting sales back on track.
Mr Herbert, who only came into the spotlight on Wednesday, has been with the company for 18 years and was appointed CEO of H&M's core brands early last year.
In an interview, Herbert said he wanted to ensure H&M was “100% competitive,” including selling some big-ticket items.
“We have developed a wide range of products with improved quality,” Elber said. “We're seeing tremendous interest in products with a wider range of price points than we previously offered.”
In its full-year report, H&M said that luxury brands such as Koss, Arquet and Weekday had strong sales and contributed significantly to profitability.
H&M said it was targeting an operating profit margin of 10% in 2024 and achieved 7.8% in the fourth quarter of 2023, down from 7.2% in the previous three months but up from 1.3% in the same period last year. It was much better.
“Protecting margins is more important than maximizing sales volumes, so the strategy is gradually working,” said Adil Shah, portfolio manager at Storebrands in Oslo, who owns H&M shares. Ta.
Lower inventories will also allow the company to raise prices, he said. H&M's inventory levels as a percentage of 12-month sales fell to 15.8% by the end of the fourth quarter from 19% a year earlier.
Karl-Johan Persson, chairman of H&M and grandson of founder Erling Persson, said the company is also investing in improving product quality and value for money while maintaining or lowering prices.
Persson, whose family owns 51% of H&M, said last year the focus was on cost control and inventory control, but this year there will be more emphasis on increasing sales.
H&M has been closing stores and laying off workers, recently announcing it would close more than a fifth of its stores in Spain and lay off up to 588 employees.
Mr. Herbert is little known in the investor community, but Storebrand's Mr. Shah said he prefers CEOs with business savvy.
“I applaud the courage to choose someone who doesn't necessarily have a proven track record as a CEO, but who clearly has the necessary knowledge,” he said.