H&M Falls Behind in the Fast Fashion Race: CEO Unveils Urgent Steps to Turn the Tide

In a recent interview with the Financial Times, H&M’s CEO, Daniel Ervér, revealed that the Swedish fast-fashion retailer is on a “long journey” to improve profitability. This comes after losing its title as the world’s largest fashion retailer to Zara, owned by Spain’s Inditex, in an industry evolving at breakneck speed.

Ervér emphasized, “The playing field isn’t level today. If you’re not paying taxes, complying with chemical regulations, respecting procurement practices, or protecting workers’ social rights, that’s not responsible business. Lawmakers must ensure fairness, or European companies’ competitiveness will suffer.”

Currently, H&M is sandwiched between Zara and premium brands above, and budget players like Shein, Temu, and Primark below.

Zara has elevated its brand by showcasing limited collections at events like Paris Fashion Week and upgrading stores with designs by renowned architects. H&M is following suit to differentiate itself from low-cost online rivals like Shein and Temu, which saw explosive growth during the pandemic.

Ervér’s turnaround strategy at H&M (controlled by its founding family) focuses on boosting margins and “putting customers first,” evident in the redesign of its flagship Stockholm store, just a block from headquarters.

The space is more open than H&M’s traditional dense layouts: wider aisles, fewer items on display, and premium lines like Studio and Atelier, along with cosmetics, placed at the entrance. In fitting rooms, customers scan items to request different sizes or home delivery if unavailable.

“Previously, displays were overcrowded; we’re breaking that. With the right products, we sell more with less inventory. It’s about operating smarter,” said Johanna Klingspor, H&M’s Head of Creative Development.

The overhaul shows promise alongside cost-cutting efforts. Operating margins fell from over 20% in 2010 to just 3% in 2022 but rebounded to 8.6% in Q3 2023, up from 5.9% year-on-year.

“When I took over, I saw untapped potential… In this new competitive landscape, we must perform better. Stop what doesn’t add value for customers and redirect resources to what does,” Ervér stated.

Shareholders are cautiously optimistic. H&M’s stock is up 16% year-to-date but remains below pre-pandemic and pre-Ervér levels.

A top-10 shareholder noted, “H&M is stuck in the middle—not as premium as Zara, not as cheap as Shein. They let margins slip for too long.”

A fashion analyst added, “Ervér’s ‘premiumization’ strategy is steering the company right by reducing reliance on the value segment, where competition from Shein and second-hand platforms is fiercest.”

However, challenges remain. H&M’s heavy reliance on Asian sourcing makes it less agile than Zara, which produces closer to key European and American markets. Excess inventory forces markdowns, impacting revenue and margins.

“We need to move faster. Nearshoring is part of it, but there’s more to do,” Ervér said. The goal: Deliver select items within 6–10 weeks from concept to shelf.

The 44-year-old CEO highlighted H&M’s return to London Fashion Week after two decades: “It puts us under the global spotlight—journalists, influencers, everyone is watching and judging.”

H&M is controlled by Stefan Persson’s family (founder’s son), holding 83% voting rights. Persson has increased his stake in recent years, leading many in Stockholm to speculate he may delist the company.

Ervér dismissed criticism of prioritizing customers over investors: “We’re fortunate to have a major shareholder. To satisfy all investors, we must focus on customers.”

The retailer is also expanding its second-hand offerings through Sellpy. Select stores, like the Stockholm flagship, feature curated resale sections targeting younger shoppers. “Resale will become a key part of self-expression, complementing our core business,” Ervér said.

He refuted the idea that sustainability conflicts with fast fashion: “Creating sustainable collections for the wealthy is easy. The challenge is doing it at scale.”

H&M has decoupled growth from emissions, increasing revenue while reducing greenhouse gases, but Ervér admitted, “There’s still a long way to go.”

The Swedish giant partnered with Syre (linked to the now-bankrupt Northvolt) to recycle polyester, recently extending this to Nike products.

Ervér acknowledged that few customers are willing to pay more for sustainable products, requiring entrepreneurial spirit, innovation, and policy support: “It won’t happen on its own.”

On competition, he noted the industry’s biggest shift occurred a decade ago when digitalization lowered entry barriers, ushering in “a new generation of rivals” without physical stores.

“We must leverage our 500 in-house designers, experiential strength, and make shopping seamless,” Ervér concluded.

Source: Financial Times