Business

New boss seeks to make H&M even faster at fashion

Daniel Ervér says rise of Chinese competitors ‘requires us to react quicker’ to new trends

New H&M chief executive Daniel Ervér: he says the company will use improvements in profitability and cash flow last year to invest in its customer offering. Photograph: Samuel Steen/TT NEWS AGENCY/AFP via Getty Images

Sun Feb 4 2024 - 14:34

H&M’s new boss has pledged that the Swedish fast-fashion chain will invest more in reacting quicker to new trends, including by bringing some of its manufacturing from Asia closer to its main markets.

Daniel Ervér, the 42-year-old company veteran who became chief executive on Wednesday, said H&M would use improvements in profitability and cash flow last year to invest in its customer offering. “One part is being faster to market,” he said. “We are digitalising processes. We are developing nearshoring capabilities – being quicker to react to new trends. We also want to leverage data from customers to be more precise in how we run our supply chain.”

The family-controlled group has been under pressure for more than a decade, losing its crown as the world’s largest fashion retailer to Spain’s Inditex – the owner of Zara – as well as suffering from a decline in profit margins.

H&M spent last year prioritising profitability over sales growth by closing stores and raising prices. But its full-year results, released on Wednesday alongside news of Mr Ervér’s appointment, showed its profit margin missed analysts’ expectations in the fourth quarter, prompting a 10 per cent drop in its share price.

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Analysts and investors have pointed to the Swedish group’s large manufacturing footprint in Asia and its relative inability to react fast to breaking fashion trends compared with Inditex, which has many factories closer to its main European markets. It has also been hit by the rise of lower-price retailers such as China’s Shein and Temu, as well as Primark before them.

Mr Ervér said the new competition “requires us to react quicker” but that “really nailing price and fashion” is “doing something that lower-cost can’t”.

He added that after several years of closing more stores than it opened, H&M had “great opportunities” in 2025 and 2026 to increase the number of its shops. This year it is likely to close more stores than it opens in numbers, but to open more in terms of revenue. It had 4,369 stores at the end of November, down from 5,076 in 2019.

“We have had a big focus on profitability, especially over the last year. It was necessary to start to generate cash flow. It allows us to invest in the customer offering,” said Mr Ervér, who started at the Swedish group as a summer trainee 18 years ago and most recently was head of the H&M brand.

Some analysts and investors have urged the group, whose shares are three-quarters controlled by its founding Persson family, to appoint an outsider to shake up the retailer and its strategy. “Nothing radical will be done with insider after insider in charge,” said one shareholder.

Mr Ervér said his appointment was a matter for the board but that he was confident “that we have a very good direction for where we’re heading” and argued H&M’s strength was its “core business model”.

The company’s operating profit margin fell from more than 20 per cent in 2010 to just 3.2 per cent in 2022, before rebounding to 6.2 per cent last year. Its target for this year is 10 per cent.

The new chief executive said his leadership style was to set a “clear and compelling direction”, then “be daring to make some bold decisions and choices” as well as be “inclusive and empowering”.

He added: “Creating long-term value for customers, employees and also the shareholders is tremendously important. Our focus will be on profitable growth.” – Copyright The Financial Times Limited 2024

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