H&M’s chief executive has urged European politicians to create a level playing field for fashion retailers in areas such as tax, chemical regulations, purchasing practices and workers’ rights to combat unfair competition from Chinese rivals such as Shein and Temu.
Daniel Ervér told the Financial Times that the Swedish fast-fashion retailer was on “a very long journey” towards increased profitability after ceding its crown as the world’s largest fashion chain to Zara’s Spanish owner in “an industry that is changing at a furious pace”.
He added: “I don’t think we have seen a level playing field. If you don’t pay taxes, if you don’t comply with chemical regulations, don’t adhere to purchasing practices, protect the social rights of workers, that’s not a responsible way of conducting business. There’s a responsibility for lawmakers to ensure there is a fair playing field, [otherwise] it will weaken our competitive strength as European companies.”
H&M has been increasingly squeezed from above by the likes of rivals Zara, and from below by cheaper rivals including Shein, Temu and Primark.
Zara has been pushing upmarket with tactics such as displaying limited-edition collections at high-profile events such as Paris Fashion Week and revamping stores designed by leading architects. H&M has followed its lead to some degree in a bid to set itself apart from cut-price online rivals such as Shein and Temu, which benefited from sales surges during the pandemic.
Ervér’s plan to turn around family-controlled H&M has focused on boosting profitability and putting the customer at the heart of its focus — both on display at the refitting of a central Stockholm store around the corner from its head office.
The store is airy for an H&M location, with more space between displays and fewer clothes on show, while items from its upmarket Studio and Atelier ranges as well as beauty products greet customers at the entrance. Shoppers can scan a code in the fitting room to ask an employee to bring them a different size or order anything out of stock for home delivery.
“Previously it was high-density but we wanted to break that. With the right product, we sell more with less. It becomes a more effective way of running the business,” said Johanna Klingspor, H&M’s head of creative development.
The revamp is already bearing some fruit as Ervér also targets cost control. Operating margins fell from more than 20 per cent in 2010 to just 3 per cent in 2022. They reached 8.6 per cent in the third quarter this year, up from 5.9 per cent a year earlier.
“What I recognised when stepping in is that this company has so much untapped potential . . . given how the competitive landscape has changed, we need to step up our game. We need to stop doing what doesn’t make a difference for the customer and really shift resources and money to what makes the difference,” said Ervér, who took over running H&M in February 2024.
Shareholders have given his plans a cautious welcome. Shares are up about 16 per cent this year, but were higher just before he took over as well as before the pandemic.
One top-10 shareholder said: “H&M were caught in between — not in Zara’s price point, and definitely not in Shein’s. They let the margins slide for too long.”
A fashion analyst added: “Ervér’s elevation strategy is taking the company in the right direction as it helps to reduce the H&M brand’s exposure to value fashion — the most competitive segment of the market and the most exposed to competition from not only the likes of Shein, but also second-hand platforms.”
But questions remain. H&M has historically sourced more of its clothes from Asia leaving it less nimble than Zara, which has more production closer to its biggest markets in Europe and the US. H&M’s need to discount some stock has led to volatility in both sales and gross margins.
“We need to continue to become quicker. Nearshoring is one piece of the puzzle, but there are many others,” Ervér said. His aim is to have some items on sale between six and 10 weeks after the initial idea.
The 44-year-old pointed to H&M presenting its latest collection at London Fashion Week for the first time in two decades. “That puts a lot of pressure on us to step up because you have the whole world, journalists, influencers, looking at you and assessing you.”
H&M is controlled by the family of Stefan Persson, son of the company’s founder, who owns shares carrying 83 per cent of voting rights. He has gradually increased his ownership in recent years and many observers in Stockholm expect him eventually to take the company private.
Ervér said he did not think it was “so provocative” to put customers ahead of investors. H&M had been “fortunate to have one large shareholder” and that satisfying all investors meant “being focused on the customer,” he added.
The retailer is also making a push into second-hand through its Sellpy platform. Some of its stores, such as the one in central Stockholm, have curated second-hand sections that attract younger shoppers. Ervér said: “We see it becoming an important part of the way that you express yourself and the way you shop second-hand becomes a complement to the existing business.”
Ervér disagrees with critics who say sustainability is incompatible with fast fashion: “To do fully sustainable collections for the richest people is not so difficult. The big challenge is to do it at scale.”
He is happy that H&M has broken the link between growth and emissions, going up in sales and down in greenhouse gases although he concedes “we are far from done”.
The Swedish group has a partnership with start-up Syre, a sister company to bankrupt battery maker Northvolt, to recycle polyester that recently expanded to include products from sporting goods group Nike.
Ervér said that few customers “want to pay more” for green products but that entrepreneurship, creativity and policy should drive the change because it “won’t happen organically”.
On competition, the H&M chief executive argued that the big disruption came a decade ago when digitalisation changed how people shop, as well lowering the barriers to entry in fashion. That opened up the market for a “completely new set of competitors” without physical stores.
“We need to make sure we leverage the strengths of having 500 in-house designers, the strength of curating the experience, and really facilitating the shopping experience,” Ervér added.