H&M Staff Cuts And Other Savings Of Almost $200 Million Fail To Convince Markets

Global fast-fashion chain H&M has started along the road of cutting its workforce by around 1,500 positions as part of a previously announced program to reduce costs and improve efficiency in the wake of falling third-quarter local currency sales and rising competition.

The Swedish retailer—whose brands include Afound, Arket, COS, Monki, Weekday, and & Other Stories, as well as its core H&M fascias for fashion and home—has been busy culling stores this year. For 2022, the end goal is to open around 89 new units and close around 254, a net decrease of around 165 excluding Russia, Belarus, and Ukraine. The full-store estate stood at 4,664 on August 31, 2022, down from 4,965 the same day a year ago.

Most of the openings will be in growth markets, while the closures are mainly in established markets where the fast fashion business has become very competitive thanks to the pandemic rise of online players such as Boohoo and Shein for example.

Staffing levels are contracting across much of the retail sector, and others, as companies do their best to curb rising costs to maintain profitability. Forbes.com has been keeping a track of some of the major headcount reductions.

H&M Group CEO Helena Helmersson said on Wednesday: “We are very mindful of the fact that colleagues will be affected by this (program). We will support them in finding the best possible solution for their next step.” As well as staff reductions, H&M is continuing to renegotiate a large number of leases which involves rebuilds and adjustments to the number of stores and store spaces. The group’s contracts allow around a third of leases to be renegotiated or exited each year.

Cost savings needed as shoppers become more price sensitive

In a press release, H&M estimated that its administrative and overhead cost-cutting would provide annual savings of around two billion Swedish Krona or $190 million “which are expected to become visible in the second half of 2023.” The program will, however, result in a restructuring charge of just over $76 million in the current fourth quarter of 2022 which ends on November 30.

Susannah Streeter, senior investment and markets analyst at financial services group Hargreaves Lansdown, commented: “The move by H&M to cut 1,500 jobs across its operations is symptomatic of the problems facing the fashion retail sector. Keeping the lights and heating on in vast stores is becoming increasingly unaffordable with energy prices so volatile. Shoppers are also becoming impressively price sensitive as cost-of-living headwinds continue to whip up. Retailers are finding it more difficult to pass on increases in input costs.”

The markets were largely indifferent to the cost-cutting details released today, with H&M’s share price on the Stockholm exchange down marginally by almost 1%. The retailer is, nevertheless, far from where it should be. The share price has been on a downward trend this year and is at the same level as it was at the mid-March crash of 2020, brought on by the Covid-19 crisis.

By comparison, rivals such as Next in Britain, and Uniqlo’s Japanese owner Fast Retailing—which is taking a punt in the American market with younger sister brand GU—have both seen their shares rise significantly since the March 2020 trough.

Where H&M has scored better has been with its online/omnichannel business using mixed routes-to-market. In 2022, the company launched H&M online in Colombia, Peru, and Uruguay, and in September it also launched via franchise in Israel and on Shopee in Thailand. In the spring, COS went online in Australia and via Zalora in the Philippines.

At the end of the year, COS online will enter Thailand via franchise, while Monki has launched on AboutYou, as well as on Zalora in Singapore and Malaysia. Meanwhile, & Other Stories has tied up with HURR in the U.K., and Arket has stepped onto the YOOX platform there.

Streeter said: “Shoppers are showing signs of trading down and hunting out bargains, so the pressure is on H&M to compete with chains seen as offering greater value; from Primark in high streets to Boohoo and Shein online. H&M has undergone an admirable shift to online, making shop assistants in store increasingly redundant, and this trend is clearly set to continue.”