H&M chief backs business model despite sales drop and online rivals’ threat

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The boss of Hennes & Mauritz, the world’s second-biggest listed fashion retailer, said he was confident about its business model, despite growing competition from online-only rivals like Shein and Temu and a sharp fall in sales this month.

Daniel Ervér said on Thursday that although the battle for customers had “increased over the last year”, having physical stores and a website put the business in “a very strong position”. He added that he was “inspired and impressed” by rivals but that H&M’s model was his focus.

Ervér’s remarks came after the Swedish group’s shares tumbled as much as 15 per cent on Thursday in response to its sales warning for June, because of the cold weather, and downbeat comments about consumer sentiment.

This was despite a 50 per cent increase in operating profits to SKr7.1bn ($672.5mn) in March to May compared with the same period last year, while net sales rose 3 per cent to SKr59.6bn.

“The situation in the world around us remains uncertain and households continue to have high living costs,” the company said in a statement.

Ervér warned that H&M was also likely to be affected by external factors such as higher costs for materials and exchange rates.

“This will have a more negative impact than we expected in the second half of the year,” he said.

H&M and Zara owner Inditex were affordable fast-fashion pioneers but they have had to contend with growing competition from cheaper rivals.

H&M in particular has in the past struggled with high inventory levels. It has been focusing on improving profitability by closing stores and raising prices.

Ervér said the expected 6 per cent fall in sales in June should not be seen as indicative of trading for the rest of the year as the weather improves, and stressed that it followed particularly strong sales last year.

On Thursday, the company said gross margin during the second quarter rose to 56.3 per cent from 52.7 per cent.

Richard Chamberlain, retail analyst at RBC Capital Markets, said “current trading was a little softer than we expected” but added that the family-controlled group had taken “various steps to improve its . . . offer for customers, which should lead to a stronger relative sales performance”.

“In addition, we see potential for it to move closer to its 10 per cent operating margin target this year owing to gross margin gains and further cost efficiencies.”