H&M swings to loss, issues statement to dampen China furore
H&M reported its three-month results on Wednesday and swung to a loss, although it said sales are recovering in March. But perhaps even more newsworthy was its ongoing effort to overcome its problems in China and its desire to “regain trust” there.
The company is one of the high-profile western businesses that has faced anger in the country over its stance on alleged human rights abuses in the cotton-growing Xinjiang region. This has resulted in the firm’s business enduring a raft of online criticism and its e-operations becoming all-but-invisible in the country. Its online operations can’t be accessed and it’s even impossible to use a taxi-hailing app to get to an H&M store. There have been reports that some landlords have closed its stores too.
On Wednesday, H&M did its best to tread a fine line between appeasing China and western sensibilities in a statement that didn’t mention the word ‘Xinjiang'. It said: “We are working together with our colleagues in China to do everything we can to manage the current challenges and find a way forward.
“China is a very important market to us and our long-term commitment to the country remains strong. We have witnessed remarkable progress within the Chinese textile industry. China will continue to play an important role in further developing the entire industry. We are proud our suppliers are being part of that development and we want to continue contributing to driving progress together with our partners and stakeholders in the country.”
But it also said it wants to be “a responsible buyer, in China and elsewhere, and [we] are now building forward-looking strategies and actively working on next steps with regards to material sourcing”.
It added that it complies with local laws and regulatory frameworks in all the markets in which it operates and concluded by saying it’s “dedicated to regaining the trust and confidence of our customers, colleagues, and business partners in China. By working together with stakeholders and partners, we believe we can take steps in our joint efforts to develop the fashion industry, as well as serve our customers and act in a respectful way”.
What it didn’t say is exactly what this means for what the company will do and its stance on ethical issues.
Many observers believe this is a storm that it has to weather for now but that it will pass, although it’s unclear how quickly that will happen.
RBC Capital Markets analyst Richard Chamberlain said in a note that “we have seen brands like Nike and H&M weather similar controversies in the past and maintain relatively strong sales, however short term, we think H&M may see a negative impact on its sales in the large and growing Chinese market”.
Q1 LOSS AND EARLY RECOVERY
Moving on to its results, in the first quarter (the three months to the end of February, just before the pandemic really hit its ops), the group’s net sales fell from SEK54.948 billion (€5.3bn/£4.6bn/$6.3bn) to SEK40.06 billion. They fell 21% in local currencies.
The second wave of the pandemic resulted in extensive restrictions and at the most, around 1,800 stores were temporarily closed, which adds up to about 36% of its total.
But online sales “continued to develop very well”.
Gross profit fell to SEK19.057 billion from SEK28.034 billion and the gross margin dropped to 47.6% from 51%. The net loss was SEK1.07 billion — down from a profit of SEK1.928 billion a year earlier.
However, ignoring the China issues at present, the company said that sales rose 55% in local currencies in the four weeks to March 28, compared to a year ago. Admittedly, those March 2020 sales had been hurt by the onset of the pandemic. But the extent of the increase does show that it’s bouncing back and offers some hope for the months ahead in markets that are opening up.
This will be helped by the firm’s expansion programme. In March, it opened online in Qatar via franchise and H&M has also been “successfully launched” on the e-commerce platform Zalora in Indonesia. In April the launch of H&M on Zalora will also be extended to the Philippines, Malaysia and Singapore.
CEO Helena Helmersson said of all this: “It is now a year since the full force of the pandemic hit. I am deeply impressed by and proud of all our colleagues’ fantastic commitment and customer focus during a very challenging time. Although it is still largely a matter of managing the negative effects of recurring store closures, it is clear that customers appreciate our offering. When markets have been allowed to open, store sales have picked up while at the same time online sales have continued to develop very well.
“The changes that we were already seeing in areas such as digitalisation and sustainability have been speeded up further by the pandemic. We have therefore increased the pace of change, and thanks to our significant investments in recent years we are able to meet customers’ changing behaviour and higher expectations with increasing speed.”
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