Fashion giant H&M to close 170 stores amid profit dip

H&M, the Swedish fashion retailer popular with Croatian shoppers, has announced a dip in second-quarter profits, falling short of analyst expectations. The company attributes the decline to a combination of sluggish consumer demand and persistent inflation, which has squeezed household budgets, particularly in key Western European markets like Germany and the UK.

To navigate these challenges, H&M is undertaking a significant restructuring of its retail footprint. The company plans to open 90 new stores while simultaneously closing 170 existing ones. This strategic move aims to modernize the brand's image and enhance its competitiveness against rivals such as Zara and fast-growing online platforms like Shein. H&M is also investing in brand revitalization through collaborations with notable figures, including singer Charli XCX and designer Stella McCartney.

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The market situation in Western Europe is particularly difficult, with high inflationary pressures and rising energy costs, which have further reduced household budgets, especially in Germany and Great Britain.

Financial pressures are compounded by rising material costs. H&M's finance director, Adam Karlsson, highlighted that the conflict in Iran has contributed to increased prices for polyester and cotton. These fluctuations make profit margins less predictable and add to the company's operational challenges. Despite these headwinds, H&M has managed to reduce its inventory by 10% year-on-year, though stock shortages in certain segments have limited its ability to meet consumer demand.

Barclays analysts acknowledge H&M's progress in business reorganization, noting positive steps in inventory efficiency, cost control, and supply chain initiatives. However, they caution that signs of long-term brand revitalization remain limited, and market challenges persist. While the gross margin saw a slight increase, operational profit, excluding restructuring costs, rose by 11% compared to the previous year's second quarter. H&M employs approximately 170,000 people worldwide.

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The conflict in Iran has contributed to increased prices for polyester and cotton, which affects profit margins and makes them less predictable.