Losing its Midas touch?: Analysts say the controversy over H&M’s racist advert is a sign of the bad times the Swedish garment exporter has been having because of poor management. Picture: REUTERS
Losing its Midas touch?: Analysts say the controversy over H&M’s racist advert is a sign of the bad times the Swedish garment exporter has been having because of poor management. Picture: REUTERS

Stockholm — A racism scandal at H&M is the latest indication of management problems at the Swedish clothing giant, once the darling of shoppers but now struggling to make the switch to
e-commerce, analysts say.

The fashion group is one of Sweden’s largest export brands and industrial heavyweights, alongside Ikea, Spotify, Electrolux and Volvo. Owned by the Persson family dynasty, it has been listed on the Stockholm stock exchange since 1974.

It has collaborated with superstars such as Beyoncé and Madonna, and prestigious fashion houses including Sonia Rykiel, Lanvin and Kenzo have designed exclusive collections for the group.

H&M is one of the most well-known brands in the world, with global consultancy Interbrand ranking it the 23rd best known company worldwide in 2017 — ahead of Ikea and fashion luxury goods manufacturer Hermes. But lately, H&M has struggled to lure shoppers into its 4,553 stores around the world and has been slow to develop its online offering.

"It’s [been] one of the toughest years for H&M," Joakim Bornold, an economist at investment bank Nordnet told AFP, noting that the company’s stock price had fallen 35% since January 2017.

In December, the group announced a 4% drop in fourth-quarter sales from the previous year, to 50.4-billion kronor ($6.22bn). Not only have H&M sales almost never declined, but the drop was bigger than analysts had expected.

H&M, which also owns the brands COS, Monki, Weekday, Cheap Monday, Arket and H&M Home, said in December it would be closing stores but did not specify how many
or where.

The company will publish its full-year earnings report on January 31. "They have failed in describing their vision for the
e-commerce business and how they plan to compete with truly digital companies.

"That, combined with worse sales figures than expected, has affected investors’ faith in the company," Bornold said. CEO Karl-Johan Persson rejects that analysis. "Our digital strategy is crystal clear.

"E-commerce, for all our brands, is definitely a part of the company that is going very well and is profitable," insisted Persson, heir to the company founded by his grandfather Erling. At 42, he has headed the group for eight years. Some observers have asked whether he will soon be shown the door, although his father, board chairman Stefan Persson, has ruled out such a move.

As if its earnings were not problematic enough, H&M is now in the midst of a social media storm, accused of racism. Its online catalogue featured an advertisement of a black boy sporting a hoodie with the words "Coolest monkey in the jungle" written on it.

According to Gothenburg University marketing professor Eva Ossiansson, the gaffe is a sign that H&M has lost its Midas touch. "It signals that the company has problems to cope with, both in terms of how their business should develop with regard to e-commerce and the digitalisation in our society, as well as in their communication."

H&M tried to quash the criticism by apologising and withdrawing the advert and the item from sale.

But the damage had been done. US basketball superstar LeBron James expressed his anger on Instagram, just hours after the garment was removed from sale. "@hm u got us all wrong! And we ain’t going for it! Straight up!" James said, including a photo of the same ad but with a crown superimposed on the boy’s head and the text on the hooded sweater replaced by a crown. "Enough about y’all and more of what I see when I look at this photo. I see a Young King!! The ruler of the world, an untouchable Force that can never be denied!" the athlete said.

Canadian singer The Weeknd, who collaborated with H&M on its spring and autumn collections in 2017, severed his contract with the company.

"In some cases, in order to create a buzz, companies like to stretch their communication and commercials beyond borders. It’s risky," said Ossiansson.

Lisa Magnusson, editorialist at Swedish paper of reference Dagens Nyheter, meanwhile played down the scandal, saying people should be more upset about the working conditions of the labourers in Asia who make H&M clothes for pennies.

She said that if every garment were sold for just three kronor more, those workers’ salaries could be doubled.


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