China backlash and pandemic give H&M’s new boss a rough ride

Geneva — Only 14 months into the role, Hennes & Mauritz (H&M) CEO Helena Helmersson has already suffered more challenges than some long-time CEOs face during their careers.

She faces the brunt of the Chinese government’s ire against clothing retailers who criticise human rights abuses in the cotton-producing Xinjiang region. The timing couldn’t be worse for Helmersson, who’s been busy navigating mass store closures amid pandemic lockdowns while trying to manage its stockpile of clothes.

“It has been a challenging year, of course,” Helmersson said in a phone interview. She’s learnt a lot about “how to lead in a more unpredictable world”.

Last week, the Communist Youth League and the People’s Liberation Army called out an H&M statement dating back to September that expressed concern about reports of Uyghurs in forced labour. That turned the company into a symbol for foreign companies meddling in internal Chinese politics. Then store locations vanished from online maps, Chinese e-commerce platforms dropped the brand and about 20 H&M stores were shut, some by landlords.

The backlash was swift and markedly stronger than previous reactions when foreign brands crossed political lines. The unwanted attention comes just as the economy in China, the Swedish company’s biggest growth engine, roars back to life. China accounted for 6% of revenue last quarter, making it the third-biggest market after the US and Germany.

It isn’t alone in having to balance customers wanting to know how their clothes are made against China’s growing assertiveness and the heft of its market. Western brands including Nike, Adidas and Under Armour also drew fire for their pledges not to use Xinjiang cotton. The region supplies about 80% of the material for China.

H&M’s attempt to smooth things over by affirming its commitment to China on Wednesday fell flat.

In an opinion piece, China’s state broadcaster called the statement a “second-rate public relations essay that lacks sincerity and is full of empty words”, asking why H&M doesn’t apologise to consumers.

While challenging, the store closures in China represent only a fraction of the 502 shops it has in the country, and these flare-ups tend to settle down.

H&M is a role model in the industry when it comes to fair working conditions, such as opposing forced labour, said Emilie Westholm, head of responsible investments and corporate governance at Folksam, which holds 0.6% of the stock. “The new CEO has continued on H&M’s path of high ambitions and targets in the sustainability area.”

Rough start

Helmersson, 47, became the first female CEO of the fast-fashion company, taking over from founding family scion Karl-Johan Persson, 46, who is now chair.

She had just started in the role when the pandemic hit, and saw the shares plunge a whopping 50% in her first six weeks. The stock has now clawed most of that back.

Besides dealing with the widespread lockdowns, Helmersson had to navigate a scandal after some H&M clothing designers gave a hat a product name containing a racist slur in the heat of the Black Lives Matter protests.

Helmersson was prepared for the job, having advanced through the ranks since joining the company’s purchasing department in 1997. She served as sustainability chief for five years, then headed global production from Hong Kong. She was COO for just over a year before becoming CEO.

Pandemic aside, she inherited the biggest inventory backlog of any major clothing apparel maker, an issue H&M had been wrestling with for five years. She initiated H&M’s biggest retrenchment of its store network, announcing plans to permanently shut about 300 stores and cut 16,000 full-time job equivalents.

Closing stores “will be needed in the long run, but it’s a defensive move”, said Nicklas Skogman, an analyst Handelsbanken Capital Markets, who has a hold rating on the stock.

Lockdowns led to as many as 80% of H&M’s 5,000 stores being closed temporarily at the peak in mid-April. It’s been touch-and-go throughout. For example, 1,800 stores were closed in January, tentative reopenings brought that number down to 1,050 by mid-March, but that’s back to 1,500 now.

“Helena and the team have done a fantastic job during a very challenging period,” Persson said in a statement.

That ebb and flow hasn’t made the Swedish clothing giant’s warehouse management easier, but Helmersson said she was happy with how H&M has adapted through the lockdowns. Its inventory stood at 37-billion kronor, or 21.5% of 12-month revenue at the end of its first quarter, up from 20.4% three months earlier. That’s double the level of Zara owner Inditex.

H&M shouldn’t be counted out in China, which together with Bangladesh is its biggest production market for clothing. Helmersson’s challenge will be to ride out the storm and get back to managing through the pandemic.

“Flexibility and customer focus have been key in how to manage this past year, and will also be key to us going forward,” Helmersson said. “I do believe in a strong recovery as we gradually can see that restrictions hopefully will be lifted going forward.”

Bloomberg