(Bloomberg)—Hennes & Mauritz AB CEO Helena Helmersson is getting tough in her first year running the Swedish fashion retailer, announcing plans to reduce the store count by 5% next year. H&M is No. 11 in the Digital Commerce 360 Europe 500.
The CEO is making H&M’s biggest retrenchment ever as the pandemic exacerbates its record inventory buildup. The retailer said Thursday it plans to permanently shut 250 stores on a net basis in 2021 after eliminating 50 this year. The stock rose as much as 8.3%.
Helmersson’s first year at the helm of the company has been more challenging than she bargained for as Covid-19 has plunged the industry into its worst business conditions in decades. Inventory remains a headache, increasing to more than 21% of 12-month revenue. That’s more than double the level of Zara owner Inditex SA.
Job cuts are looming throughout the retail industry as chains find it’s easier to sell online than in person. Marks & Spencer Group Plc said in August it’s cutting about 7,000 jobs. Any reductions at H&M would probably affect a bigger proportion of women than men. About three-quarters of H&M’s 180,000 employees are female.
Third-quarter pretax profit came in at 2.3 billion kronor ($257 million), higher than the 2 billion-kronor estimate that H&M gave last month. Sales have been recuperating, with revenue dropping 5% in September, the first month of H&M’s fourth quarter. Third-quarter sales had fallen 16%.
“The recovery is going better and faster than we expected,” Helmersson said via phone, attributing the performance to well-received collections and strict cost control. “The worst is behind us.”
Helmersson declined to estimate how many jobs may be cut. She said that H&M plans to close shops in mature markets, like Europe and the U.S., whereas the retailer will open more stores in countries with more growth potential like Russia, India and Japan.
The sudden appointment of the new CEO in January signaled a step back by the family shareholders who dominate H&M. They replaced Karl-Johan Persson, the grandson of the company’s founder, after he failed to reduce the amount of unsold garments over the past four years. Now he is H&M’s chairman.
Helmersson’s 23 years at H&M began in 1997 in purchasing, and she has worked in Bangladesh and Hong Kong for the retailer. A year before the recent promotion, she became chief operating officer.
The new CEO is starting to prune a retailer that the Persson family expanded every year for over the past two decades, increasing the store count from about 600 to 5,000.
“After years of overstoring, we welcome this change and are encouraged by the magnitude of cuts,” wrote Aneesha Sherman, an analyst at Sanford C. Bernstein.
H&M is also trying to lower rents of existing stores. The company’s lease agreements are scheduled so that it can renegotiate or exit one-quarter of them in any given year. That will help reduce the cost of closures, Bernstein’s Sherman said.
H&M German unit fined $41.4 million for snooping on staff
“Unfortunately, we had an incident in a subsidiary in Germany that was reported to the data protection authority at the end of last year,” CEO Helena Helmersson said via phone. “After reviewing this incident, it’s clear that our guidelines have not been followed.” The Swedish retailer has had a dialog with the authority and is now reviewing the decision, she said.
The privacy violations started in 2014. They included wide-ranging surveys of staff and the storing of their private situations, such as concrete examples from people’s holidays or symptoms and medical findings for certain illnesses. Some managers also sought further private details in informal chats, including family issues or religious beliefs, which were then stored as well.
“This is a case that showed a gross disregard” of data protection rules at the company’s Nuremberg venue in Germany, Johannes Caspar, head of the data protection watchdog in Hamburg, said in a statement Thursday. The high fine is “justified and should help to scare off companies from violating people’s privacy.”
H&M “admits shortcomings at the service center and has taken forceful measures to correct this,” it said, according to its 3Q report Thursday.
Caspar welcomed the company’s “very positive” response to the episode including compensating those affected.
EU data protection regulators’ powers have increased significantly since the bloc’s so-called General Data Protection Regulation, or GDPR, took effect in May 2018. It allows watchdogs for the first time to levy fines of as much as 4% of a company’s annual global sales. The biggest fine to date was a 50 million-euro penalty for Google issued by France’s watchdog CNIL.
The H&M penalty is the biggest so far in Germany under the new rules. Germany is the company’s biggest market.
The retailer announced it plans to permanently shut 250 stores on a net basis in 2021 after eliminating 50 this year.