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H&M to Cut Costs as Inflation Hurts Profitability

Industry: Clothing
Current: Company Performance

H&M plans to reduce costs by SEK2 billion
The costs increased significantly as a result of increase in expenses for freight and raw material, besides a stronger US dollar
The company’s decision to quit Russia led to a significant decline in net profit

H&M Launches Cost-Saving Program

H & M Hennes & Mauritz AB, one of the largest fashion retailers in the world, announced a SEK2 billion ($177 million) cost-cutting drive on September 29, 2022, following the announcement of weaker-than-expected results as consumers cut down their spending. The major portion of the cost-cutting would include streamlining organizational structure and using fewer tech services. The effort is also aimed at reducing business travel and office rent.

For the June-August quarter of 2022, the pre-tax earnings of the company decreased to SEK689 million from SEK6.09 billion in the previous year. The one-time expense associated with the company's decision to close its operations in Russia caused a considerable decline in net profit in the quarter.

High Inflationary Environment

The company reported a decline in demand as consumers reduced spending due to the record prices of energy and soaring inflation. The costs rose significantly as a result of higher expenses for freight and raw material, besides a stronger US dollar. The company’s exit from Russia also contributed to the pressure. H&M is not the only well-known brand to leave Russia. Other brands that quit Russia include Nestle, McDonald's, Ikea, and Starbucks. H&M increased prices in several categories such as higher-fashion women's ranges to varying degrees spanning markets. Pricing will continue to be a crucial strategy to cope with increasing costs.

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