H&M, the world’s second-largest clothing retailer, made a surprising leadership change on Wednesday as its sales and profits continue on a downward trajectory. Chief Executive Officer Helena Helmersson abruptly resigned after just two years on the job, with Head of Brands Daniel Erver immediately appointed as her replacement.
Helmersson Steps Down Amid Ongoing Struggles
Helmersson has been with H&M for over two decades, appointed as CEO in early 2020 with a mandate to accelerate the company’s digital transformation and turn around its financial performance. However, the fast fashion giant has faced numerous challenges under her leadership.
H&M reported a 9% drop in quarterly sales on the final day of Helmersson’s tenure, attributing the decline primarily to weakened market demand. Operating profit also slid and came in below expectations at 6.26 billion Swedish krona ($620 million) for the September-November period.
The company’s share price plunged 8% on Wednesday morning following the departure news, as investors reacted to the surprise move and disappointing latest financials. H&M has experienced falling profits for each of the last three years amid continued struggles to adapt to changing market conditions.
| Key Financials | 2022 Results | 2023 Guidance |
|---|---|---|
| Sales (SEK) | 199.9 billion | Not provided |
| Operating Margin | 3.5% | Over 4% |
Helmersson cited the “very demanding” pressures of the role in a statement about her departure. She will leave the CEO position immediately but remain as an advisor to the company during the transition process. With Erver taking over effective today as just the seventh CEO in H&M’s 78-year history, all eyes are on whether he can execute a successful turnaround strategy.
New Leadership Looks to Improve Performance
Erver first joined H&M in 2009 and most recently served as Head of Brands, overseeing initiatives and campaigns for the company’s different retail chains. As CEO, he will be tasked with enhancing profitability by better optimizing prices and inventory levels to align with consumer demand.
Industry analysts expect Erver to focus on a clearer differentiation of each H&M Group brand to appeal to target demographics, moving away from the heavy discounting model that has squeezed margins but remained necessary to clear excess inventory. He may also accelerate the closure of underperforming stores and strengthen relationships with third-party online channels such as Zalando.
Implementing price increases is one crucial element expected to be high on Erver’s agenda in an inflatationary environment, even though competitors like Zara have struggled with a similar strategy recently. H&M management emphasized that the company held back on significant price hikes over the past year compared to the overall market.
With over 200,000 employees and nearly 5000 stores worldwide, transforming the performance trajectory at H&M remains an immense challenge. Erver will have to balance cost discipline with critical technology and supply chain investments to enable innovations meeting rapidly changing consumer preferences.
Outlook Remains Uncertain in Difficult Retail Climate
The reshuffling of top leadership indicates the H&M Board is prioritizing a bolder strategy shift to reverse declining revenues. However, the company continues to face macroeconomic headwinds like high inflation, geopolitical tensions, and the potential for a recession across key markets in Europe and North America. There are also increasing calls for fashion brands to address sustainability concerns throughout their production cycles.
It remains unclear whether new management can fully resolve the core issues of high inventory levels and ineffective cost control mechanisms that have plagued profitability in recent years. But after the significant stock selloff following the surprise CEO change, analysts see long-term upside if Erver can successfully reposition H&M’s brand portfolio to raise efficiency and better resonate with what customers want today.
Implementing any turnaround plan takes time though, so investors may need to be patient. The coming year promises to be another crucial one in determining whether H&M’s days of growth have passed or if the company can adapt its strategic direction to reclaim market share being lost to e-commerce players and ultra-fast brands.
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