One of the trashed H&M shops.
INTERNATIONAL - Hennes & Mauritz (H&M) is embarking on its biggest store-closure programme in at least a decade as chief executive Karl-Johan Persson steps up efforts to right the ailing Swedish clothing chain.

The company plans to shut 170 stores this year, even as it adds a new format called Afound to sell marked-down merchandise. It would invest more in online sales and digital inventory-tracking technology, while adding stores only in growing markets.

H&M shares fell as much as 6.2percent yesterday in Stockholm. They have lost more than a quarter of their value in the past three months.

H&M ended the year with net debt for the first time in more than two decades, according to Geoff Ruddell, an analyst at Morgan Stanley, who called H&M’s full-year results “very poor”.

The world’s No2 fashion chain by sales has recently hit a number of roadblocks, reporting the biggest drop in quarterly sales on record. As online shopping has soared, fewer people are visiting H&M’s vast network of physical stores.

The company has struggled to cut inventory, which ended the year higher than planned, and H&M said it would increase markdowns by as much as 2 percent in the first quarter to clear that out.

“The industry changes are challenging everyone and this will continue in 2018,” Persson said in the statement.

Operating profit fell 14percent to 20.6 billion kronor (R31billion) in the 12 months through to November, the biggest drop in six years.

The sales woes have forced Persson to retract a target of 10percent to 15percent annual sales growth for this year after setting that long-term target 12 months ago. The goal still stands for the future.

The company plans 390 new stores. About a quarter of the new shops will be formats other than the flagship H&M, such as COS, Monki and Afound.

Deals

The latter, the company’s ninth format overall, will consist of stores and websites that offer deals on the company’s own goods as well as merchandise from third parties. 

The first Afound store will be in Stockholm, and the site will go online in Stockholm this year.

The Stockholm-based company’s image was also tarnished by accusations of racism after an advertisement featuring a black child wearing a hoodie with the text “coolest monkey in the jungle” sparked a social-media storm and protests in South Africa earlier this month. H&M has apologised for the ad.

Despite speculation among some analysts that H&M would be forced to cut its dividend for the first time since it was listed in 1974, the company kept its payout for 2017 unchanged at 9.75 kronor a share.

Some investors have sold shares amid fears the company is being too slow in responding to the industry’s digital shift.

Didner & Gerge Fonder, one of H&M’s top shareholders, has called for a management shake-up. 

- BLOOMBERG