Updated 5:16 p.m. ET on March 27
PARIS — As it battles to conquer cautious customers against a backdrop of market volatility and trade tariffs, Hennes & Mauritz AB is betting on music stars to drive sales of its new collection.
Its spring advertising campaign features performers including Tyla, FKA Twigs and Caroline Polachek, and the fast-fashion giant hopes to replicate the success of last fall’s live concerts with Charli XCX with an upcoming music festival in Los Angeles that will feature headliners including Grammy Award-winning rapper Doechii.
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“We believe there’s a strong resonance between fashion, pop culture and music,” H&M chief executive officer Daniel Ervér told WWD after the group reported first-quarter results Thursday.
“What we’re doing in L.A. is a continuation of this idea of mixing fashion and music and communicating our collections not as a standard fashion show, but as a music festival,” he added. “The idea is to create, of course, then a lot of exciting content for social channels as a way to reach into the core target audience.”
As a result, the retailer expects marketing cost to increase in the second quarter, after reporting a sharp drop in profitability in the three months to Feb. 28 as its gross margin came under pressure from markdowns, ongoing investments and a strong Swedish krona.
Net income in the first quarter totaled 579 million Swedish kronor, or $57.7 million, down 53 percent from 1.23 billion kronor during the same period a year earlier. This was below a consensus forecast of 1.28 billion kronor, according to a FactSet poll of analysts.
H&M’s gross margin, a key indicator of profitability, narrowed to 49.1 percent from 51.5 percent, despite cost control measures including further store closures. Shrugging off the disappointing results, H&M shares closed up 0.4 percent on the Nasdaq Stockholm stock exchange.
The group said sales rose 3 percent to 55.33 billion kronor, or $5.47 billion, during the period. In local currency terms, sales were up 2 percent in the quarter, with around 3 percent fewer stores compared with the previous year. H&M expects sales in March to rise 1 percent in local currency terms amid a growing backlog of inventory.
“We see positive effects in the areas where we have put our focus, particularly in womenswear and online. This progress indicates that we are moving in the right direction. With this said, even if we have taken important steps, we are not satisfied with our results in the first quarter,” Ervér told analysts and media on a conference call.
The executive pointed to “challenging market conditions” as consumers tighten their purse-strings amid concerns about inflation. “We have also seen a bit more fluctuations in consumer confidence in the end of the first quarter, as well as in March,” he reported.
H&M saw weaker first-quarter sales in Nordic countries, the U.K. and the U.S., though western, southern and eastern Europe performed better, particularly Germany and Poland. Online sales also progressed as it rolled out its upgraded e-commerce platform to more markets.
Navigating Choppy U.S. Waters
That means promotional activity will remain sustained.
“We are still in a high-inflation climate where the customer spending power is limited, so we stay very focused on providing outstanding value for money,” Ervér said. “It continues to be more important than ever and that is valid, I believe, for all geographies.”
He noted that the first quarter is traditionally the smallest of the year in terms of sales and profitability, and he expects margin pressures to start easing in the second quarter.
H&M continues to make a strong push for business in the U.S., which accounted for 13 percent of its sales in the 2024 fiscal year, making it the second largest market after Germany, according to the company’s annual and sustainable report, which was also released Thursday.
“The U.S. is a tremendously important market for us,” Ervér said. “We are seeing some pickup and recovery, but we want to accelerate that pace moving forward.”
The retailer is tweaking its sourcing strategy to compensate for U.S. tariffs on imports of Chinese goods.
“China is a very important sourcing market, together with Bangladesh, Turkey and Vietnam,” Ervér told WWD.
He welcomed the planned scrapping of the “de minimis” trade exemption, which permits goods valued at $800 or below to enter the U.S. duty free, allowing online retailers like Shein and Temu to flood the U.S. market with cheap goods.
“It’s important that we have a level playing field where everyone can compete on equal terms, and those changes will make the competitive landscape more equal,” Ervér said.
A key part of H&M’s efforts to gain market share in the U.S. rests on its music activations.
To promote its holiday collection, the brand staged a surprise open-air performance and screen takeover on New York City’s Times Square with Charli XCX, riding high on the success of her “Brat” album. The event generated $1.3 million in media impact value in just 48 hours, according to data research firm Launchmetrics.
In addition to Doechii, its H&M&LA Festival, scheduled for April 9, will also feature performances by Robyn and Jamie xx, with more to be announced soon. The format has replaced the extravaganzas that H&M used to stage around its high-profile guest designer collaborations, which marked their 20th anniversary last year.
Model Avatars
Since its last major launch with Rabanne in 2023, it has focused on more frequent tie-ups with emerging labels including Rokh, Heron Preston and Magda Butrym, whose capsule line for H&M is set to launch on April 24. Glenn Martens is set to design a collection for fall.
“We’re trying to challenge ourselves and be curious and creative in finding new and exciting ways to use H&M, and what H&M stands for as a platform for elevating creativity,” Ervér told WWD. “Our customer would expect us to also surprise and not stick to the same shape and form as we have done over the years.”
He noted that with more than 4,200 stores worldwide and 3 billion digital visitors a year to its homepage and app, H&M is a tremendous springboard for smaller designers. “We can lend our platform to someone like Magda, to allow her to reach a much wider audience, and we believe the collection is absolutely stunning,” he said.
H&M continues to close underperforming stores, shuttering 40 locations during the first quarter. Around 190 are scheduled for closure this year, mainly in established markets.
The retailer plans to continue upgrading existing stores and expects to open around 80 new locations this year, mostly in growth markets. After inaugurating its first H&M store in Costa Rica in 2024, the chain will land in Brazil and El Salvador this year, and Paraguay in 2026.
“We have good, solid development and are very appreciated by the customer in South America, so we believe Brazil is really attractive for us,” Ervér said, detailing plans to open two stores in São Paulo and one in Campinas in the second half. “And then, we see opportunity to expand fairly quickly in Brazil.”
In addition to its size, the Brazilian market also offers fashion synergies, he said, noting that H&M’s summer 2024 campaign was photographed by Rafael Pavarotti. “When we come to Brazil, we want to not only bring H&M to Brazil, but also use H&M to bring Brazil to the world,” Ervér said.
Bowing to the explosive growth of generative AI, the company has also announced plans to create digital twins of some models for use in marketing campaigns and on social media.
“It’s very, very early stage. It’s sort of an innovation tryout and we do it because we believe that AI will have an impact, positive and potentially negative, on the creative part of the fashion industry, and therefore we want to move in the space being a responsible actor that cares and nurtures for creators and for creativity,” Ervér said.
“That’s why we started this partnership with model agencies, with the models themselves, and with the tech partners, to find a way where we all can benefit from the change, because if generative AI is used in our industry not with caution and care, we believe there is a big risk that there will be a loss of creativity,” he added. He acknowledged there was a portion of risk involved, especially since Levi’s drew criticism in 2023 for its plans to use computer-generated models.
“We will learn a lot. There are many answers we don’t have yet,” Ervér said, noting that initial reactions from models have been positive but concertations continue. “They see it as a way for them to extend their reach and maybe facilitate their line of work and that’s really important for us, but we don’t know yet when we will go live.”