Four Billion Dollars of Unsold Clothes
In the first quarter of 2018, somewhere inside H&M's sprawling network of warehouses and distribution centers — facilities spanning from Hamburg to Hong Kong, from Poznań to Bangalore — approximately SEK 36.9 billion worth of clothing sat unsold. That figure, translated for an international audience, came to roughly $4.3 billion. Not inventory in transit. Not strategic pre-positioning for a coming season. Unsold garments. Sweaters no one wanted. Dresses priced wrong. Jeans cut for a customer who had already moved on.
The number landed in H&M's Q1 2018 earnings report like a depth charge. It represented more than the
GDP of several small nations, enough fabric to clothe entire populations, and it was the most visible symptom of a disease that had been eating at the world's second-largest fashion retailer for half a decade. Net profit had declined every year since 2015. The stock had lost more than half its value from its peak. And the company that had invented — or at least democratized — the very concept of fast fashion now found itself outflanked on every side: undercut on price by Primark and the Chinese juggernauts Shein and Temu, outmaneuvered on speed by Boohoo and Fashion Nova, and outclassed on brand perception by Zara's parent Inditex, which had quietly repositioned itself as something close to affordable luxury while H&M's stores grew shabbier and its racks more forgettable.
The inventory crisis was not merely a logistics problem. It was an existential metaphor. H&M had built its empire on moving vast quantities of clothing from factory floors in Bangladesh, Turkey, and China to high streets across seventy-plus countries, and doing so faster and cheaper than anyone else. The company's founding insight — that fashion should be democratic, that a well-designed blouse need not cost a week's wages — had reshaped global retail. But the machinery that had once been H&M's greatest advantage had become a trap. The same global supply chain that enabled SEK 200+ billion in annual revenue was too slow, too rigid, and too distant from the consumer to compete in a world where a teenager in London could scroll through ten thousand new Shein listings over breakfast and have a package on her doorstep by Thursday.
Four billion dollars of unsold clothes. The mountain was made of cotton and polyester, but what it really contained was the compressed history of a seventy-year-old company trying to outrun the future.
By the Numbers
H&M Group at Scale
SEK 234.5BNet sales, FY2024 (~$22B USD)
~4,250Stores worldwide across 77 markets
~97,000Employees globally
53.4%Gross margin, FY2024
7.4%Operating margin, FY2024
SEK 11.6BNet profit, FY2024 (+33% YoY)
8Distinct brand concepts (H&M, COS, Arket, & Other Stories, Weekday, Monki, Cheap Monday, H&M Home)
Hennes, Hers, His: A Store Born of Postwar Austerity
Erling Persson was not a fashion man. He was a novelty salesman — Christmas stars, stationery, the ephemeral goods of a young Swede hustling in postwar Stockholm — who happened to take a road trip through the United States in the aftermath of World War II. What he saw in New York's high-volume stores — Macy's, Barney's — was not fashion but throughput. The machinery of American retail: the speed at which merchandise moved from rack to register, the relentless efficiency that turned low margins into towering revenues. He came home to Sweden in 1947 and opened a single women's clothing shop in Västerås, a mid-sized industrial city north of Stockholm. He called it Hennes — Swedish for "hers." The name was a promise: this was a store for her, for every her, not for the boutique customer who could afford bespoke Scandinavian tailoring but for the ordinary Swedish woman who wanted to look good in an era when looking good still felt like a minor act of defiance against austerity.
Persson's business concept, as he articulated it with characteristic bluntness, was "to sell much, to sell cheap, to sell fast." He had little interest in the garments themselves, no aesthetic vision beyond what moved. But he understood something that more refined competitors did not: the democratization of desire. As Sweden's postwar economy boomed and purchasing power surged among ordinary citizens, Persson expanded across the country — a Stockholm store on the main shopping street, then more locations radiating outward — capturing a new consumer class that wanted style without sacrifice.
The 1960s brought two pivotal moves. First, Persson pushed beyond Sweden into Norway and Denmark, beginning what would become a decades-long European land grab. Second, in 1968, he acquired Mauritz Widforss, a Stockholm hunting-gear and outdoor-clothing retailer. The deal came with a stock of men's clothing, and overnight the company's identity shifted: Hennes became Hennes & Mauritz, and the range expanded to encompass menswear and children's lines alongside its core women's offering. The name stuck — and the acronym H&M would eventually become one of the most recognized retail logos on earth.
H&M went public on the Stockholm Stock Exchange in 1974. The share price doubled in months. Two years later, the first British store opened at Brent Cross Shopping Centre in London. It was not an immediate sensation — the real UK expansion would wait until the late 1990s — but the template was set: enter a new market with a single store, test the proposition, then scale aggressively.
Three generations of family control
1947Erling Persson opens the first Hennes store in Västerås, Sweden.
1968Acquires Mauritz Widforss; company becomes Hennes & Mauritz (H&M).
1974H&M goes public on the Stockholm Stock Exchange.
1982Stefan Persson succeeds his father as CEO, beginning a 16-year reign.
1998Stefan becomes chairman; Fabian Månsson named CEO — resigns two years later.
2009Karl-Johan Persson, Stefan's son, becomes CEO at age 33.
2020Karl-Johan moves to chairman; Helena Helmersson becomes first non-family, first female CEO.
2024
Stefan Persson — born in 1947, the same year as the store itself — learned fashion retailing the way children of industrialists learn anything: by osmosis, proximity, and the slow accumulation of institutional knowledge that no MBA program can replicate. He joined the family firm in 1972, helped lead the push into Britain in 1976, and assumed the CEO role in 1982, when Erling moved to the chairman's seat.
What Stefan Persson built over the next sixteen years was not merely a bigger version of his father's company. It was a fundamentally different organism — a continental retail machine that exploited a single, counterintuitive insight about global fashion: people everywhere want the same clothes.
This sounds obvious now. In the 1980s and 1990s, it was heresy. Conventional retail wisdom held that fashion was local, that German tastes differed meaningfully from Spanish ones, that a blouse designed for the Stockholm market needed alteration for London or Milan. Persson rejected this completely. H&M did not alter garment designs for specific national or regional markets. A dress sold in Hamburg was identical to one sold in Paris or, eventually, Shanghai. This radical standardization allowed H&M to exploit economies of scale that regional competitors simply could not match — buying fabric in enormous quantities, producing in the lowest-cost factories globally, and amortizing design costs across thousands of stores in dozens of countries.
The strategy worked because Persson understood something about the emerging global consumer. The Swede in Malmö and the Briton in Manchester and the American in Manhattan were increasingly watching the same movies, following the same celebrities, absorbing the same visual culture. Fashion was converging, and H&M rode the convergence wave harder and faster than any competitor. By the late 1990s, it was Europe's largest retail clothing chain.
Then came the international blitz. The United States in 2000. Canada in 2004. Kuwait and the United Arab Emirates in 2006 — the first Middle Eastern foray. China in 2007, a market that would become both an enormous growth engine and, eventually, a political minefield. By 2012, H&M operated approximately 2,500 stores in more than 40 countries. By the time Stefan Persson handed the chairman's gavel to his son Karl-Johan in 2020, the number had swelled past 5,000 stores in some 75 countries.
Stefan Persson became Sweden's richest person. Forbes estimated his net worth at roughly $19.7 billion. The family's holding company, Ramsbury Invest, maintained outsize control over H&M's voting rights, ensuring that the Perssons' vision — democratic fashion, global scale, family governance — would persist regardless of what public shareholders wanted. As recently as June 2025, Ramsbury was still increasing its stake, fueling speculation about a potential take-private.
To sell much, to sell cheap, to sell fast.
The Lagerfeld Gambit: How a $149 Coat Rewired Fashion
On the morning of November 12, 2004, a line of men and women — twentysomethings in jeans, senior citizens in luxury labels — snaked down Fifth Avenue and around the block outside H&M's New York flagship. Inside, shoppers fought through crowds, garments heaped over their arms. Some stripped to their underwear in the aisles to try things on. The occasion: the launch of the first-ever H&M designer collaboration, a capsule collection by Karl Lagerfeld, the creative director of Chanel.
A black military-style wool-and-cashmere overcoat, cut long and slim, retailed for $149. A Lagerfeld original would have cost a thousand dollars. The collection, which H&M had expected to last two months, sold out in roughly two days.
The collaboration had been dreamt up by Donald Schneider, a German creative director who had spent eight years at Vogue Paris before joining H&M's orbit. His insight was deceptively simple: up to that point, anyone who mentioned an H&M ad campaign would talk primarily about the models. Schneider wanted people to talk about the fashion. Caroline Lebar, Lagerfeld's longtime communications director, recalled that it would have been easy for the designer to say no. "The surprise was that he said 'yes.'"
Is it true? Of course it's true. But it's cheap. What a depressing word. It's all about taste. If you're cheap, nothing helps.
What happened on Fifth Avenue that November morning was more than a retail event. It was a tipping point — a moment when the membrane between high fashion and mass market, between couture and commodity, ruptured permanently. Lagerfeld's H&M collection proved that a sketch for a Chanel couture dress and a sketch for an H&M shirt involved the same creative process, the same cost of imagination. The design component was the most important thing, and design was not a matter of price.
H&M had planned for the Lagerfeld collaboration to be a one-off. Instead, it became an annual institution — a cultural calendar event that generated queues around the block, viral media coverage, and, most critically, a 24 percent increase in H&M's business after the first launch. The collaborations that followed read like a roll call of fashion royalty: Stella McCartney in 2005, Viktor & Rolf in 2006, Roberto Cavalli in 2007, Comme des Garçons in 2008, Jimmy Choo in 2009, Lanvin in 2010, Versace in 2011, Marni and Maison Martin Margiela in 2012, Alexander Wang in 2014, Balmain in 2015, Erdem in 2017, Mugler in 2023. Pop stars too — Kylie Minogue, Madonna — were tapped for their own lines.
The genius of the model was its asymmetry. For H&M, the collaborations were marketing disguised as product: they generated enormous earned media, drove foot traffic to stores, and — crucially — elevated brand perception without requiring permanent changes to the core business. For the designers, H&M offered something equally valuable: reach. The company's distribution network, which by 2004 numbered about 1,000 stores in 19 countries, dwarfed any luxury brand's retail footprint. William Middleton, one of Lagerfeld's biographers, wrote that "the moment Karl turned from being an important designer into an international superstar" was the day the H&M collection launched.
WWD gave the strategy a portmanteau: masstige — mass-market prestige. The word was ugly but the concept was revolutionary, and it would eventually inspire Lagerfeld to relaunch his own eponymous brand in the "masstige" zone, convinced that his sweet spot was affordable clothing for a wide audience. More broadly, the H&M collaborations foreshadowed an entire era of drops, limited editions, and high-low mashups that now defines retail from Supreme to Nike to Target.
Ann-Sofie Johansson started at H&M in 1987, folding T-shirts in a Stockholm store. She became head of design, then creative advisor, and by 2015 had taken over stewardship of the collaboration program. Thirty-seven years in. She dressed Quannah Chasinghorse and Paloma Elsesser for the 2024 Met Gala. When asked if the collaborations would continue, she said: "We thought it was going to be a one-off, and we constantly also ask ourselves if there is going to be a continuation. We had an idea that it should continue, but not for 20 years!"
The Machine Slows: Margin Erosion and the Digital Deficit
The trouble, when it came, arrived not as a single catastrophe but as a slow bleed — a gradual widening of the gap between what H&M's business model was designed to do and what the market now demanded.
The operating margin tells the story with brutal clarity. In 2010, H&M's operating margin stood at roughly 20 percent — a number that placed it among the most profitable mass-market retailers on earth. By 2015, net profit had begun its annual decline. By 2022, the operating margin had cratered to 3.2 percent. In a decade, four-fifths of the company's profitability had evaporated.
Multiple forces converged. The most visible was digital disruption. H&M had been built for the high street — for physical stores on pedestrian shopping avenues in European city centers, for the tactile experience of browsing racks and trying on garments. The company was catastrophically late to e-commerce. While Inditex invested early in integrated online-offline systems, and while pure-play digital retailers like ASOS, Boohoo, and Zalando built nimble, data-driven operations with minimal fixed costs, H&M's digital infrastructure lagged years behind. Its online platform, when it finally launched at scale around 2018, was clunky and uninspiring.
The second force was the emergence of a new competitive stratum below H&M's price floor. Shein, founded in China in 2012, had by the late 2010s begun rewriting the rules of fast fashion entirely. Where H&M might produce a new style in two to three weeks, Shein's test-and-repeat model could identify a trend, manufacture a small batch, gauge demand through real-time data, and scale production — all within days. Shein's average selling price undercut H&M dramatically: a top for $5, a dress for $12. By 2023, Shein's emissions had tripled alongside its sales growth, and the company now controlled roughly 20 percent of European fast-fashion spend according to Consumer Edge transaction data.
Third, and most painful, was the simultaneous upmarket flight of Inditex's Zara. While H&M occupied an increasingly muddled middle ground, Zara invested in elevated store experiences, higher-quality fabrics, $699 leather coats alongside cheap trendy staples, and campaigns shot by Steven Meisel. The result was a brand that felt aspirational in a way H&M simply did not. During Karl-Johan Persson's decade as CEO (2009–2020), H&M shares gained just 10 percent. Inditex surged nearly fourfold over the same period.
The consequence of all three forces — digital lateness, price-floor erosion, and brand-perception decline — manifested as that $4 billion inventory mountain. H&M was producing garments its supply chain predicted would sell, but the predictions were wrong. The company was ordering too much, too far in advance, from factories too distant from the end consumer to allow for rapid adjustment. Inventory that didn't sell at full price had to be marked down, which crushed margins. Margins that compressed couldn't fund the digital and logistical investments needed to fix the underlying problem. The flywheel, which for decades had spun in H&M's favor, was now spinning in reverse.
The Rana Plaza Shadow and the Sustainability Paradox
On April 24, 2013, the Rana Plaza garment factory in Savar, Bangladesh, collapsed. More than 1,100 workers died. The disaster exposed, in the most visceral possible terms, the human cost embedded in every $12.99 blouse hanging in every fast-fashion store on earth. H&M was not a tenant of Rana Plaza, but it was one of the largest buyers from Bangladeshi garment factories, and the tragedy implicated the entire system upon which the company's business model depended.
H&M's response was, by the standards of its peers, substantial. The company joined the Accord on Fire and Building Safety in Bangladesh, committed to supply chain transparency, hired sustainability officers, and began publishing lists of its supplier factories. Helena Helmersson, who had joined H&M in 1997 as an economist in the buying department, became the company's chief sustainability officer in 2010 and spent five years building what would become one of the fashion industry's most visible sustainability programs.
In 2013, H&M launched its garment collection initiative — the first global program of its kind — encouraging customers to bring unwanted clothes of any brand, in any condition, to H&M stores for reuse, upcycling, or recycling. In just over a year, the company collected more than 3,500 tonnes of old clothes — enough fabric for 15 million T-shirts. By 2016, that cumulative figure exceeded 55,000 tonnes. The company introduced its "Conscious" collection, made from at least 50 percent sustainably sourced materials. It set targets: 100 percent recycled or sustainably sourced materials by 2030, climate positive by 2040.
And yet — the paradox. H&M's business model remained fundamentally predicated on volume. The company produced hundreds of millions of garments per year. Its founding ethos — "to sell much" — was structurally incompatible with the imperative to reduce consumption and waste. Critics called it greenwashing. The Norwegian Consumer Authority in 2019 described H&M's sustainability claims as "misleading." Climate activist Tolmeia Gregory put it bluntly: "You will never be sustainable for as long as your business model is based on fast fashion and profits. It doesn't matter how many organic T-shirts you make."
Helmersson, who became CEO in January 2020 — the first woman and first non-Persson to hold the job — acknowledged the tension with unusual candor. "We are going for circularity, because that is all about decoupling growth from the use of natural resources," she told Vogue Business. "That means we will have to launch new types of growth, and have the courage to talk, both internally and externally, about how we will grow." But she declined to put specific numbers on how much resale or circular models would need to grow to close the gap. The hardest question — whether a company that sells billions of garments can ever be truly sustainable — remained unanswered. Perhaps unanswerable.
The CEO Carousel: Helmersson, Ervér, and the Search for Identity
Helena Helmersson's tenure as CEO was defined by crises she did not create and transformations she could not complete. She arrived in January 2020. Within weeks, COVID-19 forced H&M to shutter 80 percent of its stores. The company that had been catastrophically late to e-commerce was suddenly forced to channel the majority of its sales through digital platforms that were still being built. The pandemic, perversely, accelerated the digital investments H&M had needed for years — automated warehouses in Europe, RFID inventory tracking, AI-driven demand forecasting, a revamped mobile app — but the acceleration came at enormous cost.
Post-pandemic, the challenges intensified. Russia's invasion of Ukraine forced H&M to exit the Russian market entirely, wiping out a significant revenue base.
Inflation hammered consumer spending across Europe. Energy, freight, and garment costs surged — in Q4 2022, SEK 3.6 billion was lopped off profit by these factors alone — and operating income collapsed 87 percent to SEK 821 million in that quarter. Analysts described the results as catastrophic.
H&M has the wrong products with the wrong pricing in the wrong channels. They should've looked for an external candidate for this role, given that H&M needs fresh ideas.
In January 2024, Helmersson stepped down. The circumstances suggested she had been pushed. Her replacement was Daniel Ervér, a 41-year-old who had joined H&M as a summer trainee in 2005 — the very definition of an insider. Ervér had spent 18 years climbing through the organization, most recently heading the flagship H&M brand. The market's reaction was unambiguous: H&M shares fell 11 percent on the announcement. The Persson family, investors noted, had once again chosen an internal candidate, continuing a pattern of cultural insularity that some analysts believed was itself the problem.
Ervér inherited a company caught in what analysts called a "Goldilocks dilemma" — too expensive to compete with Shein, not premium enough to compete with Zara, too slow to compete with either. His stated strategy: occupy the middle ground, offering "something to everybody" through a mix of affordable basics and higher-end pieces, accelerated by AI-driven trend detection, nearshored production, and aggressive store rationalization. H&M was closing and refurbishing double the number of stores it was opening. Celebrity partnerships — Charli XCX delivered a surprise gig for the brand in New York in November 2024 — aimed to recapture Gen Z attention.
But skeptics noted that the fundamental structural issues remained. "The step up in marketing efforts is not having an especially significant impact on market share trends," Jefferies analyst James Grzinic wrote after Q4 2024 results. Consumer Edge transaction data showed H&M losing share in every major European market — Germany, France, the UK, Italy, and Spain — with its German market share dropping from 36 percent in 2019 to 28 percent by 2023, now level with Zara. In Spain, H&M's panel spend had declined over 25 percent from 2018 to 2023, even as the overall fast-fashion market grew 56 percent. The company announced plans to close nearly a quarter of its 133 Spanish stores.
The Xinjiang Cotton Crisis and the Geopolitics of Fabric
In March 2021, H&M's China business effectively detonated overnight. The trigger was a previously published statement — not even a new one — in which H&M expressed concern about reports of forced labor in China's Xinjiang region and stated it would not source cotton from there. Chinese social media erupted. State media amplified the backlash. H&M products were pulled from major Chinese e-commerce platforms, including Alibaba's Tmall and JD.com. Celebrity brand ambassadors severed ties. Stores saw foot traffic collapse.
The Xinjiang cotton crisis illuminated a paradox that haunts every Western brand operating at global scale: the supply chains that make democratic fashion possible run through countries where "democratic" is not a word that applies to labor markets, where transparency demands can trigger nationalist backlash, and where the geopolitical interests of sourcing nations and consuming nations increasingly diverge. H&M's sustainability commitments — the very initiatives that had earned it praise in European markets — became liabilities in its fastest-growing Asian one.
One year on, H&M's recovery in China remained incomplete. The brand never fully regained its position on major e-commerce platforms. The incident accelerated H&M's already declining share in the Chinese market and served as a warning to every global retailer about the costs of operating at the intersection of supply chain ethics and great-power competition.
The Monkey Hoodie and the Limits of Scale
Scale creates visibility. Visibility creates vulnerability. In January 2018 — the same quarter that the $4 billion inventory figure surfaced — H&M published an online advertisement featuring a young Black child modeling a green hoodie printed with the words "Coolest Monkey in the Jungle." The image ignited immediate accusations of racism. Canadian singer The Weeknd and producer G-Eazy, both H&M collaborators, publicly severed their relationships with the brand. South African stores were vandalized by protesters.
H&M apologized, pulled the product, and appointed its first global leader for diversity and inclusiveness, Annie Wu. But the incident was not an isolated misstep. It was a symptom of a deeper structural issue: H&M's design, styling, photography, and marketing processes — spanning thousands of products across dozens of markets — lacked the internal diversity and review mechanisms to catch what should have been an obvious error. Wu acknowledged that "mistakes will always be made on one level or another" while insisting the company had "put a lot of different processes in place to mitigate that as much as possible." Critics noted that H&M's board at the time consisted of four white men and six white women.
The hoodie scandal, the Xinjiang crisis, the greenwashing accusations, the Rana Plaza shadow — these were not unrelated incidents. They were different manifestations of the same underlying condition: a company operating at such enormous scale, across so many markets and supply chains, that its ability to control its own narrative had been fundamentally compromised. The machine that sold clothing to hundreds of millions of people also generated hundreds of millions of potential failure points.
COS, Arket, and the Multi-Brand Bet
If H&M's core brand was the democratizing engine — fashion for everyone, everywhere, at the lowest possible price — the multi-brand strategy represented something different: an attempt to capture adjacent market segments without diluting the core proposition.
COS (Collection of Style), launched in 2007, was the most successful experiment — a minimalist, design-forward brand positioned between H&M and true luxury, with higher price points, more refined fabrics, and stores designed with the clean-lined aesthetic of a Scandinavian gallery. & Other Stories, launched in 2013, targeted a slightly different customer: more eclectic, more fashion-curious, willing to pay modestly more for distinctive design. Arket, launched in 2017, pursued a "modern-day market" concept, selling clothing alongside homewares and a café — an echo of the lifestyle retail models pioneered by Muji. Weekday and Monki targeted younger, more trend-driven consumers. Cheap Monday — H&M's first-ever acquisition — occupied the ultra-budget denim space, but it flopped, and the brand was shuttered.
The multi-brand strategy was explicitly modeled on Inditex, which had pioneered the concept of sub-brands for different tastes and budgets through Zara, Massimo Dutti, Pull&Bear, Bershka, Stradivarius, and others. But where Inditex's brands each enjoyed operational independence and distinct supply chains, H&M's brands shared group infrastructure — logistics, sourcing, technology — which created efficiencies but also homogeneity. The brands sometimes felt less like distinct identities than like different price tags attached to the same Swedish sensibility.
Still, COS in particular demonstrated that H&M Group could compete above its historic weight class. And the portfolio approach offered a structural hedge: as the core H&M brand struggled with its muddled positioning, COS and & Other Stories could capture consumers trading up, while Monki and Weekday held the youth market. The question was whether portfolio diversification could compensate for weakness in the flagship brand that still accounted for the vast majority of group revenue.
The FY2024 Report Card: Signs of Life in the Machine
The full-year 2024 results, reported on January 30, 2025, offered the first sustained evidence that the turnaround — or at least a stabilization — might be underway. Net sales came to SEK 234,478 million, essentially flat year-over-year in reported terms but up 1 percent in local currencies. More importantly, the profit picture had improved dramatically from the 2022 nadir:
Gross profit rose 4 percent to SEK 125,299 million, with the gross margin climbing to 53.4 percent from 51.2 percent the prior year — a 220-basis-point improvement driven by fewer markdowns, better product mix, and supply chain efficiencies. Operating profit increased to SEK 17,306 million, up from SEK 14,537 million, lifting the operating margin to 7.4 percent from 6.2 percent. Net profit surged 33 percent to SEK 11,584 million, or SEK 7.21 per share.
Cash flow from operations before working capital changes jumped 26 percent. The company allocated SEK 236 million to its H&M Incentive Program (HIP), a profit-sharing scheme for all employees — a Persson-family tradition that distributed gains across the entire workforce.
The early read on FY2025 was encouraging: sales in the period December 1, 2024, through January 28, 2025, grew 4 percent in local currencies. And Ervér's Q3 2025 results would show the gross margin climbing further to 52.9 percent, with EBIT margin reaching 8.6 percent, though analysts at Inderes cautioned that the improvement came against relatively soft comparables and maintained a sell recommendation, arguing that H&M's valuation had reached elevated levels given the still-uncertain top-line trajectory.
The long-term targets remained ambitious: at least 10 percent sales growth and operating margins above 10 percent. Getting there would require not just operational efficiency but genuine top-line acceleration — and that, in turn, depended on something much harder to engineer than supply chain optimization: making the H&M brand desirable again.
The Coat at the Back of the Closet
In his 2015 New Yorker essay on H&M's designer collaborations, John Colapinto described buying two Karl Lagerfeld overcoats on that frenzied November morning in 2004 — one to wear, one to keep in reserve, "tags intact, stuffed at the back of my closet, ready to be called into service when the original starts to look shabby." He still wore the first coat. Strangers still stopped him in the street to ask where he got it.
The detail is small. But it contains the entire tension of H&M's existence: a company built on disposability that, at its best, produced garments people kept for twenty years. A company that democratized fashion so effectively that it needed to produce hundreds of millions of garments annually to serve its customers — and that now had to find a way to produce fewer, better things without destroying the economic model that made democratic fashion possible in the first place. A company where a $149 coat became a cherished possession and a $4 billion pile of unsold inventory became a symbol of everything gone wrong.
Somewhere in Stockholm, in the archives on the outskirts of the city where Ann-Sofie Johansson's team mines sixty years of design history for inspiration, the original Lagerfeld collection sits preserved — a reminder of what the machine can do when the product is right. On the sales floors of 4,250 stores across 77 markets, the next season's garments are arriving, priced and tagged and waiting to be chosen. The gap between the archive and the sales floor — between what H&M was and what it is trying to become — is the space where the company's future will be decided.
H&M's seven-decade arc — from a single womenswear shop in provincial Sweden to a global fashion empire battling existential threats on every front — yields a set of operating principles that are anything but generic. These are hard-won, often contradictory lessons about building and sustaining a consumer business at planetary scale. They are also, in several cases, cautionary tales about the costs of the very strategies that enabled the company's rise.
Table of Contents
- 1.Standardize the product, localize the presence.
- 2.Turn your competitors into your marketing department.
- 3.Family control is a feature until it becomes a bug.
- 4.The inventory is the message.
- 5.Build the portfolio before you need it.
- 6.Sustainability is a moat — and a minefield.
- 7.Never let your supply chain become your strategy.
- 8.Scale creates the crises only scale can solve.
- 9.The middle is the most dangerous place in retail.
- 10.Promote from within — but know when to break the pattern.
Principle 1
Standardize the product, localize the presence.
Stefan Persson's most consequential strategic decision was his refusal to customize garments for individual markets. A dress sold in Hamburg was identical to one sold in Paris, Shanghai, or New York. This created a scale advantage that compounded with every new store opening: design costs were amortized across thousands of locations, fabric could be purchased in massive quantities at steep discounts, and manufacturing runs were long enough to push per-unit costs to their theoretical minimum.
The standardization strategy was a bet on cultural convergence — that the globalization of media, celebrity, and visual culture would homogenize consumer taste faster than national differences could resist it. For three decades, that bet paid off handsomely. H&M's European expansion, its U.S. entry in 2000, its Middle Eastern and Chinese forays — all were enabled by a product proposition that required no local adaptation.
The risk, invisible for years, was that standardization also meant sameness. When consumers in different markets began demanding more differentiated, culturally specific offerings — when Zara's faster production cycles allowed it to respond to local trends in near-real-time — H&M's one-size-fits-all model became a liability. The company that had ridden convergence could not respond when divergence returned.
Benefit: Massive cost advantages from standardized global production; ability to enter new markets quickly without extensive product development.
Tradeoff: Vulnerability to competitors who can offer locally adapted, trend-responsive product at comparable price points. When tastes diverge, the standardized model becomes a straightjacket.
Tactic for operators: Global standardization works when consumer preferences are genuinely converging — but build in a feedback loop. Allocate a percentage of your range (10–20%) to market-specific or test-and-learn products that can signal when the convergence thesis is breaking down.
Principle 2
Turn your competitors into your marketing department.
The designer collaboration model — Lagerfeld, McCartney, Versace, Comme des Garçons, Mugler — was not a product strategy. It was a brand strategy disguised as product. The collaborations generated enormous earned media (the equivalent of hundreds of millions in advertising value), drove foot traffic to stores, created a cultural event calendar, and — most critically — elevated H&M's brand perception without requiring permanent changes to its pricing or quality.
The asymmetry was elegant: H&M offered designers unprecedented distribution reach; designers offered H&M unprecedented brand association. Each collaboration was time-limited, which created urgency and scarcity — two emotions that H&M's core business, built on abundance and accessibility, could not otherwise generate.
✦
The Collaboration Flywheel
How H&M's designer partnerships created compounding brand equity
| Year | Designer | Notable Impact |
|---|
| 2004 | Karl Lagerfeld | Sold out in ~2 days; 24% business increase |
| 2005 | Stella McCartney | Expanded collab model to include menswear |
| 2008 | Comme des Garçons | Brought avant-garde to the high street |
| 2011 | Versace | Overnight queues; two-season release |
| 2012 | Maison Martin Margiela | Cult following; strongest resale premiums |
| 2023 | Mugler |
The model's weakness emerged over time: each collaboration generated a burst of attention that faded within days. The excitement was "there one day and gone the next," as BoF observed. H&M's 2023 pivot — hiring streetwear designer Heron Preston as a permanent creative menswear advisor rather than a one-off collaborator — signaled recognition that sustained brand elevation required sustained creative investment, not episodic fireworks.
Benefit: Enormous brand halo effect at relatively low cost; creation of a cultural event calendar that drives traffic and media.
Tradeoff: Episodic hype does not fix underlying brand perception issues. Once the collaboration ends, the customer returns to an unremarkable core assortment.
Tactic for operators: Collaborations are most powerful when they are surprising and when they elevate both parties. But treat them as brand investment, not revenue strategy — and when the format matures, evolve it. The shift from one-off drops to long-term creative partnerships (the Uniqlo x Christophe Lemaire model) may create more durable value than annual spectacles.
Principle 3
Family control is a feature until it becomes a bug.
Three generations of Perssons have governed H&M: Erling built it, Stefan scaled it globally, Karl-Johan navigated its decade of decline. The family's holding company, Ramsbury Invest, controls a disproportionate share of voting rights, ensuring strategic continuity regardless of public market pressure. As recently as June 2025, Ramsbury was increasing its stake, fueling take-private speculation.
Family control enabled long-term thinking that public markets often punish. The multi-year, multi-billion-kronor investments in logistics, technology, and AI that began under Karl-Johan — investments that depressed short-term earnings — would likely have been blocked or diluted by activist shareholders at a purely public company. The culture of internal promotion, the loyalty program for all employees (HIP), the values-driven governance — these are hallmarks of family-controlled businesses at their best.
But family control also created insularity. Every CEO until Helmersson came from within the Persson orbit. When Helmersson herself was replaced in 2024, the board again chose an internal candidate — Ervér, an 18-year veteran — despite vocal calls from analysts for external leadership. "They should've looked for an external candidate," Bernstein's William Woods said flatly. The company that prided itself on democratic fashion was governed by a structure that was anything but democratic.
Benefit: Strategic patience, cultural coherence, willingness to invest through downturns.
Tradeoff: Insularity, resistance to external perspective, potential for groupthink during periods when the business model itself needs fundamental rethinking.
Tactic for operators: Family or founder control is powerful for protecting long-term vision — but build explicit mechanisms for outside challenge. Independent board members with genuine authority, external advisory panels, or structured "red team" processes can provide the disruptive thinking that insular cultures suppress.
Principle 4
The inventory is the message.
H&M's $4 billion inventory problem was not a warehousing issue. It was a strategic diagnostic — a real-time readout of every failure in the company's operating model. Too much inventory meant the design team was misjudging trends. It meant the buying teams were ordering too far in advance from factories too distant to allow course corrections. It meant the demand forecasting systems were inadequate. It meant the markdown cadence was destroying margins. It meant the stores were not environments that inspired purchase.
For any retailer, inventory is the single most information-rich metric in the business. It tells you what customers want (what's selling), what they don't want (what's piling up), how accurately you're predicting demand, how responsive your supply chain is, and how much of your capital is trapped in depreciating assets.
H&M's response — RFID tagging for real-time inventory tracking, AI-driven demand forecasting, automated European warehouses, and nearshoring production to reduce lead times — addressed the symptoms. The deeper question was whether a company built on six-to-nine-month production lead times from Asian factories could ever match competitors operating on two-to-three-week cycles.
Benefit: Treating inventory as a strategic indicator rather than a logistical afterthought forces alignment between product, supply chain, and demand.
Tradeoff: Solving the inventory problem structurally may require shortening the supply chain, which increases per-unit costs and may be incompatible with H&M's low-price positioning.
Tactic for operators: If your inventory levels are rising while your sales are flat or declining, you do not have a warehouse problem — you have a product-market fit problem. Instrument inventory obsessively (RFID, sell-through rates by SKU, aging analysis) and use it as the earliest warning system for strategic misalignment.
Principle 5
Build the portfolio before you need it.
H&M's multi-brand strategy — COS, & Other Stories, Arket, Weekday, Monki — was modeled on Inditex's sub-brand architecture. The logic was sound: as the core H&M brand matured and growth slowed, adjacent brands at different price points and aesthetic positions could capture new customer segments and provide diversified growth engines.
COS, in particular, demonstrated the potential. Its minimalist aesthetic and higher price points attracted a customer that would never shop at H&M, yet it benefited from shared group infrastructure in sourcing and logistics. & Other Stories carved out a niche for the fashion-curious consumer willing to pay moderately more for distinctive design.
The lesson for operators is one of timing: the best moment to build your second brand is when your first brand is still strong enough to fund the investment. H&M launched COS in 2007, near the peak of its core brand's momentum. Had it waited until the crisis years of 2016–2018, capital constraints and organizational distraction would have made the launch far harder.
Benefit: Portfolio diversification hedges against brand-specific risk and captures adjacent segments without diluting core positioning.
Tradeoff: Sub-brands that share too much infrastructure with the parent can lack genuine differentiation. Cheap Monday's failure demonstrated that not every brand concept deserves group resources.
Tactic for operators: Launch your second product line or brand when your first is still growing — not as a response to decline. Fund it from strength. And give each brand enough operational independence to develop a genuinely distinct identity, even if that means some duplication of resources.
Principle 6
Sustainability is a moat — and a minefield.
H&M's sustainability investments — garment collection programs, Conscious collections, Circulose recycled-cotton fabrics, the Looop in-store recycling system, supply chain transparency initiatives — were among the most ambitious in fashion retail. They generated goodwill among European consumers, attracted sustainability-conscious talent, and positioned the company as an industry leader on circularity.
They also attracted relentless accusations of greenwashing. The fundamental contradiction — a company producing hundreds of millions of garments annually claiming to be sustainable — was never fully resolved. Norwegian regulators called the claims "misleading." Activists dismissed the Conscious collection as a fig leaf. And the Xinjiang cotton crisis demonstrated that sustainability commitments in Western markets could become political liabilities in non-Western ones.
Benefit: Sustainability leadership attracts talent, generates positive media, and increasingly influences consumer purchase decisions — particularly among younger demographics who will define the next decade of fashion spending.
Tradeoff: Sustainability claims at a volume producer will always be vulnerable to charges of hypocrisy unless accompanied by measurable, audited reductions in absolute production volume — something no fast-fashion company has been willing to commit to.
Tactic for operators: Don't make sustainability claims that your business model cannot support. If you sell at volume, ground your sustainability narrative in measurable, specific improvements (X% reduction in emissions per garment, Y tonnes of recycled material) rather than aspirational language. And be prepared: sustainability commitments create stakeholder expectations that, once set, cannot be walked back without reputational damage.
Principle 7
Never let your supply chain become your strategy.
For decades, H&M's competitive advantage was its global supply chain — a network of low-cost manufacturers in Turkey, Bangladesh, China, and elsewhere that enabled rock-bottom prices. The supply chain was the strategy: buy cheap, sell cheap, move fast.
The problem was that supply chain efficiency is a necessary but not sufficient condition for competitive advantage in fashion retail. When Shein built an even more efficient supply chain — closer to manufacturers, powered by real-time data, with shorter lead times — H&M's sourcing advantage evaporated. When Zara invested in a vertically integrated model with factories in Spain and Portugal that could turn around new designs in two weeks, H&M's six-to-nine-month lead times became a strategic disability.
A supply chain is infrastructure. Strategy is the set of choices about what to produce, for whom, and why they should care. H&M's decade of decline was, at its root, a failure to distinguish between these two things.
Benefit: Operational efficiency creates margin headroom and enables competitive pricing.
Tradeoff: When efficiency becomes the primary source of differentiation, any competitor who finds a more efficient model can replicate your advantage — and you're left with nothing.
Tactic for operators: Build your moat around something your supply chain enables but cannot itself provide: brand meaning, customer relationship, design distinctiveness, or a proprietary data advantage that makes your demand predictions better than anyone else's. The supply chain is the plumbing. Don't mistake it for the house.
Principle 8
Scale creates the crises only scale can solve.
The hoodie scandal. The Xinjiang backlash. The greenwashing accusations. The Rana Plaza associations. Every major reputational crisis H&M faced was a direct consequence of its scale — the sheer number of products, markets, supply chain partners, and cultural contexts in which the company operated. A company with 50 stores does not make international headlines for a single product image. A company with 4,250 stores across 77 markets does.
But scale also provided the resources to respond. H&M could afford to hire global diversity leaders, invest in supply chain transparency programs, fund garment recycling infrastructure, and absorb the revenue loss from exiting controversial markets — not because these actions were cost-free, but because the company's revenue base was large enough to fund them.
Benefit: Scale provides the financial resources, organizational capacity, and market leverage to address systemic issues that smaller companies cannot.
Tradeoff: Scale also creates the systemic issues in the first place — and the response mechanisms are always slower than the crises they're designed to address.
Tactic for operators: As you scale, invest proactively in the review mechanisms, diversity infrastructure, and crisis response capabilities that scale will inevitably require. The cost of prevention is always lower than the cost of reaction.
Principle 9
The middle is the most dangerous place in retail.
H&M's current strategic position — too expensive for Shein's ultra-budget customer, not premium enough for Zara's aspirational shopper — is the classic "stuck in the middle" that Michael Porter warned about decades ago. In retail, the middle is where brands go to die, because it is defined by what you are not rather than what you are.
Ervér's stated strategy — offering "something to everybody" — is either a sophisticated portfolio play or a recipe for continued muddlement, depending on execution. Zara's escape from the middle was achieved not through pricing but through perception: by investing in store design, photography, creative collaborators, and product quality to signal aspiration, even as it maintained accessible price points. Mango followed the same playbook to hit record sales.
Benefit: The middle market is, by volume, the largest segment — if you can define it as a position of inclusive quality rather than a no-man's-land between cheap and premium.
Tradeoff: Occupying the middle requires relentless investment in brand differentiation. The moment investment flags, the middle collapses inward and you're left competing purely on price.
Tactic for operators: If you're positioned in the middle, define the middle aggressively — not as "neither cheap nor expensive" but as "the best quality at this price point, period." Invest disproportionately in brand signal and product quality. And be honest about who you're not trying to serve.
Principle 10
Promote from within — but know when to break the pattern.
H&M's culture of internal promotion created deep institutional knowledge, cultural coherence, and remarkable loyalty — Ann-Sofie Johansson's 37-year tenure, Helmersson's 26 years, Ervér's 18 years. But it also meant that every CEO arrived at the top job having spent their formative professional years inside the same organization, absorbing the same assumptions, the same operational habits, the same blind spots.
The company's most innovative moves — the Lagerfeld collaboration, the garment collection initiative, the COS launch — came from individuals who had been inside long enough to understand the machine but were still early enough in their careers to challenge it. The risk is that long tenure breeds conformity, and that the very institutional knowledge that makes an internal candidate "safe" also makes them less likely to execute the kind of radical strategic pivot the business might need.
Benefit: Internal candidates understand the business deeply, maintain cultural continuity, and can execute complex transformations with organizational credibility.
Tradeoff: Insiders may lack the objectivity to question foundational assumptions. In turnaround situations, an outsider's willingness to break things can be more valuable than an insider's knowledge of how they work.
Tactic for operators: Develop internal talent aggressively — but create structured exposure to external perspectives (board diversity, advisory panels, cross-industry fellowships). And when the business needs a fundamentally different strategic direction, be honest about whether the right leader is already inside your walls.
Conclusion
The Cost of Fashion for Everyone
H&M's playbook is, at its core, a playbook about the blessings and curses of democratization. Every strategic choice the company made — global standardization, designer collaborations, vast supply chains, volume pricing — served the founding mission of making fashion accessible to as many people as possible. That mission built a $22 billion revenue empire, employed hundreds of thousands of people, and reshaped global retail.
But democratization at scale creates obligations that cannot be deferred indefinitely. To the workers in the supply chain. To the environment absorbing the waste. To the consumers demanding both low prices and ethical production. To the investors expecting margin recovery. To the employees whose livelihoods depend on the brand's continued relevance. These obligations pull in different directions, and the company's future depends on whether its leadership can hold the tensions together — or whether, like $4 billion of unsold inventory, the contradictions eventually pile up faster than they can be sold.
Part IIIBusiness Breakdown
The Business at a Glance
Current Vital Signs
H&M Group, FY2024
SEK 234.5BNet sales (~$22B USD)
53.4%Gross margin (vs. 51.2% prior year)
7.4%Operating margin (vs. 6.2% prior year)
SEK 11.6BNet profit (+33% YoY)
~4,250Stores in 77 physical markets
60Online markets
~97,000Employees
SEK 40.3BStock-in-trade (inventory)
H&M Group is the world's second-largest fashion company by revenue, trailing only Inditex (parent of Zara), which reported €35.9 billion ($39 billion) in 2023 sales. H&M is listed on the Stockholm Stock Exchange (ticker: HM B). The Persson family, through Ramsbury Invest, retains controlling voting rights and has been steadily increasing its stake.
The company operates on a November 30 fiscal year-end. FY2024 (December 2023 through November 2024) represented a year of meaningful margin recovery after the profitability trough of 2022, though top-line growth remained elusive — net sales were essentially flat in reported terms, up just 1 percent in local currencies. The early weeks of FY2025 showed 4 percent local-currency sales growth, and Q3 2025 results (reported September 2025) showed continued gross margin expansion to 52.9 percent and EBIT margin improvement to 8.6 percent.
How H&M Makes Money
H&M Group's revenue comes overwhelmingly from the direct sale of apparel, accessories, footwear, and home goods through its owned retail channels — both physical stores and e-commerce platforms. Unlike some competitors, H&M does not operate a significant wholesale business or franchise model; it owns and operates the vast majority of its stores directly.
H&M Group's revenue streams
| Revenue Stream | Description | Estimated Share of Revenue |
|---|
| Core H&M brand | Fast fashion apparel, accessories, H&M Home; by far the largest brand | ~75–80% |
| COS | Minimalist, higher-priced ready-to-wear; strongest portfolio brand | ~8–10% |
| & Other Stories, Arket, Weekday, Monki | Niche brands targeting specific demographics and aesthetics | ~10–12% |
| Other revenue | Resale (Sellpy investment), licensing, partnership income | ~2–3% |
Geographically, Europe remains H&M's center of gravity. Germany is the single largest market by sales (approximately SEK 35 billion in FY2024), followed by the United States, the United Kingdom, France, and Sweden. External net sales in Europe and Africa were nearly three times those in North and South America.
The unit economics of H&M's model are straightforward in theory: the company designs garments in-house, sources manufacturing primarily from third-party factories in Asia and Turkey, ships to centralized distribution centers, and sells at retail. The gross margin of 53.4 percent in FY2024 reflects the spread between the cost of goods (manufacturing, raw materials, freight) and the selling price — a margin that has improved significantly from its 2022 low as the company reduced markdowns, improved product mix, and benefited from easing freight costs. The gap between gross margin and operating margin (53.4% vs. 7.4%) reflects H&M's enormous fixed cost base: rent on thousands of store leases, payroll for nearly 100,000 employees, marketing spend, and technology investment.
H&M's e-commerce penetration has been growing — the company now operates in 60 online markets — but the company does not separately disclose the precise split between online and offline revenue. Industry estimates suggest online accounts for approximately 25–30 percent of total sales, still below the digital penetration rates of pure-play competitors.
Competitive Position and Moat
Morningstar rates H&M as having no moat — concluding that while the company benefits from scale advantages and brand recognition, "these are not sufficient to guarantee medium- to long-term economic profits in an increasingly competitive environment." That assessment, while harsh, reflects the reality of H&M's competitive positioning.
H&M vs. key rivals
| Competitor | Revenue (Latest FY) | Operating Margin | Key Advantage |
|---|
| Inditex (Zara) | €35.9B (~$39B) | ~18–19% | Near-shored production, brand aspiration, store experience |
| Shein | Est. $30B+ (2023) | Undisclosed (profitable) | Ultra-fast test-and-repeat, lowest prices, digital-only |
| Primark (ABF) | ~£9B (~$11.5B) | ~11% | Lowest high-street prices, no e-commerce (all physical) |
| Uniqlo (Fast Retailing) | ¥2.77T (~$20B) | ~14% |
The moat sources that do exist, such as they are:
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Scale in physical retail. With ~4,250 stores across 77 markets, H&M has one of the most extensive physical retail networks in fashion. This provides consumer accessibility, brand visibility, and a logistical footprint that pure-play digital competitors cannot easily replicate. However, physical retail also carries enormous fixed costs that weigh on margins.
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Brand recognition. H&M remains one of the most recognized fashion brands globally. Recognition alone, however, does not confer pricing power or loyalty — and brand perception has eroded in recent years.
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Multi-brand portfolio. COS, & Other Stories, and Arket capture adjacent consumer segments that the core H&M brand cannot. COS in particular has built a credible position in the higher-end accessible market.
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Designer collaboration franchise. Twenty years of annual designer collaborations have created a cultural institution that no competitor has successfully replicated at similar scale.
Where the moat is weak or eroding:
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No supply chain advantage. H&M sources from the same factories, in the same countries, as most of its competitors. Shein's supply chain is demonstrably faster and cheaper. Inditex's near-shored model is demonstrably more responsive.
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Digital lag. Despite heavy investment since 2018, H&M's digital experience and data capabilities remain behind those of digital-native competitors.
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Brand perception in decline. Consumer Edge data shows H&M losing market share in every major European market, with UK cohort data indicating that H&M customers are increasingly interested in Zara, and shared shoppers spending less at H&M than at its rival.
The Flywheel
H&M's historical flywheel — the reinforcing cycle that compounded its advantages during its growth decades — was relatively simple but enormously powerful:
🔄
The H&M Flywheel (As Designed)
The reinforcing cycle that powered three decades of growth
1. Scale → Lower costs. More stores and higher volume enabled larger manufacturing orders, lower per-unit costs, and better terms from suppliers.
2. Lower costs → Lower prices. Cost advantages were passed through to consumers as lower retail prices, reinforcing the democratic-fashion proposition.
3. Lower prices → More customers. Accessible pricing attracted a broad customer base across geographies and demographics.
4. More customers → More stores. Growing demand justified continued store expansion into new markets and new locations within existing markets.
5. More stores → Greater brand visibility. Physical presence on high streets and in shopping centers served as permanent advertising, reinforcing brand recognition.
6. Greater brand visibility → Designer collaboration power. The brand's global reach made it an attractive partner for luxury designers, generating enormous earned media.
7. Designer collaborations → Brand elevation. Annual designer partnerships elevated H&M's brand perception above its price point, attracting new customers.
8. Return to step 1.
The flywheel began to degrade when several links weakened simultaneously: digital competitors offered lower prices without stores (breaking link 2→3), store expansion hit saturation in key markets (weakening link 4→5), and brand perception declined as the physical retail experience deteriorated (breaking link 5→6). Ervér's turnaround strategy is essentially an attempt to rebuild the flywheel with digital channels as a parallel track alongside physical retail, AI-driven demand forecasting to reduce inventory waste, and elevated product and marketing to restore brand desirability.
Growth Drivers and Strategic Outlook
H&M's stated long-term targets — at least 10 percent sales growth and operating margins above 10 percent — imply a significant acceleration from current performance (1 percent local-currency sales growth and 7.4 percent operating margin in FY2024). The company has identified several growth vectors:
1. Digital acceleration. Continued investment in e-commerce platforms, mobile app, AI-driven personalization, and digital marketing. Expansion to additional online markets. The goal is to make digital a true equal to physical retail rather than a supplementary channel.
2. Store optimization. H&M is closing and refurbishing approximately double the number of stores it opens each year, focusing capital on high-performing locations with improved store design and customer experience. Net store count is declining, but revenue per store should increase.
3. Nearshoring and supply chain speed. Shifting production closer to end markets — more manufacturing in Europe and the Americas — to reduce lead times and improve responsiveness to trends. This is explicitly modeled on the Inditex playbook but will take years to implement at H&M's scale.
4. AI and data-driven demand forecasting. Using machine learning algorithms applied to RFID inventory data, sales data, and trend signals to improve production planning and reduce overproduction. H&M's global head of advanced analytics has described "significant impact" from these initiatives.
5. Brand reinvestment. Increased marketing spend (Charli XCX partnership, Met Gala dressing, Heron Preston advisory role), elevated product design, and the return of the H&M Design Award (with a €150,000 endowment) all aim to restore the brand's cultural relevance, particularly among Gen Z consumers.
6. COS and portfolio brand growth. COS has room for significant international expansion, particularly in Asia and the Americas, where its minimalist proposition has resonated with urban consumers.
Key Risks and Debates
1. Shein's continued European expansion. Shein now controls roughly 20 percent of European fast-fashion spend, according to Consumer Edge data, and its growth shows no sign of decelerating. Every percentage point of share Shein gains likely comes disproportionately from H&M's customer base. While potential regulation (EU due diligence directives, tariff changes) could slow Shein's advance, regulatory action has been slow and penalties minimal to date.
2. The "stuck in the middle" problem persists. Despite Ervér's strategy, H&M has not yet demonstrated the ability to shift consumer perception. Jefferies analyst James Grzinic noted after Q4 2024 that "the step up in marketing efforts is not having an especially significant impact on market share trends." Until top-line growth materially accelerates, the sustainability of margin improvements remains questionable — cost-cutting and supply chain efficiencies have ceilings, but brand desirability does not.
3. Tariff and geopolitical risk. H&M sources a significant share of its garments from Asia. Escalating U.S.-China trade tensions, potential European tariff regimes, and Red Sea shipping disruptions (which already impacted FY2024 inventory levels) create ongoing cost and supply chain volatility. Nearshoring mitigates but does not eliminate this risk.
4. Sustainability credibility gap. H&M's scope 3 greenhouse gas emissions declined by at least 23 percent from the 2019 baseline as of 2024, per preliminary estimates. But the company continues to produce hundreds of millions of garments annually, and critics argue that incremental improvements in per-garment impact are offset by absolute production volume. As EU regulations tighten (Extended Producer Responsibility, Digital Product Passport requirements), compliance costs will rise.
5. Family governance and potential privatization. The Persson family's increasing stake — with Ramsbury Invest conducting a PIPE-IV investment of $116 million in June 2025 — has fueled speculation about a potential take-private. While privatization could enable more aggressive restructuring, it would also remove the market discipline and transparency that public listing provides. The risk is that private ownership entrenches the insularity that analysts have identified as a structural weakness.
Why H&M Matters
H&M matters because it is the most consequential test case for a question that will define the next decade of global retail: Can a company built on volume, speed, and low prices transform itself for a world that demands sustainability, quality, and digital fluency — without destroying the economic model that made democratic fashion possible?
The principles embedded in H&M's story — standardization as a scaling weapon, collaborations as brand arbitrage, inventory as strategic diagnostic, the paradox of sustainability at scale — are transferable far beyond fashion. Any operator running a high-volume, low-margin consumer business in a market being disrupted from above and below will recognize the dynamics. The Goldilocks dilemma. The supply chain trap. The family governance double-edged sword.
H&M's FY2024 results suggest that the worst may be over — margins are recovering, cash flow is strengthening, and the product is reportedly improving. But margin recovery driven by cost discipline and markdown reduction is fundamentally different from margin expansion driven by brand desirability and top-line growth. The former has a ceiling. The latter does not. Whether Daniel Ervér and the Persson family can close the gap between operational competence and brand relevance — between the dress that sits unsold in a warehouse and the coat that a stranger stops you on the street to ask about twenty years later — is the question that will determine whether H&M's next chapter is a turnaround story or a slow fade.
