(Bloomberg) — Hennes & Mauritz AB Chief Executive Officer Helena Helmersson is getting tough in her first year running the Swedish fashion retailer, announcing plans to reduce the store count by 5% next year.
The CEO is making H&M’s biggest retrenchment ever as the pandemic exacerbates its record inventory buildup. The retailer said Thursday it plans to permanently shut 250 stores on a net basis in 2021 after eliminating 50 this year. The stock rose as much as 5.2%.
“After years of overstoring we welcome this change and are encouraged by the magnitude of cuts,” wrote Aneesha Sherman, an analyst at Sanford C. Bernstein.
Helmersson’s first year leading the company has been more challenging than she bargained for as Covid-19 has plunged the industry into its worst business conditions in decades. Inventory remains a headache, reaching 21.4% of 12-month revenue. That’s more than double the level of Zara owner Inditex SA. Former CEO Karl-Johan Persson failed to reduce the amount of unsold garments over the past four years.
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The company is also trying to lower costs by renegotiating rental costs. H&M’s lease agreements are structured so that the retailer can renegotiate or exit one quarter of its leases in any given year.
H&M hasn’t reduced the number of stores it operates in any year during the past two decades, during which the total ballooned from 600 to about 5,000.
Third-quarter pretax profit came in at 2.3 billion kronor ($257 million), higher than the 2 billion kronor H&M guided to last month. Sales have been recuperating, with revenue dropping only 5% in September, the first month of H&M’s fourth quarter.
Shares of H&M, which employs about 180,000 people, have dropped 20% this year.
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