Amid an already tightening labor market, the H&M Group is trimming its payroll in a cost-cutting effort.
The H&M Group has initiated a global program to reduce expenses and further improve efficiency in the business. The program relates to administrative and overhead costs, and entails reducing the workforce by around 1,500 positions.
“The cost and efficiency program that we have initiated involves reviewing our organization and we are very mindful of the fact that colleagues will be affected by this,” Helena Helmersson, CEO, said. “We will support our colleagues in finding the best possible solution for their next step.”
Overall, the Swedish fashion retailer estimated that these layoffs will provide annual savings of around 2 billion Swedish kronor (roughly $190 million), expected to become visible in the second half of 2023. The program is anticipated to result in a restructuring charge of just over 800 million Swedish kronor (roughly $75 million) in the fourth quarter of 2022.
The layoffs will hit global workers within central functions, both employees and consultants, a spokesperson for the company told Sourcing Journal. It is not connected to store staff or a sign of store closings. Recruitment for certain roles has been paused, however. The layoffs account for approximately 1 percent of H&M’s total workforce.
“The global program to reduce costs and further improve efficiency in the business was initiated in September and communicated in connection to our Q3-report,” the spokesperson said. The third-quarter report noted that a cost-cutting program was in the works, though it was unclear what it would entail. “We have in recent years been facing a pandemic, geopolitical challenges and the effects of war. We need to create the best conditions to operate now and in the future, which means adjusting our priorities, reviewing costs and refocusing our resources.”
In September, H&M reported its third-quarter net sales increased 3 percent year-over-year, though they were down 4 percent in local currencies. The reported operating profit in the three months ending Aug. 31 was 902 million Swedish kronor (roughly $85 million), down 14.4 percent from the previous year’s 6.27 billion Swedish kronor (roughly $588 million).
“The third quarter has largely been impacted by our decision to pause sales and wind down the business in Russia. This has had a significant effect on our sales and profitability, which explains half of the decrease in profits compared with the third quarter last year,” Helmersson said. “Many other external challenges also made their mark on the quarter. In common with the rest of the industry, sales were weak in many of our major markets at the start of the period. Increased raw materials and freight prices as well as a stronger U.S. dollar resulted in substantial cost increases for purchases of goods. Overall, these factors had a substantial negative impact on profit for the quarter.”
Last week, the group announced it would channel an annual 3 billion Swedish kronor (roughly $282 million) toward decarbonizing its supply chain.