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H&M CEO on Russia Exit: ‘Impossible’ to Operate Through Ukraine War

Four months after it paused operations in Russia, H&M Group is formally exiting the country waging a deadly war in Ukraine.

The Swedish fast-fashion giant pointed to “current operational challenges” and an “unpredictable future” in a statement outlining the factors behind its decision to quit Russia.

“After careful consideration, we see it as impossible given the current situation to continue our business in Russia,” said Helena Helmersson, CEO of H&M Group, in a statement. “We are deeply saddened about the impact this will have on our colleagues and very grateful for all their hard work and dedication. Furthermore, we wish to thank our customers for their support throughout the years.”

H&M has operated in Russia since 2009, with the market representing 4 percent of the retailer’s sales in the 2021 fourth quarter. As of Nov. 30, 2021, H&M Group operated 168 stores in Russia, alongside its e-commerce site, all of which have been shuttered since March 2. The company also opened its first Arket store in the country in December 2021. H&M rents the stores in the market and operates them directly.

The company’s strong second-quarter results likely aided in its confidence to make the full exit, with net sales increasing 17 percent to 54.5 billion kronor ($5.3 billion) from 46.5 billion kronor ($4.6 billion) in the period.

H&M appears willing to take a short-term sales hit. June sales were expected to decrease by 6 percent in local currencies on a year-over-year basis. The paused sales in Russia, Belarus and Ukraine represent 5 percentage points of the decrease, H&M said.

In total, 181 stores remained closed in Russia, Belarus and Ukraine ahead of the exit, with 7,500 employees operating in the three markets. Prior to the Covid-19 pandemic, in the 2019 financial year, these markets accounted for approximately 10 percent of the group’s operating profit.

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However, H&M‘s exit isn’t complete just yet. As part of the winding down process, the retailer is temporarily reopening physical stores in Russia for a limited period of time to clear through inventory.

The combined assets in Russia, which include current stock-in-trade, cash and cash equivalents, equipment and right-of-use assets, amounted to 4.4 billion Swedish kronor (approximately $427 million) at the end of the quarter.

The entire liquidation is projected to cost H&M a total of approximately 2 billion kronor (approximately $193 million), of which approximately 1 billion kronor (approximately $96 million) will have a cash flow impact. The full amount will be included as one-time third-quarter costs.

Although operations in Belarus remain shuttered, H&M has not indicated it would permanently exit the market.

H&M is the latest Western company to ultimately decide to exit Russia as the war drags on and Western sanctions complicate operating in the country.

Late last month, Nike said it was shuttering Russian operations for good after first closing stores and then cutting ties with Russian franchisees.

And ocean carrier giant A.P. Moller-Maersk carried out what it said was its last cargo operation in a Russian port in early May, taking a $718 million hit in the process of leaving the country. The logistics giant is currently in the process of selling its nearly 31 percent stake in Global Ports Investments (GPI), which counts six terminals in Russia and two in Finland.

TJX, while not operating its own banners in the country, exited the market entirely when it divested its 25 percent stake in Russian apparel retailer Familia.

The decisions from these companies, as well as similar exits from American businesses like McDonald’s and tech titan Cisco, now place other corporations in the spotlight to potentially do the same. Brands including Levi Strauss, H&M rival Inditex, LVMH, Adidas, Gap Inc. and more are among the global fashion companies temporarily suspending their operations in the country, but have stopped short of indicating that they would leave Russia for good.

For Inditex, which owns Zara, Pull&Bear and Massimo Dutti, CEO Oscar Garcia Maceiras recently told shareholders it would continue to monitor the situation in Russia and would suspend operations for the time being.

“We are in contact with all actors that have been affected by the suspended measure and we are exploring different alternatives,” Maceiras told investors.”But at this moment there is no other decision than to continue to monitor the situation.”

The company already took a writedown of 216 million euros ($219 million) to cover all of the extraordinary costs derived from the temporary closure of its Ukraine and Russia businesses.

Prior to the market closures, Inditex’s sales in Russia and Ukraine represented approximately 5 percentage points of sales growth, the company said. As of March, Inditex operated 502 stores in Russia and 84 in Ukraine before shuttering the stores.