H&M Must Source More Near Main Markets to Beat Tariffs, CEO Says

Mint

5 hours ago

(Bloomberg) -- Swedish fast-fashion retailer Hennes & Mauritz AB is speeding up efforts to source goods from manufacturers closer to its main markets as US tariffs and geopolitical turmoil complicate trade.
'Overall our shift is to reduce our lead times and increase our flexibility by having manufacturing options closer to primarily Europe but also Latin America and the USA,' Chief Executive Officer Daniel Erver said in an interview on Thursday. 'This strategy is even more relevant now with all the changes we've seen, and we need to increase the pace to find even more alternative suppliers.'
With large production capacity in Bangladesh and other Asian countries, H&M — like rivals such as Inditex SA's Zara — has been forced to reckon with potentially higher prices for consumers. Zara, however, already sources more goods from places like Turkey and Morocco, closer to Europe.
H&M has both raised and lowered prices to remain competitive, according to Erver. 'In some cases we have decided not to place orders because we cannot manufacture them at a competitive price point,' he said.
The CEO has seen tariffs and trade deals change on almost a daily basis this year, and while the company closely monitors both how rivals and consumers navigate the levies, 'now is not the time to make large, strategic shifts but rather be granular on the order level,' he said.
H&M shares jumped as much as 7.9% in Stockholm trading Thursday — the biggest intraday gain since April — after the retailer reported profit that was slightly ahead of analysts' estimates, helped by demand for its women's fashion and sportswear.
Expectations were low going into the results after Zara flagged a muted start to the summer season.
Erver, a company veteran who took over the CEO job early last year, is attempting to revive H&M following years of sluggish growth. He predicted that gross margin — a key measure of profitability — will improve in the second half as headwinds such as adverse currency moves and expensive freight rates start to reverse.
--With assistance from Jonas Ekblom.