H&M Cuts Costs As It Incurs Losses Due To Exit From Russia, Inflation & Rising Dollar

H&M, the number two fashion retailer in the whole world, launched a 2 billion Swedish crown ($177 million approx) cost savings drive on Thursday, September 29, 2022. It has reported weaker profits than ever before, where the cost of input is rising, and consumers are buying less.

The added pressure is also due to their exit from Russia after it declared war on Ukraine. However, H&M was not the only big name to make an exit from Russia. Nestle, McDonald’s, Ikea, and Starbucks had also pulled out of Russia.

High Inflation In Europe

Europe is the hub for big business, where brands like H&M used to earn their big bucks. However, the war between Ukraine and Russia recorded high inflation and energy prices. This weighed down on customers, and people started cutting back to prepare themselves to face a tougher fiscal future.

Russia has a population of more than 14 crores, and exiting from such a huge market has resulted in a profit crash for the Sweden-based company by 89%, says an article in The Free Press Journal.

When consumers start to cut back, shopping takes a backseat because it is not part of necessary expenditure, but a question of want and need.

In 2021, H&M ushered in its highest profit at $867 million since 2009, in Russia. However, in the pretax period between June and August 2022, the profit fell to only $60 million.

From no sales in the Russian market to high inflation, H&M has borne losses from everywhere. A stronger U.S. dollar has also resulted in a significant increase in the purchase of raw goods. According to an Indian Express report, CEO Helena Helmersson said, “Overall, these factors had a substantial negative impact on profit for the quarter.”

India Offers Hope

In India, the situation is not so grim for H&M. In the financial year 2022, the apparel market in India bounced back to $72 billion. It suffered a devastating blow during the COVID-19 pandemic but bounced back again with a huge difference.

If estimates are believed to be true, the financial year of 2023 will end with a 23% hike in the profit for the apparel market.

That could bring some relief to H&M. It is one of India’s largest fashion brands with thousands of stores across the country. Moreover, it offers clothes at affordable rates so that the middle and upper classes enjoy refreshing their wardrobes according to the latest trends.

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Rival Zara Still Stands Tall In Russia

While several brands like H&M faced backlash for operating their businesses in Russia, its rival, Zara, took another route of parallel imports.

It does not mean that Zara has not exited the country at war. It simply means that the brand has shut its 502 physical stores and online services in Russia. However, it found a way to import its collection (lehenga trends) to locals there, who in turn sell the clothes and other products of the Spain-based brand.

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It has been possible for Zara because Russia has allowed its locals to sell products bought abroad. Kazakhstan, its neighbouring country, still has close trading ties with Russia. Therefore, Russians buy Zara goods from other countries and sell them amongst their people, thereby boosting sales.

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