In an interview with WWD on the sidelines of the investor day, H&M chief executive officer Karl-Johan Persson discussed taking risks, respecting company values, and how the retailer is dealing with the fallout from the recent controversy over its “coolest monkey in the jungle” hoodie, which cost the company existing collaborations with The Weeknd and G-Eazy.
WWD: The moves that you detailed today are very ambitious. Can you give me an idea of the sum the group plans to invest in 2018?
Karl-Johan Persson: The [chief financial officer] gave a capex figure for 2018 in the range of 12 to 12.5 billion [Swedish kronor, or $1.5 billion to $1.56 billion] so we’re investing a lot.
WWD: And you announced yesterday that you are abandoning your idea of having your shareholders reinvest their dividends, so how are you financing all of this?
K.-J.P.: Well, it’s more for the board to look at. They came with this first suggestion to review, if it was possible, and then it showed that it was not, due to administrative reasons. And the second-best option for the board was to keep the dividend at 9.75 [kronor]. When they come with a recommendation like this, they obviously look at the forecasts, the investment plans, our financial strength and flexibility, and they made the decision that this is the second-best, so we feel confident in the financing capabilities.
WWD: Is the Persson family still planning to reinvest its dividends?
K.-J.P.: No, it’s a different set-up, so this was the second-best option.
WWD: In your speech, you talked about the importance of the company culture. When you’re trying to change course with a supertanker such as H&M, how do you address these mistakes that have happened recently in terms of the culture internally? Do you have to bring in outside people or is it a question of changing mind-sets within the company?
K.-J.P.: Well, the culture will never change. It’s such an important part, the seven values [referred to internally as “the H&M way”] that we have that have been built up since 1947. The recent [reasons] why we did some mistakes connected to the H&M brand and the physical stores is because we haven’t been customer-focused enough, we haven’t lived the values well enough, so it’s more revisiting that. But we have fantastically talented people and I’m convinced that we will bounce back. And at the same time, I think it’s important to state as well that there are many things going well also. It’s just that this part stands for a big share, comparable selling. We’re developing tremendously online with a big growth rate, great profitability, the growth of newer brands.
WWD: I’m very interested in Co:Lab. Can you say a little bit about what kind of companies you’re investing in?
K.-J.P.: It’s still early. We have invested in roughly, I think, 10 investments. The total sum is 230 million Swedish kronor, so not huge. But one is a U.K. company called Thread. It’s styling help for men based on machine learning, run by fantastic entrepreneurs and really interesting, growing nicely, so that’s one example. Some are connected to sustainable materials like [H&M’s head of sustainability] Anna Gedda presented: Renewcell and Worn Again, just to mention a few.
WWD: Are you worried that launching so many new labels and platforms is going to divest money and energies away from fixing the problem at the H&M brand?
K.-J.P.: There is some money allocated to new investments, but we feel confident on that and we organize ourselves in a way so there are separate teams running everything.
WWD: But it’s a big thing to launch Afound, for example, to completely enter a multibrand market and in the off-price segment, which is so highly competitive. You’ve set yourself a very big challenge with that.
K.-J.P.: Yes, absolutely. Well, I mean, it’s a huge market. If we do it well, there are fantastic opportunities, so I think it’s always an evaluation of risk and reward, and we believe we are good at starting new concepts. With all the new concepts we start — Cos, or & Other Stories or Arket — there is always a risk that it doesn’t succeed. And so far we have done it well, and then we allocate the money. If it doesn’t work, it doesn’t work, but we’re fine with that and we look at upside in the market.
WWD: You’re not afraid of failure — that’s quite an American attitude.
K.-J.P.: Yes, absolutely. I think it’s necessary, as I said earlier, it’s part of the culture as well to invest in new growth engines. Some will succeed and some will fail, but so far we have done well with that portfolio and we believe in the Afound project as well.
WWD: One of your biggest visibility operations every year is with designer collaborations. We hear that you may be working with Riccardo Tisci on a collection for this year. Can you confirm that?
K.-J.P.: No — no comment, sorry. I have to be a little bit secretive on the new collaborations.
WWD: Giambattista Valli’s name has also come up, so no comment on that either?
K.-J.P.: No, sorry. But I’m sure you will get to know early when we decide.
WWD: And in terms of the supply chain, are you moving closer to the Inditex model, would you say?
K.-J.P.: We are investing a lot in improving the supply chain, and that’s based on our world, the brands we have, the set-up we have, and so on, but a lot is based on improving speed, improving efficiency and flexibility. We are investing a lot in artificial intelligence. I’m not sure what other companies are doing in that field, but we see a great upside connected to that and based on where we want to go, it will definitely help us. If it’s the Inditex model or not, it’s hard to say.
WWD: Because their thing is proximity sourcing in the Mediterranean, so it’s less that and it’s more technology?
K.-J.P.: They source a lot in Asia as well. They comment on their strategy as well and I know a lot is made out of proximity sourcing, and so on, but I mean, proximity sourcing, we have a lot of selling in Asia and proximity sourcing for Asia means Asian sourcing. And Europe is Europe and for U.S., maybe China is better than Europe, so it depends. It’s such a complex mapping to optimize the flow to all the channels, all the markets and depending on what type of product it is as well. If you want speed, just testing, then it’s speed, speed, and you really have to do it at speed in all markets. If it’s a basic garment or something you can forecast in advance, then it’s a different way to treat that client, and with artificial intelligence as well, the ability to demand forecast in advance and also to forecast trends in advance, it throws everything in different perspectives as well. Then you can with more precision say earlier exactly what it should be.
WWD: You can plan better.
K.-J.P.: Yes, exactly, and it’s a combination of cost, speed, flexibility, sustainability, quality. You need to look at all these different factors when deciding where to source from.
WWD: I suppose the biggest revolution that retail has faced is the power that the consumer has today, which they never had before. H&M won a lot of plaudits last year with its campaigns, which were highlighted as being particularly diverse and inclusive. In recent months, there have been some missteps on the diversity front. How do you explain this, that you were the frontrunners in this field last year and yet you’ve made such obvious mistakes in the last two months?
K.-J.P.: Well, I would say, the whole sustainability, diversity, inclusiveness is such a central part of our company. I’m not just saying this because it’s the right thing to say — it is deeply integrated, and we do anonymous surveys every year with all the employees and that’s one of the questions: How do you view us as an employer? It’s super good ratings. It’s the highest rating when it comes to diversity, that’s why it’s so frustrating.
We have a responsibility as a company, so we have to be more attuned to that, but I think most people know that it was not intentional, that it was a mistake. The routines were not in place.