Bus. Of Fash. : A Changing of the Guard at Nike and Under Armour

A Changing of the Guard at Nike and Under Armour
The CEOs of two of the world's biggest athletic brands announced on the same day that they would step aside. BoF examines what their successors will need to do to keep up momentum.

This week, on the very same day, two major American sportswear companies announced that their CEOs would step back from their current roles in 2020. On Tuesday, Nike said that longtime Chief Executive Mark Parker would leave his position at the start of the new year only hours after Under Armour said Founder and Chief Executive Kevin Plank would be moving aside. Both Parker and Plank will become executive chairmen of their companies, with Plank picking up additional duties as Under Armour’s brand chief.

Both leaders had exceptional tenures.

Since Parker became Nike’s CEO in 2006, the company has consolidated its position as the world’s biggest sportswear brand. Annual revenue has more than doubled from $15 billion in 2006 to $39 billion for the year ending in May. News that Parker was stepping down came as the company’s stock hit a high after nearly doubling in the past three years.

Plank has been Under Armour’s CEO since 1996, when he founded the company out of his grandmother’s basement. Since going public in 2005, Under Armour has driven exponential growth, surpassing $1 billion in sales in 2010 and $5 billion in 2018.

Both companies are facing a fast-changing retail landscape and the profiles of Parker and Plank’s successors reflect their growing emphasis on direct-to-consumer sales.

Parker is being replaced by current Nike board member John Donahoe, previously CEO at eBay, whose experience will prove invaluable as Nike focuses on executing its ‘Consumer Direct Offense’ strategy, cutting back on wholesale and investing heavily in digital.

Under Armour is tapping current COO and 30-year retail veteran Patrik Frisk to replace Plank. In July, the company cut its full-year revenue forecast for North America, its biggest market, in the face of stiff competition. But according to Matt Powell, sports industry analyst at NPD, the company has never been in better shape and Frisk, who has streamlined operations to cut spending and inventories amid slowing growth, deserves credit for this.

Parker and Plank’s announcements both come in the wake of internal scandals at their companies. At Nike, the gap between the company’s marketing mantras and internal culture were made plain after widespread allegations of harassment and discrimination against female employees, some of whom described the company’s culture as toxic. And just weeks ago, Nike’s Oregon Project was shuttered when head coach Alberto Salazar was hit by a four-year ban after being found guilty of doping violations. The allegations caused the brand, and Parker — who faced accusations he knew about the doping — significant reputational damage. While Parker stated in a CNBC interview this week that the leadership change has “absolutely nothing” to do with the doping controversy, only last year Nike said he would be staying as CEO “beyond 2020.”

Like Nike, Under Armour has garnered significant cultural currency from well-executed ad campaigns; its 2014 ‘I Will What I Want’ campaign, featuring Gisele Bündchen and Misty Copeland, sought to increase the brand’s appeal to women shoppers after it had long been known for its ‘tough-guy’ company identity. But Kevin Plank had also been accused of cultivating a toxic “fratboy” culture; last year the company experienced its own #MeToo reckoning when Plank was forced to address the use of corporate credit cards to pay for executives’ strip club visits.

Whether consumers care is debatable. Nike’s sales clearly haven’t been hurt by the discrimination allegations, and the brand is more likely to be lauded for its progressive values these days, in the wake of its wildly successful campaign with ex-NFL star and activist Colin Kaepernick.

“There are so many scandal stories out there today that we kind of expect them to happen,” Powell said.

Consumers have their limits, however (just ask Gucci, which has seen North American sales decline in the two quarters since its “blackface” balaclava controversy). The Kaepernick campaign won’t inoculate Nike from any additional fallout from doping violations, or keep it from becoming enmeshed in the China-Hong Kong conflict, or some as yet unknown scandal.

And though they may not have had a direct impact on sales, corporate scandals at Nike and Under Armour have undoubtedly taken up significant time for Parker and Plank which could have been more valuably spent on other elements of the business.

Corporate culture matters beyond the C-suite as well. A rotten internal culture will continue to produce new external scandals, which in turn will make it more difficult to attract top talent.

Both brands are riding high at the moment, but they operate in an intensely competitive business, where Adidas and a host of smaller brands are ready to pounce on every misstep. To continue their hot streak, Nike and Under Armour will need to constantly innovate, both in terms of the products they sell and the methods they use to sell them. They can't afford to alienate the consumers or future employees who will help them stay on top.

WWD : Richemont Inks JV Deal With Alber Elbaz

Richemont Inks JV Deal With Alber Elbaz
The move signals Richemont's ongoing appetite for fashion, and Elbaz's return to the luxury fold.

LONDON — In a move that signals a luxury comeback for Alber Elbaz and nods to Richemont’s commitment to fashion, the two have formed a joint venture known as AZfashion, a from-scratch project aimed at wardrobe “solutions” for women.

Compagnie Financière Richemont has been on an M&A tear this year, most recently buying Italian jeweler Buccellati from its Chinese owners, while roughly 12 months ago it inked a joint venture with Alibaba to push Net-a-porter and Mr Porter further into China.

Those deals followed Richemont’s purchase of 100 percent of Yoox Net-a-porter and Watchfinder in 2018. Since then, the group has been putting a strong focus on digital retail and broadening the reach of its watch and jewelry collections, selling them alongside luxury fashion at Net and Mr Porter.

Richemont described AZfashion as “an innovative and dynamic start-up, meant to turn dreams into reality.” The luxury giant, parent of brands including Cartier, Chloé, IWC, Van Cleef & Arpels and Dunhill, is clearly seeking to learn from Elbaz, in addition to helping build the new venture.

Johann Rupert, Richemont’s chairman, said Friday that Elbaz’s ideas wowed him.

“Upon hearing Alber Elbaz describe his vision for fashion and the projects it inspires in him, I was again struck by his creativity and insight,” Rupert said. “His talent and inventiveness, with his sensitivity toward women and their wellbeing, will be of great value to our group and its maisons. We warmly welcome Alber to Richemont, and look forward to an exciting partnership,” he said.

Elbaz said the JV with Richemont would help him to establish “my ‘dream factory,’ which will focus on developing solutions for women of our times. I am extremely excited to collaborate with good people, talented and smart individuals, and look forward to also having a lot of fun with this new adventure.”

Richemont declined to reveal more details about the new business. The company is in a blackout period, with interim results set to be released on Nov. 8.

It is understood that Richemont has a majority stake in the JV, although the new deal will not have a material impact on the luxury giant’s bottom line. The decision to form a joint venture was because the business is a start-up, rather than an established brand.

While Rupert and Elbaz had only met a few times before sealing the partnership, an industry source said Elbaz impressed the company with his “creativity, inventiveness, culture and humility. He has lots of ideas, and they can be stimulating for everyone.”

Elbaz has a reputation as an expensive talent and was paid handsomely at Lanvin, where he was subcontracted via his company AEK Designs, a private limited liability company under sole ownership. It posted annual revenues of 5.6 million euros in 2014, and 5.9 million euros in 2013, according to public records.

Fashion, lifestyle and accessories is Richemont’s smallest division, and includes brands such as Chloé, Dunhill, Alaïa and Peter Millar. In September, the division’s chief, Eric Vallat, stepped down a little more than a year after taking up the job.

In the April-to-June period, the division saw sales contract 3 percent, mostly due to the disposal of accessories brand Lancel in 2018. Richemont said the “strong performance” of Peter Millar, a golf and luxury sports apparel brand, during the period contrasted with that of the other maisons in the division.

With Cartier serving as Richemont’s revenue engine, and the specialist, high-end watch business beginning to pick up after a major transformation, the fashion and accessories division remains a challenge for the group, especially with competitors such as Hermès and brands belonging to LVMH Moët Hennessy Louis Vuitton and Kering, parent of Gucci and Saint Laurent.

A few years ago, Richemont began slimming down the division and putting the focus on its top fashion and accessories names. It sold Shanghai Tang and Lancel, and began to ramp up its high-end leather goods production with the purchase of the artisanal Milanese brand Serapian.

“We see significant potential in leather goods,” Richemont’s chief financial officer Burkhart Grund said during the company’s 2017-18 results presentation in May 2018. Grund added that Richemont’s plan was to grow its leather business organically through its existing brands, rather than rely on acquisitions.

The JV with Elbaz, who is chiefly a ready-to-wear designer, will no doubt have a strong accessories angle, given Richemont’s ambitions and expertise in the space, as well as Elbaz’s talents with footwear and fashion jewelry.

The development heralds Elbaz’s return to big-ring fashion, backed by one of its most prestigious luxury groups.

Since being ousted from Lanvin in October 2015, he has busied himself with speaking engagements and small design projects at various price points, including a collaboration with Tod’s on shoes; a Converse sneaker; a limited-edition makeup line with Lancôme; a range of travel bags and accessories with LeSportsac, and a fragrance with French perfumer Frédéric Malle. He was also approached to design the Schiaparelli collection.

He quietly designed wedding gowns for friends and met with a range of potential investors in America, Singapore and Europe to fund his new fashion project. It is believed to be hinged on online selling, frequent drops instead of collections, and an eclectic approach to products that may extend beyond apparel, sources said.

Elbaz could not be reached for comment following Friday’s announcement.

He has certainly kept his industry profile high, attending myriad fashion events and parties in various fashion capitals, and populating his Instagram feed with selfies, positive slogans, vacation portraits and his inimitable illustrations, naïve and playful. He counts 124,000 followers on the platform.

Prized for his couture-like approach, woman-friendly fits and affable personality, Elbaz is best known for his 14-year tenure at Lanvin. Shaw-Lan Wang, the Taiwanese publishing magnate who acquired Lanvin from L’Oréal in 2001, gave him a free hand to reinvent the business with chic cocktail dresses, chunky costume jewelry, ballerina flats, dressy sneakers and modernist men’s wear.

During his tenure he transformed a business largely dependent on men’s wear to a leading designer brand for women, part of the vanguard in Paris that launched an enduring trend of couture-influenced French elegance. (Though since his exit, Lanvin sales have dwindled and the brand is still finding its way out of the wilderness after a revolving door of design successors and business leaders.)

Known for draping fabrics on the body and using them to their best advantage, Elbaz frequently emphasized the human hand in fashion by leaving stray threads and adding small rips and tears, a riposte to e-commerce sites that gave fashion a high-tech, impersonal sheen.

Born in Morocco, Elbaz learned his craft at Geoffrey Beene’s elbow in New York, emerging onto the international radar when he was recruited by Ralph Toledano to helm Guy Laroche in Paris in 1996, a stint that won raves, media attention and the job offer of a lifetime: To succeed couture legend Yves Saint Laurent at the helm of Rive Gauche rtw.

After three seasons, Elbaz was fired in the wake of Gucci Group’s takeover of YSL, with Tom Ford picking up the design reins. Elbaz subsequently did one season with Krizia in Milan before sitting on the sidelines of the fashion business for one year.

It is understood he has held discussions to work for a range of top fashion houses over the years, including Dior and Max Mara. He has long harbored dreams to take over Chanel one day.

“I was very much into design because I came from the house of Geoffrey Beene, which was all about design, and then we pushed it also to desire, to women, to reality, to be relevant,” he said in a 2012 interview. “I think to be relevant is the story of my life.”

WSJ : As Stocks Hover Near Highs, Past Pullbacks Worry Investors

As Stocks Hover Near Highs, Past Pullbacks Worry Investors
Muted moves in S&P 500 highlight investor fears that stock market’s gains could be limited

Stocks are flirting with record territory but have been stuck in a narrow trading range since the beginning of last year, leaving investors grasping for a fresh driver that could propel the decadelong bull market to even greater heights.

The S&P 500 made a run at its all-time high of 3025.86 Friday but came up just short, closing up 0.4% at 3022.55. Hopes for lower interest rates and a resolution to the long-simmering trade dispute between the U.S. and China have pushed the broad equity gauge up 21% for the year.

But most of the index’s gains came in the first four months of 2019, following a brutal selloff in last year’s fourth quarter. Stocks have treaded water lately, averaging a daily move of 0.4% or less in five of the past seven weeks.

The recent muted moves reflect investor fears that a bleak outlook for global growth and corporate earnings will limit the stock market’s gains. The three-month stretch without a new high is the S&P’s fifth-longest in the past five years, according to Dow Jones Market Data.

Since the index leapt above 2750 for the first time in January 2018, it has generally stayed between that level and 3000, a threshold at which it has faced resistance. It retreated the three previous times it crossed that mark in 2019. The index is up just 5.2% from its January 2018 high.

The sideways trading pattern also shows how skeptical global investors are that incremental progress on a trade agreement will alleviate anxiety about tariffs. The possibility of another round of duties in December continues to fuel caution, offsetting some of the optimism about lower interest rates around the world.

“Everyone’s vision is very blurred at this point,” said Meghan Shue, senior investment strategist at Wilmington Trust. “At the first sign of trouble, we could head lower because what we have is a very tenuous trade pact, not a formal agreement and no deal.”

Wilmington Trust is neutral on stocks, meaning it holds a position in line with the benchmarks it tracks, given that it doesn’t see a recession in the coming months but is also cautious about the continuing back-and-forth on trade.

Bullish investors are hoping better-than-feared earnings results this week can power stocks higher. Roughly 150 companies in the S&P 500 are slated to report for the second consecutive week. The companies in the index are projected to report a 3.7% drop in profits from a year earlier—the largest decline since 2016, according to FactSet. Some analysts are particularly worried that dented corporate confidence will continue to limit business investment, removing a key driver of economic growth.

Heavy machinery maker Caterpillar Inc. and chip company Texas Instruments Inc. were among the firms that lowered future profit projections last week, citing ongoing economic uncertainty.

“At the end of the day, we really need progress on trade,” said Adam Phillips, director of portfolio strategy at EP Wealth Advisors, which reduced an overweight position on stocks to neutral at the end of September. “That’s what’s really going to restore business sentiment and restore capital spending.”

Bellwether companies Apple Inc., Facebook Inc., Google parent Alphabet Inc., AT&T Inc. and General Electric Co. are among the notable firms posting results this week.

The next Federal Reserve meeting will also be in focus. The central bank is expected to lower rates Wednesday for the third time this year. Federal-funds futures used by traders to wager on monetary policy show markets pricing in a 94% chance of a cut this week, CME Group data show. October’s jobs report on Friday could also influence expectations for the U.S. economy.


The figures come on the heels of fresh signs that a manufacturing slowdown is rippling to the labor market and crimping consumer spending. Also troubling investors: worries that lackluster economic activity could leave the Fed with insufficient tools to respond if a recession does occur. Those fears underscore anxiety that lower interest rates still won’t spur faster economic growth as trade uncertainty lingers.

“The jury is still out at this point, and that’s one of the things that makes this market environment really challenging,” said Emily Roland, co-chief investment strategist at John Hancock Investment Management.

Ms. Roland recommends investors favor stock sectors like technology and health care that can maintain healthy profit margins in a slowing economic environment. She also likes safer areas of the market with stable earnings and healthy dividends, such as shares of consumer-staples companies and utilities.

After climbing alongside the S&P 500 last week, the Dow Jones Industrial Average and tech-laden Nasdaq Composite are 1.5% and 1%, respectively, below their July highs.

Despite the market’s recent lull, some investors actually see muted sentiment and the relative strength of the U.S. economy as reasons for hope. Past stretches of muted market moves have often been followed by sharp rallies when interest rates decline and economic growth stays positive, these analysts argue.

“The fact that everyone seems to be looking for holes in the market and looking for reasons for it to go down gets us excited,” said Nancy Prial, senior portfolio manager at Essex Investment Management, which focuses on small-capitalization companies that have trailed the broader market in recent months. “We are optimistic that this is setting us up for a rally to fresh highs.”

“The U.S. economy is one of the best in the world right now,” Ms. Prial added. “Even though it has slowed modestly, it is still very, very strong.”

FT : Federal Reserve faces decision whether to signal pause to rate cuts

Federal Reserve faces decision whether to signal pause to rate cuts
Jay Powell expected to announce another ‘insurance’ cut this week

The Federal Reserve faces the thorny decision of whether to signal an interruption to its monetary easing after it delivers what is widely expected to be a third consecutive cut to its main interest rate this week. 

Jay Powell, the Fed chairman, has described the rate-cutting drive he has overseen since July as a limited “mid-cycle adjustment” to insulate a resilient American economy from the impact of President Donald Trump’s trade wars and the global slowdown. 

If the Federal Open Market Committee presses ahead with a new rate reduction on Wednesday afternoon, it will have already notched up 75 basis points of monetary stimulus this year — and to some economists and Fed officials that should be sufficient to accomplish the goal. 

“I think they will end up cutting another 25 basis points [this week] and then pause for the rest of this year,” said Scott Anderson, chief economist at Bank of the West. 

But a drumbeat of relatively soft economic data, and fears of a negative market reaction, could make Mr Powell and other Fed policymakers wary of indicating that this round of “insurance” cuts is already over. A new truce in the US-China trade war is only tentative. Even if it is signed by Mr Trump and Xi Jinping, China’s president, in Chile next month, many of the tariffs and the tensions in transpacific trade are set to linger. 

“The Fed runs the risk of an unnecessary tightening of financial conditions. We are hopeful that Chair Powell avoids such a mistake,” said Joe Lavorgna, chief economist for the Americas at Natixis in New York. 

All eyes on Wednesday will be on whether the FOMC statement changes it pledge to “act as appropriate to sustain the expansion” — an indicator of future rate cuts — to wording that appears less committed to further easing. 

“Keeping the forward guidance as is is the path of least resistance. If they take it out they are being unintentionally hawkish,” said Michelle Meyer, an economist at Bank of America Merrill Lynch. “The data now is softening so I think they have to give some nod in that direction.”

Mr Powell’s comments at the subsequent press conference will also be key. The Fed chairman has faced a growing divide on the FOMC about the wisdom of interest rate cuts, as well as their timing, and that split risks widening in the coming months as the central bank decides whether to plough ahead with rate cuts or stand pat.

There could be some loss of credibility for the Fed, if having indicated that it was committed to a limited phase of monetary easing, it looked set to move well beyond that into a full-blown easing cycle. “We expect a slightly hawkish tone, with Powell alluding to a baseline of unchanged policy but emphasising data-dependence and the ability to respond quickly if the outlook deteriorates,” Spencer Hill, an economist at Goldman Sachs, wrote in a note called “3 and out?”.

“[The Fed] is not ready with a new framework to keep cutting rates to spur inflation, but there is not enough basis in the existing framework to act aggressively,” said Anne Mathias, global rates and FX strategist at Vanguard. 

So far, the US economy appears far from sliding towards recession. The Atlanta Fed is forecasting that US gross domestic product rose at an annual rate of 1.8 per cent in the third quarter, a tick lower than the 2 per cent pace in the previous three months of the year. The IMF is predicting growth of 2.4 per cent this year, and 2.1 per cent in 2020. Job growth has slowed, manufacturing data have been soft and inflation expectations have moved down, but consumers have remained fairly strong and confident.

Fed officials may claim that they have successfully staved off a deeper slowdown this year, yet the global picture, which is mostly beyond their control, still looks very murky. 

“We don’t really know what is going to happen with the trade war, we don’t know what is going to happen with Brexit, and there are tensions with Russia, North Korea and in the Middle East,” said Chris Iggo, chief investment officer of fixed income at AXA Investment Managers. “I’m willing to believe it’s a mid-cycle adjustment, but part of that is conditional on some of these geopolitical risks being resolved.”

Meanwhile, Mr Trump has continued to ramp up the pressure on them to continue cutting rates, and a presidential backlash is likely if the US central bank offers any hint of a break. This week, he accused the Fed of being “derelict in its duties” if it did not lower rates and stimulate the economy, setting Mr Powell as a scapegoat if growth does falter as he heads into the 2020 presidential election campaign.

FT : Fund management needs more better Woodfords, not fewer

Fund management needs more better Woodfords, not fewer
Less momentum investing would benefit everyone

Last week saw the forced closure of Neil Woodford’s high-profile fund management business in Britain. At the same time, in the US, money managers were marking the passing of one of the founders of the index-tracking movement: William Fouse, creator of the world’s first passive fund in 1971.

While very different in their styles, both were big names in their chosen business. Woodford was a celebrity, a Porsche-driving stock picker who courted media attention and once ran £32bn of savers’ money.

Fouse was the opposite, being unassuming and studious. But he was far more influential. Not only did the business he co-founded — Mellon Capital Management — end up running a cool $521bn; but the ideas he promoted about efficient markets and capital asset pricing transformed the fund business. Passive equity funds now account for 43 per cent of all investment fund assets in the US and 30 per cent in the UK, having doubled their share over the past decade.

It’s a trend that doubtless will be strengthened by the implosion of Woodford’s operation. Savers have long bridled at the relatively high cost of active funds and the indifferent performance they provide.

Going passive may seem a rational response to the difficulty of knowing in advance whether a stock picker’s skill is worth paying for. But it also begs a big question. Does the market structure we have really advance savers’ interests as a whole?

The answer lies buried deep in the dynamics of the industry. Fund management’s mighty growth over the past 60 years has depended critically on savers’ willingness to delegate control of their investments. In return, those savers need a method of keeping tabs on what is going on. The system that has evolved involves benchmarking against an appropriate stock index. Managers that outperform get more money; those who undershoot get the chop.

Now consider the perverse effect this mechanism has on equity markets. For instance, take a situation where a sector starts rising, in which our manager is underweight.

Whatever their view of the fundamentals, they cannot afford to underperform the benchmark. Which means they are forced to buy at the new higher prices. Meanwhile those fortunate funds that were already overweight have no incentive to sell. Prices get squeezed up further. (Interestingly, this issue is more pronounced on the upside, as when shares fall in value the “weighting” problem shrinks with them).

In extremis, this “momentum” effect can lead to the sort of madness that occurred in the dotcom boom, when benchmark-hugging fund managers were sucked wholesale into worthless tech stocks. But the underlying effect is, while less dramatic, no less pernicious, leading fund managers to herd into structurally overpriced stocks. As a recent paper from Ricardo Research shows, this can even result in an inversion of risk and return, with high-risk stocks offering lower returns than low-risk ones, contrary to conventional finance theory.

So how does this all fit into the asset management market? Well, it results in a model that leans heavily on price-based momentum investing. Specialist quants (another Fouse innovation) and AI funds spot emerging spikes in prices and drive them up, sucking in conventional active fund managers, who, being late to the party, buy at higher prices. The need to sell those same stocks when prices have later fallen is what contributes to the actives’ lacklustre returns.

That’s not the only problem caused by momentum. The widespread mispricing of assets that results carries undesirable social costs. For instance, it encourages corporate boards to pursue strategies that drive up short-term prices, and can also, in the case of, say, capex reductions, prejudice the long-term success of the firm.

Fouse may be responsible for much of the innovation in fund management. But his ideas, however influential, scarcely provide a solution. Quants actively seek to benefit from momentum. Meanwhile, index-trackers, are just a cog in the process. As their goal is to avoid so-called tracking error, or index divergence, they dumbly eat what they are served. Mispricing persists.

Less momentum would benefit everyone. But how to get there? The answer, oddly enough, may lie not in fewer Woodfords, but precisely the opposite: in more of the style he imperfectly espoused. That is buying shares not on price-based strategies, but based on assessments of the asset values and expected future profits of the firms whose shares are bought. These are held for the long term, taking no account of the ebb and flow of investment funds.

So-called cash flow investing is the only real alternative to momentum. The shortcoming with Woodford was not the underlying strategy but indifferent stock picking and a fondness for unquoted shares which sat ill with his promise of instant liquidity. Long-term funds cannot offer savers instant access to their cash.

FT : H&M purges its shelves to get back on track

H&M purges its shelves to get back on track
Sleeker, more streamlined stores and improved online offerings are paying off

In a Hennes & Mauritz store in an affluent central district of Stockholm, an experiment is taking place that is crucial for the future of the Swedish purveyor of cheap chic. 

For several years, H&M has struggled with falling profitability, complaints about tired stores, and a perception that rival brands such as Zara were sharper on fashion. The refurbished Karlaplan store is one of a number of tests the world’s second-largest clothes retailer has taken to address its problems. 

The store, inside a mall, has been decluttered, with far fewer garments on display but more that appeals to the local, upmarket clientele. Menswear has been taken out so the selection focuses on women with a small kids’ section. There is a nail bar that also does hair styling at weekends and the lighting in the fitting rooms is softer. 

Anna Bergare, head of business development at H&M Lab — which works on new concepts — said that the store now had 30-40 per cent fewer items in it than before but after the refit turnover had gone up.


Maria, a 39-year-old charity worker shopping after work, said she was buying more from this H&M shop: “It’s much airier. I used to feel like they didn’t have the clothes I liked, or needed, so I went to other places.” 

It is a critical time for H&M. From the summer of 2015 until the start of this year, its shares fell by about two-thirds as investors fretted that powerful new online competitors such as Amazon and Zalando would hurt the stalwarts of the industry. 

Karl-Johan Persson, the 44-year-old chief executive, is the son of chairman and biggest owner Stefan Persson. He is also the grandson of H&M’s founder, and has been under heavy pressure for years amid rumblings from some shareholders that only his family connections have saved him. 

But in recent months there are signs that his four-pronged turnround plan is starting to bear fruit. The shares have rebounded by about two-thirds, although they are still well below their 2015 levels. 

Mr Persson, in an interview with the Financial Times, is unsparing of the mistakes that happened. “Complacency crept in and that hurt us in combination with the whole change in the market,” he says. 

There are signs that the push to sharpen its stores, its online presence and its clothes is paying off. In the third quarter, pre-tax profit jumped by a quarter to SKr5bn ($520m) while net sales rose 12 per cent to SKr63bn. 

Joacim Olsson, head of the Swedish Shareholders’ Association who has been critical of Mr Persson previously, says that the chief executive “now seems to be the right person. Above all, there is no reason to change him now when things appear to be going in the right direction; instead, the company needs some stability.” 

Mr Persson certainly seems up for the fight: “If I didn’t believe in what we’re doing then of course I would have left myself, because I care deeply about the company . . . I think a lot of good things will come out of this.” 

He has pleased shareholders by disclosing more financial information and holding a capital markets day for investors for the first time. “They are now running it more like a big, listed, company and not as a family business,” says Mr Olsson. 


A big part of H&M’s problems for many analysts was how it was being squeezed from both ends of the market — companies such as Primark were attacking it with ultra-cheap T-shirts and hooded tops while its more upmarket customers were being picked off by the likes of Zara, owned by Spain’s Inditex, which replaced H&M eight years ago as the world’s biggest fashion retailer by sales. 

Mr Persson is open about the scale of the changes in the industry. “It’s getting tougher. Some competitors, they’re not even competing with profits, they’re making losses. So it’s a completely new competitive landscape.” 

The first and perhaps biggest element of Mr Persson’s response to these challenges has been an increased focus on the clothes H&M sells and the way it sells them. H&M had seen a rising need to discount clothes in recent years with its stock levels increasing to 19 per cent of sales last year. Mr Persson says H&M is now selling more full-price clothes. 

Another big change is that H&M is opening fewer physical stores than it has for a long time. In 2016, it opened 427 more stores than it closed. This year, it is aiming for just 120, the lowest level since 2004. It is still entering new countries, but the focus is just as much on closing stores, especially where there are lots of shops already. 

Refurbishing existing stores — such as the one in Karlaplan — is vital, and is changing the company in more ways than purely the look of the stores. Ms Bergare says: “What it has sparked the most is a mentality to test a lot.”

A new store opened this week in Berlin, offering second-hand clothes, yoga classes, and vegan cosmetics. A bigger test will come in November when one of its flagship stores in Stockholm is reopened with elements from many of its recent experiments.

Online sales are increasingly important and it has been working hard on making relatively expensive things that customers take for granted — such as cheap delivery and in-store returns — work even for its cheapest products. 

Improving H&M’s technology infrastructure is the second prong of Mr Persson’s plan, but he concedes that the online focus came at the expense of the experience in its physical stores. “We still believe in physical stores. In terms of inspiration, the look and feel of the store, the amount of garments and the ease of buying to make it more frictionless, it has to improve,” he adds. 


The third element of H&M’s revival has been about improving its supply chain. As it has expanded into more countries its supply chain has struggled to keep up. Mr Persson says H&M is looking at different types of suppliers in each region, including notably the need for “speedier collections”.

The final part of the turnround was to explore new business models. The retailer has seven other brands apart from its core H&M chain. It has also made a number of venture capital investments in areas such as fintech and second-hand clothing, and is investing in finding new, more sustainable materials for garments. 

For all the pressure and the transformation, some things will not change. The retailer, where the Persson family controls more than three-quarters of the votes, may have opened up more to outside shareholders but its chief executive is clear that if there is a conflict between the short term and long term he “always” chooses the latter. 

“Especially during a tougher two to three year period like we’ve had, a long-term perspective is really important. I have a super long perspective, as does the rest of the family, and I hope many shareholders too . . . Because there is no end state in business; it’s an eternal journey,” he says.

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: Cover story says managers in Barron’s Big Money Poll are less bullish about the market than they were in the spring, and a year ago

- Cover story: Following a strong decade, “America’s money managers see trouble ahead for investors. Blame it on the market’s lofty valuation, a muddled economic outlook, or the increasingly fractious political landscape, any of which could stifle stocks’ advance in coming months”— 27% of money managers in Barron’s 2019 Big Money Poll are bullish about the market’s prospects for the next 12 months, down from 49% in the spring survey and 56% a year ago.

- Tech Trader: Backers of 5G technology say it will boost the fortunes of wireless carriers, chip makers, network-infrastructure providers, and handset makers, revolutionizing manufacturing, health care, the automotive industry, and almost everything else—but investors will have to look carefully for opportunities; chip suppliers are a good way to play the trend.

- Trader: The backdrop remains positive for stocks, especially “beaten-up value stocks,” as investor sentiment about growth improves, according to Chris Senyek, chief investment strategist at Wolfe Research.

- Profile: Charlie Wilson, portfolio co-manager of the Thornburg Developing World fund, starts by seeking firms dominant in their industries and with strong balance sheets or free-cash-flow generation, after which he mitigates volatility using a combination of stock selection, portfolio construction, and currency considerations (top 10 holdings: BABA, Tencent Holdings, Samsung Electronics, TSM, AIA Group, UN, IBN, HDFC Bank, MU).

- Interview: Ian Bremmer, founder of the Eurasia Group consultancy, talks about what he calls the GZero World, in which post–World War II institutions are rapidly losing influence, and how this geopolitical unwinding has massive implications for investors.

- Features: 1) Most strategists think that it’s too soon to shift their portfolios to account for election risks, but they also think investors shouldn’t completely ignore politics; for traders worried about headlines, the smartest move at this point is to avoid political prognostication and instead focus on actual policy; 2) Cautious on SQ: Square has long been a fintech wonder, but a drop in transaction dollars flowing through its platform is worrisome, and fixing its business is going to be more difficult than is widely acknowledged; some investors think its high valuation—which treats its like a software company instead of as a payment processor such as PYPL, V, and MA—isn’t justified; 3) Market gains and investor-friendly structures have fostered the launch of a spate of new closed-end funds, including BSTZ, NRGX, NMCO, RMM, TEAF, and FINS, but they tend to have ample fees, often averaging more than 1% annually, at a time when investors are increasingly fee-conscious.

- European Trader: Positive on TUI: Consumer uncertainty over Brexit and exposure to BA’s troubled 737 Max have taken a toll on the company, the largest travel and tourism outfit in the world, but it is well positioned to benefit from rivals’ woes, and should gain from a significant increase in customers during the holidays as competitors go out of business.

- Emerging markets: Cautious on Didi Chuxing, Ant Financial, ByteDance: China’s largest start-ups face some of the same problems as their U.S. counterparts, such as doubts about whether they will ever make money, as well as problems Silicon Valley companies don’t face, including Beijing regulators’ move to constrict the IPO pipeline and U.S. tariffs on China.

- Commodities: “Silver prices have fallen 9% from this year’s highs—an opportunity for investors to buy the metal that has outperformed gold so far this month.”

- Streetwise: The TSLA board’s statement that a potential $56B pay package was needed “to incentivize chief Elon Musk to remain a fully engaged CEO” perfectly captures the absurdity of compensation metaphysics, says Robert Teitleman—the potential award is larger than the gross domestic product of 27 nations.