Swedish fashion retailer H&M announced it is cutting 1,500 jobs due to reduced demand as consumers struggle with high inflation and cost-of-living.

Swedish fashion retailer H&M announced it is cutting 1,500 jobs due to reduced demand as consumers struggle with high inflation and cost-of-living. The world’s number two fashion company is the first major European retailer to make a move, reacting to challenging economic circumstances. H&M employs approximately 155,000 people, and the cuts are part of a plan launched in September to save 2 billion Swedish crowns (SEK) per year ($177 million). H&M’s share price was up +0.78% to 118.54 SEK as of this morning.

The announcement comes as the company faced a weaker than expected Q3 performance. Their Q3 pre-tax profit was 689 million SEK, much lower than the forecasted 2.98 billion SEK. Even though September sales were up 7% year on year, H&M paid a one-off 2.1 billion crown cost to close up business in Russia in July, and this accounted for about half of the profit drop. The company hopes that the savings will kick in from Q2 next year, while it will take a restructuring charge of 800 million crowns ($75.80 million) in the fourth quarter. Most of the cuts are to be made in Sweden. Other parts of the savings plan include buying fewer tech services, less business travel and lower office rents.

Speaking to Reuters, H&M's investor relations head Nils Vinge said, “We are in a big transition and the whole retail industry is facing a lot of challenges. It's very clear that when consumers have paid for their food ... energy, gas, and so on there is less to spend. So what is obvious is that demand for value for money increases.”

Meanwhile, British fashion retailer Primark has announced plans to invest 100 million euros to open new stores and refurbish existing ones in Spain. Spain is the company’s second largest market after Britain. The retailer, owned by Associated British Foods, plans to open eight new stores throughout Spain, including in Lanzarote and Melilla. As part of this plan, the company will add 1,000 new employees over the next two years. Associated British Foods PLC’s share price was up +0.19% to 1,588 GBP as of this morning.

Despite many other high street retailers struggling due to rising production costs and high inflation, Primark has steadily expanded over the years as the budget price retailer. Primark has said it will hold prices steady despite rising inflation, but did acknowledge that rising input cost will hit its results in the new financial year.

UK retailers attempted to generate higher sales this weekend through Black Friday and Cyber Monday sales. On Monday, New Look was offering 50% discounts on all products, ASOS up to 80% off, and Boohoo 30% off everything. Marks & Spencers, Matalan and River Island were in the 20-30% price cut range. UK shopping destinations recorded a 4.2% year on year uplift in the number of visitors in the week to Saturday 26th November, including Black Friday. But the number of visitors remained 14% down on pre-pandemic levels, highlighting that physical footfall of shoppers is still yet to fully bounce back.

The Confederation of British Industry (CBI) said retailers were “feeling the chill” with sales going into reverse this month and a similar level of decline is expected in December despite an increase in October. CBI’s headline retail sales balance (which marks the difference between the percentage of retailers reporting an increase in sales and those reporting a decrease) fell to -19% in November from +18% last month, and is forecast to slide to -21% in December. According to the Guardian, CBI’s principal economist Martin Sartorius said the results of the survey underline what a tough time it is for the retail sector. He added, “It’s not surprising that retailers are feeling the chill as the UK continues to be buffeted by economic headwinds. Sales volumes fell at a firm pace in the year to November, and retailers remain notably downbeat about their future business prospects. This pessimism is reflected in investment intentions worsening to the greatest extent since May 2020.”

As of this morning, other major retailer shares stand at:

• ASOS: 617.50 GBX (+1.06%)

• Boohoo: 41.45 GBX (+4.02%)

• Marks & Spencers: 119.80 GBX (-2.16%)

• Next: 5,824.00 GBX (+1.46%)

(Sources: Reuters, The Guardian, London South East)