H&M has continued to be faced with increasingly competitive markets

H&M has continued to be faced with increasingly competitive markets

Hennes & Mauritz says there is a growing understanding and demand from its customers for sustainable and ethically sourced clothing - areas the Swedish fashion retailer says it will continue to pursue.

H&M continues to be faced with increasingly competitive markets in many of its core countries, as well as facing rising input cost pressure from rising wages in Asia, which have impacted gross margin.

During the retailer's first-half earnings call this week, the company was asked what level of manufacturing wage increases it was experiencing.

CFO Jyrki Tervonen used Bangladesh as an example, pointing out that minimum wages had risen by 77% as of 1 December last year.

"Of course this is reflected in the cost, that's what we say with increased salary, cost inflation among the suppliers," he told analysts. "And of course that's part of [why] we have to pay that but we also see positive things coming out of this.

"We see that, in the long term at least, better stability and better quality and less unrest, so it's a very good thing. Sustainability is good for the people and the environment."

Last year, H&M launched its Fair Living Wage Roadmap which will ultimately enable suppliers to pay higher wages to their workers. It is one of a number of sustainability initiatives being undertaken by the group, which has also included its closed loop clothing initiative.

Sustainable importance
Tervonen stressed to analysts that product sustainability was "very, very important" to H&M, something the group takes "very seriously".

"More and more people are asking for it and it's becoming more and more important, so of course we want to be proactive.

"We see definitely that this is not short-term, this is something that's becoming more and more important and we see that more and more customers are asking for it. We also see that when we look for employees. They want to work for the good companies, so it's very important, it helps us in that perspective as well. We want to be proud of what we do."

Growth plans
Separately, H&M revealed expansion plans for this year, which will see it enter new markets such as the Philippines and India, and eight to ten new online markets including Spain, Italy and China.

H&M also said China is expected to remain one of its largest expansion markets alongside the US. The retailer now operates over 240 stores in the country, compared to 150 stores a year ago.

However, some analysts have noted that while China is H&M's most important expansion market and sales there are growing very strongly, they are not growing as strongly as the store count. 

In response, Tervonen said: "We expand very quickly so we can't just look at the numbers because a lot of the stores that you see have just opened and there is still not much revenues in the numbers.

"Secondly, of course, we started initially in the larger cities like Hong Kong and Shanghai and then we have step-by-step moved into second tiers, third tiers, four tiers et cetera. So it's a combination of many factors but sales are strong and developing very well."

This was a point reiterated by chairman Nils Vinge who said H&M was happy with the like-to-like development in China. "It's developing in a good way," he insisted.

In total, the retailer plans to open around 375 stores within its expansion target of increasing the number of stores by 10% to 15% per year. Next year it plans to expand to Peru and South Africa.