Can H&M Prove Sustainability is a Growth Engine?

0:07Hello and welcome to The Debrief from the Business of Fashion, where each week we delve into our most popular BF professional stories with the correspondents who created them. I'm Executive Editor Brian Baskin. And I'm Senior Correspondent Sheena Butler-Young. When H &M unveiled its latest financial results alongside its annual sustainability report in March, it was a tale of two narratives. On one hand, the company reported a 34.6 % reduction in emissions from 2019 levels, and it said 91 % of its materials are now recycled or sustainably resourced. On the other, sales dipped 1%, even as operating profits rose and gross margins improved.

0:45We've seen a lot of companies in this situation back away from the sustainability messaging so they can focus on the bottom line. But H &M is arguing these two stories aren't intention. H &M is actually positioning sustainability as a core driver of growth. Their message is that this isn't just about doing less harm to the planet. It's about building a better and more profitable business, too. It's a bold claim for a company operating at H &M scale, but the real question is whether that strategy can translate beyond internal metrics and actually resonate with the customers buying its clothes. Today, we're joined by BOF reporter Shiza Waleed, who sat down with H &M CEO Daniel Hervear and Chief Sustainability Officer Leila Artur to unpack H &M's big bet and whether the idea that sustainability is good for business can truly hold up.

1:32Shiza, welcome to The Debrief. Thanks for having me back, guys. I think before we dig in here, we should probably make clear that sustainability is not something new for H &M. I mean, they've been talking this way for a very long time. Yeah, no, absolutely. I think their first sustainability report goes back to 2002. The companies kind of always had sustainability embedded in what it stands for and what its kind of core is. And that's what they will also push out. When I went to Stockholm this time to report on the sustainability report that came out, One of the things that I repeatedly heard was that the founders of the company, how much they care about sustainability and that's really ingrained in the business.

2:09And I don't know if I've heard any other company talk about it so much. And the founders being so involved even today because H &M, as you know, is a publicly listed company. But they say that that's what really propels them to think in this way and continue to make the level of investments that they do and really push forward with it. So, yes, H &M will say that they have been talking about sustainability and being about sustainability from the very beginning. But can you kind of help us understand what sustainability meant decades ago when they first started talking about it and what it means today?

2:40I think way back then it was something much more conceptual about maybe doing some good for the planet, but it wasn't formalized in the actual business and in the planning and the reporting actually way more recently. I think they started formalizing it after speaking to a couple of people there around the late 2010s, post the Paris Agreement. And then they really formalized it with the sign-based target initiative, where they set their current emission goals in 2019. And that was done in the last five to six years. So I think they're very aware that even when they say that, you know, this has been part of the company's core for more than 15, 16 years, it's something that's much more recent that they can actually show that this is something that we do and stand by and control results for.

3:21Although I'm sure there's a lot of people listening to this and saying, wait a minute, isn't H &M fast fashion? I mean, how does this, everything we've been talking about fit into fast fashion? I think that's one of the things that surprisingly, I didn't get much out of the chief executive of the company, Daniel Erver, and the chief sustainability officer, Leila Artur, who I spoke to. I mean, we spoke a lot about kind of messaging and where the company's at and also its results, which I'm sure we'll get to. But one of the things that is, you know, a big question for many people, including those of us who report on it, is like the entire system of fast fashion and fashion in general is contradictory to climate action.

4:00You're overproducing and you want to reduce emissions at the same time, but then you also want to scale up and do it at the same time. So I think the justification and the argument they put forth is they want to, quote unquote, decouple growth from their environmental impact. They want to show that you can be a growing company, but you can also be profitable and also take care of the people in your supply chain and reduce your environmental impact. And I think there is a contention there because when we posted this article and it was out on social media, we got a lot of comments, which I went through on, you know, it doesn't release its overproduction numbers, even if it's one of the most transparent companies out there and putting so much money into decarbonization and its sustainability goals compared to any other player in the market.

4:39I'm sure our listeners are also asking the question, like there's a Zara fast fashion and then there's a Shein Temu fast fashion. How would you, where would you place H &M on that spectrum? Because it's not Shein. And also, I don't know from production standpoint, but like from perception standpoint, it's not Zara with those high fashion collabs, et cetera. At least not as many. Where does it sit in terms of sustainability, good actor, bad actor, as far as you can describe it? I think in terms of being a sustainability good actor bad actor I'd say H &M is pretty above Zara even if in terms of the product quality and what we perceive it as is probably sitting in between the two that you're mentioning Sheena like Shein and Zara but there's been this huge attempt to elevate and elevate their brand positioning to kind of you know tackle this competition and also position themselves away from Shein but also compete with Zara at a level that people can perceive it I think their Stella McCartney collab is a very good example of that they just did that announced it in December.

5:37And now they're doing this thing called the Insights Board, where they're trying to merge sustainability and elevation together by having her. And they also, at this meeting that I went to in Stockholm, they also talked about their Karl Lagerfeld collab, which was back in 2004, 2005. And they really, you know, pushed that as an idea that we've always kind of been this brand that cares about fashion, but affordability and accessibility at the same time. We don't think you have to give one up to do the other. And so I think there's definitely a push and a try for them to revive that idea in people's head that it's not just fast fashion.

6:06And your last comment there implies that maybe they've lost some of that and they're searching for their identity. Is that fair to say? Yes, I think so. And I think both Daniel and Leila definitely alluded to that, that they haven't really mastered or perfected what they're perceived as today and rather what they want to be perceived as today in shoppers' minds. Do we think it's working? I mean, has H &M made progress in reestablishing its identity, you know, independent of all these other fast fashion competitors? I think one of the things that it's important for people to remember is that when we say H &M, I think people are thinking of H &M, the brand.

6:43When H &M talks about itself, they're talking about H &M, the whole conglomerate. They're talking about cost. They're talking about weekday. And cost is kind of more of a competitor to your Massimo Dutti, which falls under Inditex, which owns Zara as well. And I think that it's really interesting because when people are going to a brand like Kost, they're not thinking, oh, I'm buying H &M. Oftentimes they're thinking, oh, I'm buying Kost, kind of elevated its workwear. But when we mention H &M because they have this namesake title, everyone's just thinking about the red logo H &M. It's fast fashion, it's quick.

7:13I can buy something cheap for a better occasion. So I don't know if the brand itself, like alone, H &M has done a good job of changing its position and changing its perception in customers' eyes. But I think them as a company, as a retailer, they definitely know which brands work better as an elevated offering for consumers and which don't. I think their aim now is to have multiple of those brands kind of do that same functioning to show that they're all clean and green. And how can we get consumers to connect with that element of our work as well? Well, sure. But I mean, H &M is the vast majority of their sales, I assume.

7:45And that's the real like make or break cause for them is to figure out how to revive growth there. I mean, as Gina said in the intro, you know, sales were down 1 % in the most recent quarter. I mean, it hasn't been going great for a while. And I guess my question for you is, is sustainability a potential path out? I mean, can they get consumers to care again about whether a brand is sustainable, especially if that brand is known for selling really, really cheap clothing? Yeah, I think you're absolutely on the money there, Brian, in the sense that, you know, they're not doing really well. and the fact that H &M brand is definitely the largest portion of their moneymaker.

8:23And I think they know, and they've mentioned this multiple times, that sustainability is not going to be the marketing play for them to win over customers and make more money. But what they do want to do is position that as a quality sale for customers, saying that we're using recycled materials. People care about wellness nowadays. We're using, you know, natural materials that are sourced sustainably. and this year in their report one of the big shining kind of numbers was the fact that 91 % of their materials are sustainable and 100 % of their polyester is recycled yes it's recycled bottles and not the recycled textile polyester that's still kind of scaling up in innovation but that's one of the things that they mentioned and their chief sustainability officer in particular Layla she talked about how that's a brand positioning and differentiation aspect of it and one of my favorite things they said that you know our customers don't care about our scope three emissions going down, which they've, you know, obviously reduced significantly.

9:17They don't care about our water use for the fact that we're off coal boilers now a majority. What they care about is what they're buying. So I think what they're trying to do is use sustainability as a quality proposition more than the fact that they're doing, quote unquote, better for the planet. Is there a risk? I was reading your story and the first thing I thought about, obviously, is diversity and sort of what's happening here in the U.S. with the Trump administration generally generally being against ESG tilts at companies, not liking to see it. And at the same time, in the EU, there's like more regulation coming around companies needing to be, at least put their money where their mouth is.

9:52You can't greenwash essentially. Where would you put these efforts in terms of the tension between both those sides? In the US, it looks like you're maybe putting yourself out there and something that is not in favor of the current administration. And then in the EU, you could be getting ahead of something. Where would you put H &M on those two sides? So H &M actually has a very strong point of view when it comes to this, like the regulatory landscape, the geopolitical pressures that it faces today. And, you know, Daniel Ever, like he said that, you know, he doesn't think that H &M is doing the sustainability thing more so now or less now because of these pressures.

10:26And it's something that was echoed by a number of people in the company is that they're the kind of company that's going to stick to whatever they do, because if they keep on changing and shifting to like geopolitics and economics all the time when it comes to their targets they're not going to get anything done so they said that their long-term vision is really what they stick to and you know daniel very clearly said that you know we have these long-term beliefs that then those don't change and regardless of what's happening in the world and i found that to be you know very direct to the fact that you know they're not going to change their plans too much because they feel like that takes away from their real mission is and I think H &M is also one of the companies that has like a government public facing team that kind of works to figure out what would be the best way to position them and push policy or even water down policy, you know, in certain cases, if that's what's happened to kind of ensure that what they have in mind gets done.

11:15Although it also helps that they're based in Sweden where this stuff really still plays instead of, you know, the US where they'd maybe be more vulnerable. Yeah, absolutely. I think the fact that they're in a country where you have certain legislative pressures and regulatory pressures allows them to live up to them. But also, you know, you have companies in the US now that don't put out their sustainability reports. And in Europe and in Sweden, that's not something that a brand like H &M can afford to do or will ever do. Can we double down a little bit on the scale problem? So we've talked about some of the reductions that they've made in emissions and fill in the blank sustainability measures.

11:52But this is a company that is producing millions of items a year. It's that sort of the elephant in the room. Like, can it really be sustainable? Like, it's still putting out a lot of stuff. I think your story mentions also the resale element of this, but what does this actually look like? What's the real deal here for a company that's basically selling millions of things a year? I think that's really goes to the crux of the issue, right? It's like we have a company trying to market and position itself a certain way when the reality is it is just keeping on growing and keeping on producing garments and apparel more than many.

12:28It's like a majority player in the apparel industry. And that's something that, you know, you're not able to get from them because they know that's totally where the problem lies. They're not addressing the overconsumption and overproduction problem in fashion. But didn't he say, he mentioned, I thought it was interesting, like, I think jobs and other ways that they like, that the sustainability is sort of like, I think, as a lot of proponents see it in like a bucket and like, oh, we should, you should do the right thing. But yet this is a business that employs thousands of people. So there's also that contribution, if you will.

13:01Right. Yeah. And I think that's what Daniel really got to a lot. He gave this answer, which was like, you have to look at both sides of this problem, which is that, you know, we're doing a lot, but at the same time, we're employing people. There's developments we're making in certain countries. You know, they gave the example of Bangladesh, where they've actually pushed for legislation to enable renewable energy and decarbonization efforts, which have not been possible without H &M's investments and pushing on the policy end. And so there is this idea that, the work they're doing is having positive externalities just beyond the fact that it's for their consumers or a company's, I guess, carbon footprint.

13:36That being said, I think they will obviously say, because they don't want to answer certain questions, that they're not a perfect company and there's still a long way to go and they take on responsibility and that's kind of what they can do the best so that that can have a positive impact and they will go back to the fact that you know they're showing that they're reducing emissions and growing at the same time but they'll never really say how much they're growing in terms of their production capacity right so I think as someone like sitting on the outside unless they answer that question they're maybe not really getting to the core of sustainability but I wouldn't take away the credit from them in terms of the amount of work they're doing when so many companies are not even doing that.

14:13So I think there is, you kind of position them as not black and white, but somewhere in that gray area.

14:22We'll be back with more of The Debrief right after this.

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16:49Let's pivot and talk more directly about, you know, how the company's performing generally, you know, independent sustainability and, and, and that, you know, those sales, which just seem year after year to kind of hold pretty steady, like they've just struggled to grow again. And I'm curious, what do you think they need to do to get people interested in this brand again? Yeah, I think this is something that I thought about as well before going into my interview is like, you know, what do they think? And also the versus what do I think about how this company can be revived because I reported on H &M last fall when they did their first London Fashion Week show after many years.

17:27And that was kind of a play to get in a younger generation to kind of engage with the brand in a way and see it as their go-to. They're getting celebrities like Charlie XCX a couple of years ago and really trying to merge this music and fashion element. Same with the London Fashion Week show. They got in, you know, Alex Consani. They got Romeo Beckham. They got these like really young faces to walk their runway to get people to engage with it. And I think now they also created you know this sustainability insights team but had all these young faces in it and I think that's what they're trying to do more and more now to kind of capture a younger generation in the hope of reviving their business and their sales growth you know independent of sustainability but I personally think that you will only be able to see the results of this over time I don't think people have caught traction that H &M is this young frothy fruitful brand just yet there's still some work to be done in that regard and I also think that there's no clarity in their branding as much as maybe they think they're trying to push.

18:24They're doing this music play. They're doing this young people play. They're doing the sustainability play. I think there's all these different levers they're trying to push that don't come into one. They feel like all these different buttons they're trying to push. So I think there needs to be a way that they're trying to bring that together. Maybe the Stella McCartney collab with these younger influencers who are part of it might do that. But, you know, also Stella McCartney's business is not doing that well. So this could be an argument that she's also latching on to this. Like, you know, there's definitely some food for thought there as well as to why this collaboration even exists.

18:54Yeah, she's not Galeano. I mean, the contrast between the response to that, which I don't know that I heard all that much about, and Zara collaborating with Galeano, I think really says it all about where these two brands are. Another question I have is about the stores, which seems like another big part of the story here. I mean, they have so many stores all over the world and they were all built for that previous generation of H &M customer. And that seems like a monumental undertaking to refresh the brand when you have that kind of physical retail footprint. And it must, I'm curious, did that come up at all in your conversation?

19:30And are they making progress in the literal face that they're presenting to their customers? So they are revamping some of their stores. And that did come up with not in my conversation with Leila and Daniel, but lots of other people that I spoke on during the event. But instead of talking about stores, the thing that Daniel and Leila spoke lots about was their online resale platform and really trying to push that and how that's one of the things that is working, is getting a lot of traction. It went from 0.7 % of their business to 0.8 % of their business, which for a business of their scale is in the millions.

20:03And they were trying to say that that's kind of one of the ways that people can work around and get engaged with our brand and see that we're changing ourselves. Because it's not a peer-to-peer resale platform. It's called Selpy. And they spoke about that and tried to push that a lot during our conversation, which I found fascinating, which kind of, to me, felt like they were signaling that, you know, they do want to have this online POV in people's eyes. more than just being this brick and mortar store that you can see around Oxford Street in London or also in New York and also in Hong Kong or Paris.

20:32You should also acknowledge that Selphie had its own little bit of controversy that you touched on in the story that it hasn't always been clean business over there either. There was like some controversy, right? Or allegedly. Yeah, they had this alleged controversy based on this German TV investigation that clothes that were handed to Selphie and sold to a resaler ended up in a dumping ground in Chile. And basically you have these tracking devices that you can put with the clothes. And I think the investigative team basically tracked those devices and they found that it was in this kind of dumping area in Chile.

21:07And there was not any response in terms of if this happened, if it doesn't happen, the response I kind of got like, you know, that the resale market and that this entire peer-to-peer or non-peer-to-peer resale system is something that's still new to fashion, that it's something that's not been perfected. And it's something that, you know, they're also trying to grasp as a business, but it's definitely something that they're looking to double down on and make, you know, see grow and also, I guess, promote more going forward. In your story, I saw that H &M, what came through really strongly is that they're trying to position themselves as a leader, that they're going to create this playbook for the rest of the industry and maybe fast fashion in particular in terms of how to do sustainability alongside sustainable growth.

21:50If you were looking at that playbook and maybe picking something from it to other fast fashion players that they could replicate that is actually working or the most effective thing, what would that be? You're shaking your head like there's nothing. Sorry, it's not a laughing matter. But is there something you would pull from that playbook and say that's really where the strength is? I think, realistically speaking, you can't be growing at this scale and call yourself a sustainable company, even if you are employing people, even if you're reducing your emissions and can show that you're doing it.

22:25I don't think that's what climate action particularly is. that being said i think that the level of investment h &m has done and the convening force it has been in the industry getting different brands together to to get suppliers and manufacturers in the global south where most of fashion supply chain lies in getting that updated and upgraded so it's not impacting those people as much it's you know trying to address things like factory decarbonization water use all things that actually affect global south workers Now, whether or not these workers are in H &M's mind and they care more about those emissions numbers is a different question, right?

23:00Because it's something they have to do to show that they're meeting their targets. But it is happening as a consequence of that. And I think if fast fashion players could be as transparent as H &M and put in that money a bit more and be a convening force like they have been, that would make a big difference for the industry because these are big players with massive scale. But it seems like to me that even today, they're one of the only names that keep on popping up when you look at investments into innovation, investments into green technology, investments into like reducing water use or decarbonization.

23:31It seems like they're consistently the biggest player that shows up in those names. And it would be good to see if those other fast passion players would pitch in money for that as well to a larger level, because that is having positive implications. There's no denying that. I don't know if there's an answer to this question, but I do find it interesting that H &M is always talking, like you said, about sort of opening its innovations up to the whole industry. And now we have Shein saying we want to open our innovative supply chain up to the whole industry. And like, why is it that these giant fast fashion companies are always the ones going out there and saying, look, we can be this open source, like we're in it together company in this industry that is pretty notorious about not working together.

24:12And then it's these guys that are always out there being very kumbaya. I think the major difference here, Brian, is the fact that she is not saying it wants to work with other big players. It's telling all these smaller players like, listen, you guys don't have the capacity. Come into our belt. We'll help you. We'll get you more money. We'll make more money in the process. Whereas with H &M, it's working with brands like a bestseller, a Levi's, a Reformation to kind of improve facilities in different parts of the supply chain, whether that's in Vietnam, whether that's in Bangladesh or in Indonesia or Taiwan.

24:41I'm not trying to say that you know they're different companies into the fashion they produce but they kind of are and they also function very very differently I think the way they handle it is also very different and the way they position themselves they're trying to show that they handle it and conduct their businesses differently I think that's one of H &M's biggest thing that it doesn't want to be seen as a she-in it doesn't want to be seen as a company that's functioning with a level of mystery or they don't want to come off as they're sweeping something under the rug I think they're very mature in the relationship of with the media, but also communicating what they're doing.

25:14I think as a last question, maybe the care gap, this thing that I've seen a lot in diversity and you've probably seen a lot in sustainability. We ask consumers, do you care where your clothes are made? Do you want the workers to make a livable, decent wage and all of these things? And they, of course, say yes. And then they get to the register and they're like, oh, this is ten dollars and that's one hundred dollars. I'm going to get the ten dollar thing. It seems like H &M is basically saying we're not going to bank on convincing them to care about that specifically. But is there a path for fashion and sustainability where companies can actually bridge that gap?

25:50Do you see it? I feel like we've spoken about this before, Sheena, which is this idea that people don't act as they say on surveys. And that's something that H &M also knows really well. And I think, frankly speaking, like, yes, it is the job of corporations and companies to offer better things up at a cheaper price. So consumers don't feel like they're complicit in something that's impacting them, right? Like something like the climate crisis, something like rising water levels, or even the fact that, you know, there might be labor abuse in the supply chain and we don't want to buy stuff from that.

26:20So I think that's why H &M is trying to, you know, push resale, for example, because it's a way that consumers are acting in terms of what they're pushing out as well. But at the same time, Kat had the story come out earlier this week, which looked at, you know, all the resale is booming. Consumers are still not happy with it. There's all these kind of suboptimal experiences. And I think that's something that H &M, because it's just starting in this space as well, is also just figuring out when the biggest players haven't even figured it out. But I don't know if businesses have fully figured out, to your point, how they can get customers to do it.

26:52But I do think they hold a large part of their responsibility, but I don't think they've been getting the response from different consumers around the world because these nuances have not been fully understood by their marketing teams or their positioning teams, especially for a brand like H &M that functions like all over the world, not just in one region. My take on this is a little different than yours, I think. I take H &M, I take the leadership at their word that they care about this stuff and they're genuinely trying to do the best they can within the constraints of the kind of company they run.

27:22But I think they kind of win either way by doing this, whether they get it right or not. But like what they are succeeding in doing is making H &M feel like the nicer fast fashion company. So even if you don't care about sustainability, if you're presented with the option of Shein, which I think most people, you know, true or not, see as essentially an amoral, you know, race to the bottom company. And Zara as this elevated luxury brand in that space, you know, for lack of. But then H &M kind of has this identity as like the friendly fast fashion company as a result of all this stuff. So even if you don't care about sustainability, there's like a halo to it that I bet will benefit them in the long run.

28:08Oh, guys, I want to go to my local H &M and shop my friendly. I know, sweetie pies. I was just going to add that I do agree with Brian to a large extent in the fact that they are trying to position themselves as a more friendlier, as a more approachable, accessible brand. That's been their whole thing. They keep on saying that good quality clothes, whatever that means, shouldn't be expensive. And they also will say that even luxury, people are paying such a high price for it. Even that's not being made in a really sustainable way today. And we're out here trying to push on this and trying to make it affordable at the same time.

28:44But, you know, they're also trying to push away, Brian, to your point, from this fast fashion label. They don't want to be called fast fashion anymore. And that's something that Layla actually said, that we want to step away from that and show people these are just clothes that they can wear that are affordable and to their, in their words, high quality. All right. That's where they lose me. Well, to the group trip to H &M to get our joy back again. Shiza, thank you so much for joining us today. Thank you. Please be sure to check out Shiza's articles at businessoffashion.com. These and other stories are available to BOF professional subscribers only, and you can find the links in the episode notes.

29:22You've been listening to The Debrief, produced and edited by Olivia Davies, Angel Neboff, and Eric Bria. I'm Sheena Butler-Young. And I'm Brian Baskin. We'll be back next week with a new episode. Thanks so much for joining us and be sure to follow us wherever you get your podcasts.

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