The opening of H&M's first store in Ukraine. ©H&M
The opening of H&M's first store in Ukraine. ©H&M

Problems with logistics system rollout cost H&M £34m

2 October 2018

Problems rolling out a logistics system cost H&M SEK400m (£34m) and caused sales to drop in the third quarter of this year.

In its third quarter report, the firm said “intensive work” fixing the problem led to the extra outlay, while the problem caused a sales drop of 8% in affected markets.

The new system is part of H&M’s work to increase the speed of its supply chain, and was introduced in the US, France, Italy and Belgium over the spring. The firm said the problem has “largely” been resolved.

Sales in all other markets increased by 8% during the quarter, and overall the firm saw net sales for the quarter increase 9% on the previous year to SEK55.8bn (£4.8bn).

H&M started increasing investment in its supply chain in the first half of 2017 after a fall in its profits saw it drop behind its main rival Zara, owned by Inditex, which is ranked second globally by Gartner for its supply chain.

Commenting on its most recent results, Karl-Johan Persson, H&M CEO, said: “Store sales were negatively impacted by the problems that arose when we introduced new logistics systems in these markets. Intensive work to correct the problems – which have now largely been resolved – resulted in extraordinary costs of around SEK400m in the quarter.

“The new logistics systems are an essential part of our work to make our supply chain faster, more flexible and more efficient, and to continue the integration of stores and online.”

Separately, H&M has been accused of failing to act on low wages in its supply chain.

A report produced by the Clean Clothes Campaign (CCC) into factories supplying H&M said it found workers in India, Turkey and Cambodia earned less than a half of the estimated living wage in their countries, while workers in Bulgaria earned less than 10%.

It said none of the workers interviewed in Bulgaria earned the legal minimum wage, and only a portion of interviewees in India and Turkey did.

The CCC report also said it found overtime in three of the six factories it studied often exceeded the legal maximum limits – with workers forced to work overtime to earn enough to live – and that one in three women interviewed in India and two in three in Cambodia had reported fainting at work.

An H&M spokesperson told told SM the claims that a number of supplier factories were not paying the minimum wage had not been confirmed by its audits or assessment programmes.

They added H&M required all suppliers to pay employees at least the minimum wage, to keep overtime hours within legal limits and to correctly compensate employees for overtime. “We regularly follow up on our requirements and if we find any violations we take action,” the firm said.

“We respect [CCC’s] opinion and we are working towards the same vision... But we don’t share their view of the textile industry and how to best achieve progress.

“Wage levels should be defined and set by the parties on the labour market through fair negotiations between employers and workers’ representatives, not by western brands.”

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