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Interview

CEO Karl-Johan Persson: "H&M can crack the code of sustainability in the fashion industry. H&M can become the Tesla of fashion"

CEO Karl-Johan Persson in conversation with stern magazine, Germany.

H&M-Chef Karl-Johan Persson drückt die Aktie der Modekette schon mal mit einem Statement nach unten. Warum auch nicht – er will schließlich nicht verkaufen.

Karl-Johan Persson

Mr Persson, can you sew on a button?

I’ve never tried before. I don’t think so.

That’s a surprising answer for the boss of the world’s second-largest fashion chain.

I always answer as openly and honestly as I can.

Then let’s start with the most delicate question. Why is H&M in such a mess?

I wouldn’t call it a mess...

Customers no longer go into H&M stores as often, sales and profits are falling, and H&M shares have lost almost half of their value since the end of 2016. That’s a mess, isn’t it?

We did not live up to our expectations. As you can imagine, I’m not happy about it. Online business has been good. But in our physical H&M-shops, it wasn’t good enough.

What went wrong?

We should have presented the goods better. Customers could not immediately find what they were looking for. Trying things on wasn’t convenient enough, sometimes the right help and advice was lacking in the shop. The offer mix wasn’t right. We made mistakes.

Why did you lose the thread, so to speak?

We were probably too complacent and smug. It happened, and I will make sure it doesn’t happen again. It was a wake-up call.

It is said in the industry that your warehouses are too full and you do not know exactly what is on the shelves and what has already been sold. Is that true?

We have a rough idea, but we don’t know exactly. That too will soon change. We’re going to start working with RFID. Do you know what that is?

There is a small chip in every piece of clothing that reports the exact location via radio frequency.

In the future, we will also be able to tell the customer in which branch the item they want is hanging, or we’ll send it from the central warehouse or the nearest branch to the customer’s home.

When will you be finished with the clean-up operation?

That’s not possible in such a large company overnight. We employ 171,000 people. H&M operates 4700 stores in 69 countries around the world. We’re currently in an intensive testing phase, and the new concepts are being well received by our customers. We’re changing the setups and putting less merchandise on the stands. And we are working hard to integrate our physical and online stores.

Here in Stockholm, right next to your headquarters, there is a café in the H&M shop that looks like a large living room with blue sofas and palm trees. Is that how you want to save H&M?

We give our customers an additional reason to come to us. Have you ever been there?

Yes.

Did you like it?

Very nice.

Was it full?

Quite.

That pleases me.

We also visited the H&M branch in Östermalm, the richest part of Stockholm. There, H&M looks like a high-end boutique. Is that in keeping with the brand?

Yes, customers should be able to enjoy a luxury feel. If the tests go well, we’ll also be redesigning the stores from 2019 onwards, including stores in Germany.

H&M recently made negative headlines worldwide with a black boy in a sweater that had the print “The coolest monkey in the jungle”....

 ...it was a mistake. There was no intention behind it. If you look at it in a kindly way, you’d see that the people behind it, it didn’t even occur to them that the black boy in a sweater with that print on it could be racist. But of course, as a global company we have to be sensitive when it comes to these issues. It happened, I’m sorry.

 Did you sack the people in charge?

No.

Why not?

Do you think it’s right to fire someone if they made a mistake? There was no malicious intent behind it. I don’t fire someone like that.

H&M is present on all continents. Something can go wrong every day. Do you sleep well while your company never sleeps?

I sleep well. But I think a lot about the company, day and night, she won’t let me go. 99 per cent of the time, however, they are positive thoughts.

Your business is fast fashion. The balance sheets tell us that profits are still very high, even though they are shrinking. H&M achieved around 1.7 billion Euros (after tax) in 2017.

That is, of course, why new suppliers are also constantly pushing their way onto the market.

H&M was once the world’s largest fashion chain, and now Zara, which belongs to the Spanish Inditex Group, is in first place and you’re in second place. How are you going to become the biggest again?

That’s not our goal. We want to grow with new brands such as COS, Weekday, Arket or with new online shopping platforms.

In the history of great economic dynasties, the thread of success often snaps in the third generation. They say: the first generation is about building up, the second is about expanding, and the third is about dismantling. You’re the third generation.

Managing H&M would be a challenge for everyone. I have been CEO since 2009. It was fantastic until 2015 and if we meet again in two or three years’ time, the world of H&M will look a lot better again.

Your family’s worth billions. It owns just above 40 per cent of H&M share capital and above 70 per cent oft he votes. The Persson clan is one of the richest families in Sweden. Yesterday, the share price fell by five per cent. When you’re sitting round the table with the family in the evening, does anyone ever say, damn Karl-Johan, we’re 500 million euros poorer today?

As a family, we don’t look at the stock market value of the company every day. Our outlook isn’t time-limited. We have no intention of selling shares. Stock markets go up and down, that doesn’t bother us. What worries me is that we have not been able to meet expectations over the past two years. I’m disappointed about that.

Your father is the head of the H&M supervisory board. Do you sometimes get grief at home about which is the right course to take?

We agree on the course to take as a family. We have a good father-son relationship and our cooperation in the company is professional. He is the head of the Supervisory Board, and I am CEO (Chair of the Executive Board) and therefore responsible for the operational business. We speak frankly, and he doesn’t give me any special treatment just because I’m his son.

H&M has been regarded as “secret and powerful”. You live very quietly, no parties, no affairs, no stories about your home life. Why are you so secretive?

I present our results four times a year. So I do talk to financial journalists. But I don’t talk to them as long as I’m talking to you today.

You can’t even be found on Facebook or Instagram. As the head of a global fashion chain, can you afford to be absent from social media?

Yes, that’s what I want.

Are your children online?

Yes. My wife and I keep a close eye on them.

How old are your children?

14, 9 and 4

Do you expect your children to follow in the footsteps of their great-grandfather, grandfather and father and work for H&M as managers?

No, not at all. My wife and I aren’t putting any pressure on them.

What was it like for you?

I wasn’t forced either. It’s just what happened. I worked in H&M branches on weekends and during holidays...

But that was only when your dream of becoming a tennis pro fell through?

Right. As a teenager, I lost badly to the later professional tennis player Thomas Johansson. That’s when I realised what my limits were in sports. I studied economics in London, set up an event company there and then worked in various positions at H&M.

Your wife went to school with Crown Princess Victoria. Are you friends?

Yes, we know each other well.

Victoria wore an H&M dress for her sister Madeleine’s wedding. Did you ask her to do it?

I would never ask her to do that. She liked the dress, she is Swedish, she wears Swedish brands and H&M is one of them. She especially likes the clothes from our collection of sustainable fashion. And she looks good in it.

Do you still pay your taxes in Sweden?

Yes, why do you ask? I live in Sweden, after all.

Other super-rich people like Ikea founder Kamprad have moved their domicile abroad where the tax conditions are more favourable. Do you think it’s good to pay high taxes?

Yes. I like the Swedish model. It’s similar to how it works for you in Germany. I believe that these social systems are superior in the long term, they are more stable and better for people. There is a social safety net for everyone and for that we need to pay taxes. I think that’s a good thing.

How do you explain to your children why they’re so rich?

Our 14-year-old, Ian, understands what the world is like. He knows that we are fortunate as a family in many ways. We are healthy, we live well, we go on wonderful trips and we stay in beautiful hotels. He knows we’re doing unusually well.

Does he ask why textile workers in Bangladesh or Cambodia earn so little?

Yes, we talk about it. The contexts surrounding it are complicated. I explain as best I can.

What do you say?

I tell him that I am convinced that the only way to get these countries and millions of people out of poverty is to create as many jobs as possible in these countries. Jobs are the only way out of poverty. Bangladesh is on the right track. Wages are rising and prosperity, however modest it may be, is also rising.

Does H&M pay fair wages?

It is in our interest to pay fair wages. We take our responsibility seriously. We place orders with companies that do not belong to us, but we make sure that the standards are adhered to as far as possible.

Raw materials are becoming more expensive, and wages are also rising only slowly, but people constantly want T-shirts, shirts and trousers at ever cheaper prices. Who will pay the price in the end?

Profits are shrinking. This is something that is being felt by the entire textile industry.

And this increases the risk of workers and children being exploited in textile factories.

Not those who work for H&M. Not as far as we’re concerned

H&M is being accused of making clothes in Chinese prisons.

We take the information [published by the Financial Times] very seriously. H&M does not accept prison labour. It seriously violates the contract we have with our suppliers. We are investigating this now, together with our China-based team.

Many customers would like to know whether a garment has been produced under fair conditions when they purchase it. How long will it take before H&M can offer consumers a credible, reliable label that makes it clear at a glance whether production was fair?

I hope very soon.

How soon?

In a few years. I am putting my hopes on the Higg Index*. With Higg, consumers receive a label with a score on every garment. This enables you to see precisely whether fair wages have been paid, whether it was produced in an environmentally-friendly way or whether it is 100 per cent environmentally neutral. So, if you look at your white shirt and it has a Higg score of 80, then you’ll know it’s OK, but not yet optimal. If the garment scores 100 points, customers will know that everything is fine, they can buy and wear this item with a good conscience and the best feeling.

We would very much like to believe that that will happen.

It will happen. We’ve come a long way. The more manufacturers that join in, the harder it is for everyone to avoid. The good thing about it is that it puts pressure on everyone to join in. And when everyone is involved, all of them want to be at forefront.

Are Primark and other cheaper manufacturers also on board?

I don’t talk about other companies.

Can business with fast, affordable fashion be sustainable at all?

We have already integrated sustainability into our entire production process in a very conscientious way. Our goal is to fully close the loop in fashion. That would be great. We want to bring all textile fibres back into the production process.

What you’re announcing there is what, a hope, a promise – what exactly is it?

It is our goal. I’m not promising you anything here just for the sake of saying something nice. It’ll happen. We have a goal and we have a plan for it. We already collect thousands of tonnes of old H&M clothes today. We are one of the world’s largest buyers of sustainable raw materials in the industry. We invest a lot of money in new technologies that allow us to recycle and reuse textile fibres. Some of them are very, very promising.

How will it work?

For competition reasons I have to be careful here. We have made three major investments in technologies for recovering textile fibres. Cotton and polyester, for example. The idea is that we can use these fibres from old garments to obtain new fibres for new clothes.

How far are you from that goal?

It looks very promising. If we succeed in producing clothes of the same quality at the same price from recycled material, then we will have closed the circle and no longer need new raw materials. Then we can constantly produce new products and recycle them. That would be fantastic. It’s going to happen.

It would be the perfect business model for the fast fashion industry. You can fuel consumption and no one needs to have a bad conscience about it. You can sell endlessly and keep making money.

Yes, a model without negative effects on our planet. It’s possible.

Environmental organisations accuse H&M of “greenwashing”. They collect old clothes, give a shopping voucher in return and continue to fuel consumption.

Greenwashing means we just talk and do nothing. We do a lot of things. That’s why the accusation isn’t true at all. Maybe we’ve been a little too quiet about it in the past. The facts are there to see in our sustainability report. That counts.

Have you already been behind the wheel of a Tesla?

I think the idea is very good. Zero emissions, that’s great.

 Would you like to be like Elon Musk?

He’s a fantastic guy. I don’t know him personally. But I admire him for his visionary force. For his electric cars and the battery technology, they’re astounding.

And now you want to become the Elon Musk of the fast fashion business?

Not me, but our company H&M has the potential to do so. We’re already a leader in our industry. I don’t want to compare myself to Elon Musk, he is totally unique, but H&M can crack the code of sustainability in the fashion industry. H&M can become the Tesla of fashion.

When it comes to this radical change, does it help that H&M is firmly in family hands?

Yes. The long-term perspective is central to these decisions. We want to achieve this vision. It’s the right way forward.

Thank you for the interview!

 Interview by Norbert Hoefler and Cathrin Wißmann, stern magazine

 *(The Higg Index measures whether and how sustainable and fair production processes are in the textile industry. Around 200 companies, associations and NGOs are involved. German participants include, e.g. the Otto Group and Adidas)