- [Josephine] In 1947, the first H&M store opened in Sweden.

And by 2019, there were over 5,000 H&Ms around the world,

about 3000 more than its competitor Zara.

- [Interviewer] How long have you waiting

this morning in the queue?

(speaking in foreign language)

- [Josephine] It collaborated with fashion giants

like Versace, Balmain, and Karl Lagerfeld.

(dramatic music)

- [Narrator] The world has changed.

What we do today will define our tomorrow.

- [Josephine] But recently, H&M has struggled.

The company's net income dropped during the pandemic.

And 2022 was one of the store's least profitable years

in over two decades.

That same year H&M laid off 1500 employees.

So what went wrong?

(dramatic music)

- This morning major American companies pulling business

out of Russia, Disney, Warner Brothers, ExxonMobil, Ford.

- [Josephine] Russia was H&Ms sixth largest market.

But after Russia invaded Ukraine,

H&M decided to close all of its stores in Russia

and stop online sales to the country.

The company cited operational challenges

and an unpredictable future.

- They, of course, faced this unprecedented situation,

like a lot of brands last year with Russia's invasion

of Ukraine, that forced them to close a lot of stores

in what was one of their bigger markets,

about 5% of their global sales.

So H&M would argue that without that hit

they would've had a fairly decent last year.

- [Helena] So our decision to wind down the business there

has had a significant negative impact on our results.

- [Josephine] The war also helped fuel inflation,

increasing raw material, and logistical costs.

Besides pulling out of Russia,

H&M has had longstanding problems in China,

another important market.

(speaking in foreign language)

Consumers in China boycotted the company in 2021

after H&M raised concerns about alleged forced labor

and discrimination against ethnic minorities

in China's cotton production.

Chinese consumers and online retail apps like Tmall,

Pinduoduo, and JD boycotted H&M.

Map apps like Baidu also removed H&M from their platforms.

- They've never really recovered from that issue.

They're still trying to find a way back

into the China market.

- [Josephine] H&M also faced a setback when Covid lockdowns

in China led to store closures in the country.

- First, I got this hoodie.

I am actually obsessed with this.

- One big factor they face is their brand position.

They're are a fast fashion brand

so all about being relatively cheap.

But in recent years, they've faced this new competition

from online fast fashion players, like SHEIN,

who are even cheaper, even quicker to get new designs

onto the market.

- [Josephine] SHEIN has come onto the market

as one of H&Ms fast fashion competitors.

And unlike H&M, SHEIN is an online only retailer.

- They don't have physical stores, that's their model.

- [Josephine] On the other hand,

H&M relies heavily on in-store sales.

Only about 30% of its sales come from online.

- So H&M faces this predicament that on the low side,

they're being out flanked by SHEIN and online players.

But do you try and trade up?

Because if you do, then you are coming

into direct competition with a brand like Zara,

which in the mind of a lot of consumers

is a slightly higher end brand.

They've already closed something like 12%

of their global stores.

And analysts generally think that's the right way to go.

That you close the underperforming stores,

invest in the best stores because most consumers

still like to shop in physical stores,

but then also try and build up the digital side as well.

- [Josephine] But can H&M get customers excited

about the brand again?

- Fashion is a tricky business, of course,

'cause it relies a lot on this sort of intangible idea

of brand heat and whether your brand

resonates with consumers.

And H&M seems to have lost a little bit of that resonance

with a lot of consumers.

Can they get consumers excited again

about H&M clothes at the price point they're at?

And at the moment they, maybe they're having some success,

but I think they'd like to see a lot more

to really get young consumers especially back on board.

(dramatic music)