H&M is suffering huge losses this quarter, and already projecting big losses for the following quarter as well. Even though online sales are up by over 20%, the company faced a decrease in profits by 61%. This comes as a direct result of an unexpected 7% increase in inventories that led the fashion giant to have to cut prices as a means of relieving this excess stock. The CEO believes that this issue will resolve itself as we move into the later half of the year, but many analysts are skeptical as H&M still plans on hitting its goals of this year. H&M believes that the markdowns that disrupted its sales so heavily will not continue into the later quarters, and that this issue is solely a result of it being a “transitional year” where they more heavily focus on online sales therefore causing brick and mortar stores to bear the brunt of this issue.
This increase in inventory/decrease in sales interestingly comes after the Swedish company had faced a large scandal surrounding a racially inappropriate advertisement.Albeit they realized their mistake and hired a new company “diversity leader” in order to try to combat such a scandal in the future, many of their consumers felt like the company did not do enough to try to fix what they had done. In countries, like South Africa, there were even mass protests at stores around the country. H&M has not commented whether or not the backlash of this ad has affected sales, but with how dramatically their sales dropped, it begs the question.