The Swedish Fashion giant H&M has launched a massive program to reduce costs and increase efficiency following an announcement of heavy losses due to its decision to close operations in Russia.
In the third quarter, the world's number two clothing group said net profit had fallen to SEK 531 million ($47 million), down 89 percent from the third quarter last year.
The group estimated that the winding down of the Russian operations alone reduced the operating result by a total of SEK 2.5 billion ($220 million), of which SEK 2.1 billion ($190 million) was a one-off cost.
“The third quarter has been largely characterized by our decision to pause sales and wind down operations in Russia. This has had a major impact on our sales and profitability, which explains half of the decrease in earnings compared to the third quarter of the previous year,” CEO Helena Helmersson said, as quoted by the news outlet Market.se.
Increased raw material and shipping costs in combination with a stronger dollar negatively affected the result by another SEK 1.5 billion ($130 million), H&M group said. The final result was also bogged down by a more unstable product supply, as well as higher energy prices and delivery costs.
According to Helena Helmersson, the cost-cutting program, which prioritizes efficiency, speed and flexibility, will allow the firm to save up to SEK 2 billion ($180 million) annually, starting from 2023.
H&M joined the ranks of Western companies that left Russia following the start of the special operation in Ukraine to its own detriment. With 145 million consumers, Russia had been a lucrative market since the fall of the Soviet Union in 1991. However, amid the recent standoff, the West slapped it with several bouts of sanctions that backfired spectacularly and exacerbated energy and cost-of-living crises.