H&M: Swede with style
H&M’s remarkable journey to being the second-largest international clothing retailer in the world started when novelty salesman Erling Persson left the austerity of post-war Sweden to sample the bright lights of New York.
He was so impressed with retailers such as Macy’s and Barney’s that he went home and opened his first Hennes womenswear store in the unlikely fashion hub of Västerås, a provincial town north of Stockholm, in 1947. The Mauritz element was added when he bought a Stockholm hunting store in 1968, and the seeds were set for global expansion.
Now H&M has 3,680 stores in 79 physical markets and 61 online markets, and owns a number of other brands such as COS, Monki, Weekday and Arket.
The group had seemed to be struggling in recent years with stiff competition from Inditex’s Zara and ultra-cheap Chinese fast fashion players such as Shein and Temu, and by 2022 its operating profit margin had fallen to a mere 3.2%. However, recent results suggest that it has found a niche through offering better-quality items at affordable but not crazy low prices.
Third-quarter profits were up 40% to 4.9-billion kronor, and the group is targeting an increase in operating margin from 8.6% to more than 10%.
As a good Scandinavian, H&M is upfront about its commitment to sustainability, recycling and ethical business practices, which may well strike a chord with many consumers who are tired of buying cheap rubbish that falls apart after being worn a couple of times.
First Brands: On the skids
Last week it was subprime car lender Tricolor Holdings, this week it’s car parts supplier First Brands that looks to be heading full speed towards a brick wall.
First Brands is owned by a low-profile Malaysia-born businessman, Patrick James, who has previously faced allegations of fraud. The company has been on a debt-fuelled acquisition spree in the automotive after-market sector over the past decade or so, but now the music has stopped and the dancing is over as nervous investors try to work out how much debt is flying around.
A couple of weeks ago First Brands was trying to reassure lenders by confirming that it had more than $800m in cash at the end of June. An attempt at refinancing fell apart in August and it now appears that the company may be sitting with debt and off-balance sheet funding of as much as $10bn.
There are concerns that the off-balance sheet debt may not have been correctly disclosed in the company’s accounts, and its senior debt has been trading below 40 cents on the dollar, with junior loans going for a fraction of that rate.
Things are unravelling fast, with a number of entities that raised debt linked to First Brands filing for Chapter 11 bankruptcy protection last Wednesday. Then, on Sunday, First Brands followed suit.
The whole story is an unholy mess that will leave a number of lenders deeply out of pocket. The real worry is how many more of these howlers might be lurking in the depths of the private credit market.
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