The grandson of the Swedish brand’s H&M founder says price is not the only way to judge a company

May 19, 2013 6:00 pm

Karl-Johan Persson, chief executive, Hennes & Mauritz

By Richard Milne in Stockholm

Karl-Johan Persson pauses on his way out of the headquarters of Hennes & Mauritzin central Stockholm. The 38-year-old grandson of the founder has just spent an hour discussing the challenges of running the world’s second-largest fashion retailer – from sourcing clothes from Bangladesh to its rivalry with Spain’s Inditex. But on his way to one of the many H&M stores nearby for a photo shoot, he remembers another big test: modelling. At a fashion show for creative director Margareta van den Bosch’s 70th birthday last year, Mr Persson had to strut his stuff on a catwalk in a leather jacket and white jeans from H&M’s collaboration with Maison Martin Margiela. “This, this was my greatest challenge,” the photogenic Swede says, grinning. Mr Persson’s four years as H&M’s chief executive – following in the footsteps of both his father Stefan and grandfather Erling – have been filled with many tests. His starting point was hardly auspicious, taking the reins of the purveyor of cheap chic in 2009 just as the financial crisis hit consumers with full force. In 2011, H&M was overtaken as the world’s biggest fashion retailer by market capitalisation by Inditex, the owner of Zara. And last month’s factory collapse in Bangladesh, with the loss of more than 1,100 lives, has shone a spotlight on the country’s biggest buyer of clothes: H&M.

The paradox, however, is that even if H&M is focused on “fast fashion” and the shortest-term trends, Mr Persson runs the company with an almost stubbornly long-term approach. Some deride this as leaving H&M looking slow compared with the nimbleness of Inditex as the Swedish group takes its time developing new brands and launching online sales. But Mr Persson still views H&M – the largest listed company in Sweden with a market capitalisation of $58bn and annual sales of $21bn – as a family business with all the planning for future generations that this entails.“We could raise prices, lower quality, stop investing in the business . . . but we always take a long-term view,” he says, in a nondescript meeting room at H&M’s headquarters. “Of course we want to deliver in the short term as well. But some­times short-term goals and long-term goals collide and we always choose what’s best for the company in the long run.”

The collapse of the Rana Plaza building in Dhaka last month has some questioning thesustainability of cheap chic – the production of clothes in bulk in ultra low-cost countries such as Bangladesh, where the minimum wage is just $38 a month. But Mr Persson mounts a passionate defence both of being in Bangladesh and his company’s business model.

“Since we are a financially strong company with a long-term view, we can also invest a lot of resources in sustainability,” he says. “In Bangladesh we have a very comprehensive programme to strengthen the workers and, for example, workactively to influence the wages. People should ask themselves the following when shopping: is this a decent company that acts in a responsible way? We do at H&M. That is why we believe we are a good option. Expensive clothes do not necessarily equal better conditions.”

The company is able to offer low prices, he adds, because of good management and processes. These include “in-house design, no middlemen, buying large volumes of the right product from the right market, efficient logistics and being cost-conscious.”

H&M did not use Rana Plaza because, he notes pointedly, its code of conduct forbids it from using factories located in residential buildings. The company employs 100 people to check that the same code is complied with worldwide and Mr Persson has openly called for the Bangladeshi government both to increase the minimum wage and to do so annually (it was last revised in 2006 and 2010).

The CV

 Born 1975 in the UK
 Education 1996-2000European Business School, London
 Career 2001-2004 Chief executive of European Network2005-2007 Head of business development, H&M; head of Cos 2007-2009 Head
of expansion, business development, brand and new business, H&M 
2009 
Chief executive, H&M

He believes that criticising low-cost retailers is off the mark, arguing that clothing retailers have lifted countries and workers out of poverty and that higher-cost brands are as much a part of the process as fast-fashion groups. “We’re one out of 20, 30, 40 [companies in a factory] and the salaries for the workers are the same, regardless of the price that the customer gets,” he says. “The margins are different. We see medium to luxury brands in the same factory but they charge 10, 20, 100 times more. So you shouldn’t only look at the final price.”

In many ways it seems as if Mr Persson was destined for the chief executive job even if he rejects the idea. He accompanied his father and grandfather on business trips around the world and from an early age worked at H&M during school holidays – not just in the stores but also at the distribution centres and in the production, purchasing and marketing departments.

He dreamt of becoming a tennis player and competed a lot. But he gave up on the dream when, as a thirteen-year-old, he lost 6-0 6-0 to Thomas Johansson, the future winner of the Australian Open who is the same age as Mr Persson.

Over time, he realised he wanted to work in the family business and went to business school in London.

Before joining the retailer, however, he helped set up European Network, an international event management company, in 2001. He says it was important to show he could achieve something independently of H&M and he and his business partner sold it a few years later. But first he had the shock of the terrorist attacks of September 11 2001 to deal with, as they hit the business hard. Mr Persson says he learnt from the experience: “It’s not a 9-5 job or 8-5 or whatever. You have to live it almost 24 hours and to work extremely hard. So it was a bit of a wake-up call.”

At the same time, he started working in the H&M empire, first as a board director in various national businesses. Then he got his first executive job, helping to start Cos, the retailer’s first attempt at establishing a brand away from its main H&M marque. He calls the first store opening, on London’s Regent Street, “one of the most nervous times in my life”. But Cos, a more upmarket brand, has been a success – albeit at a slow but steady pace typical of the Swedish retailer – and Mr Persson calls it “a great education because it’s like a mini H&M”.

Now that he is in charge of all of H&M, Mr Persson has to face up to worries from analysts and investors that the Swedish group is being outpaced by Inditex. The Spanish group’s sales growth has been better and analysts believe it has benefited from having much of its sourcing in Europe and north Africa, allowing it to react quickly to changing trends.

Asked if the constant comparison with the Spaniards rankles him, Mr Persson replies: “Yes and no because I’m a competitive person and I know my colleagues are as well, and we want to always improve and to be the best.” He says that H&M still has a great “journey ahead of us” and points out that, with about half the 6,000 stores that Inditex has, the Swedish group makes almost the same amount of revenue.

But for all his focus on the longer view, Mr Persson understands that many are judging him on a shorter timeframe. He would like to report earnings every six rather than three months but he acknowledges a positive side to quarterly results: “It’s not only about long-term results, it’s also about delivering here and now and even though we’re a competitive company and constantly want to improve, it puts that added pressure and that can be good.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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