This analysis was first published in SvD Näringsliv, in Swedish, on January 27th, 2023. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Falling profits and major technical challenges. H&M’s position in the market is under threat.

Few things are as popular in business as inventing terms that make your operations sound better and more modern. The emperor is almost always naked, of course — everyone in the industry knows what the expressions actually mean. But it sounds good.

In retail, one such expression is “omnichannel.” In H&M’s quarterly report released Friday morning, they write instead about “further integrating the two channels.” Both are just elegant ways of saying “the customer can shop however and wherever they want” — order online and collect in store, scan an item in a store to find it online, and so on.

Any clothing shopper under 30 would call this something else entirely: obvious.

With over 4,600 stores around the world, having omnichannel capability is a necessity, not a competitive advantage. If customers want to shop online — what do you do with all the stores? You make them part of a new type of consumer behaviour that typically starts online.

The strategically interesting question is whether H&M would have made the same choices if it were starting from scratch today.

A possible answer can be found by looking at one of H&M’s fastest-growing competitors: Chinese company Shein. If H&M is a fashion company undergoing digitalisation, Shein is more accurately a tech company that happens to sell clothes. Shein does not have an omnichannel strategy, and does not appear to need one.

In the first half of 2022, industry sources suggested Shein’s revenues were around 54.5 billion kronor — roughly comparable to H&M’s figure for the same period. That number should be taken with a pinch of salt since Shein is not publicly listed.

Where H&M and its former main rival Zara became known for “fast fashion,” Shein is closer to “ultra-fast.” They can reportedly take an idea to sale on the app in just three days — and start selling products before deciding whether to produce them at scale.

As a tech analyst, it is impossible not to see parallels with other industries going through major disruption: an establishment player locked into old structures and costs, being challenged by a completely new entrant that rewrites the rules from scratch. Shein is, in this analogy, the Tesla of the fashion world. Like Tesla, it started from zero and was free to think entirely differently from the outset. And like Tesla, it has faced quality problems and serious criticism over its labour conditions.

A Channel 4 investigation into Shein described women working 18-hour days. In one factory, workers received no monthly wage — instead, they were paid just under 50 öre per finished garment. But H&M has had its own problems too. As recently as November, Swedish newspaper Aftonbladet revealed how polluted water was being released from factories in Bangladesh.

H&M becomes, in this comparison, the Volvo Cars of the fashion world: a traditional company built on brand recognition, structure and experience. They know the industry, have established relationships and know how to avoid the big mistakes. But being part of the establishment also comes with an anchor that slows you down.

In tech, there is a concept called “technical debt” — the accumulated cost of old systems that were built years ago and have become expensive to maintain. The systems are outdated, but replacing them entirely feels too drastic given how much has already been invested in them. It is like a crumbling foundation under a house: you know it is bad, but tearing down the whole building just to repour the concrete is a big call.

After a digitalisation journey now over 20 years long, H&M almost certainly carries significant technical debt. Its “Business Tech” unit, responsible for digital development and operations, employed around 4,000 people before the recently announced cuts. The resources are there. But the question is how they are distributed between maintaining existing systems and building genuinely new ones.

H&M’s strategy also leans heavily on sustainability — an area Shein seems far less concerned with. Holding that flag high within your market category is a real differentiator. But it is a difficult position to build a full competitive advantage around.

Despite war and global uncertainty, CEO Helena Helmersson says in the quarterly report that H&M “stands strong with a robust financial position.” Sales were up 10 percent (largely driven by currency effects), while profit fell sharply. The proposed dividend is unchanged from the previous year.

Being the Volvo Cars of the fashion world is not a bad position. But in the rear-view mirror, there is a Tesla — and it may be closing fast.