A spike in the price of cotton hits H&M profits.
Swedish fashion giant H&M has blamed the growing cost of cotton and other raw materials for its dip in profits in the last three months of 2010.
Net profit for the global high street favourite has fallen from 6.15 billion kronor in 2009 to 5.5 billion kronor, £534 million, in 2010.
This 11 per cent drop is much worse than analysts had expected, especially considering that the revenue had climbed six per cent to 34.8 billion kronor.
Cotton nearly doubled in price last year and while this is a serious area of concern for H&M and other fast fashion retailers the strength of the US dollar against the euro has also had a negative effect on the organisation.
The majority of the company’s sales are made in Euros, a currency which was down against the dollar throughout the last quarter of 2010, yet most raw material are purchased using dollars.
Chairman of H&M Karl-Johan Persson regrets the situation and has highlighted the need for the brand to adapt to these changing conditions. He is keen to stress that this will not impact upon their business concept of offering customers fashion and quality at the best prices.
H&M has around 2, 200 stores across the world offering affordable fashion for women, men and kids as well as having own-brand cosmetics, accessories and footwear. Will customers remain loyal to the retailer if they see a dramatic change in pricing?