25 Nov 2009
According to management theory, dynastic control of a commercial organisation rarely works beyond the second generation. It’s all to do with motivation. The founder of the business starts with an idea and the zeal to drive it through any obstacles. The second generation may be driven by a desire to live up to expectations surrounding the success of the parent, but by the time the third generation arrives, family wealth has dulled personal ambition and the original business ideas are often in need of painful modernisation. So why has the board at H&M recently turned to the third generation of the founding Persson family to replace CEO Rolf Eriksen when he retired in July of this year?
The fast fashion retail chain was launched in 1947 by Swedish entrepreneur, Erling Persson, following a visit to the US where he was inspired by the volumes of business going through stores selling affordable womens’ fashion. Originally named Hennes, (Swedish for ‘hers’), Persson’s business moved into menswear and added the second moniker with the 1968 acquisition of a hunting equipment and mens’ clothing store named Mauritz Widforss. Hennes & Mauritz later changed its name to the more familiar H&M now seen in over 30 countries around the world.
Erling’s son, Stefan, followed in his father’s footsteps to serve as H&M’s chief executive from 1982 until 1998, a period of very rapid international growth for the company. By 1994 over 70 percent of H&M sales came from outside Sweden. Stefan remains chairman of the board and is its single largest shareholder with over 35 percent of the company shares. Forbes estimates his personal wealth at $14.5bn, earning him eighteenth place in the 2009 Billionaires list.
At 33, Stefan’s son Karl-Johan is two years younger than his father was at the time he took the H&M reins, but he has apparently been preparing for the role all his life. Despite the enormous wealth and royal connections enjoyed by the family – the elder Perssons count King Carl XVI Gustaf and Queen Silvia among their friends, and Crown Princess Victoria attended Karl-Johan’s wedding in 2002 – the young Persson reportedly spent summer holidays working in H&M stores before earning a degree at the European Business School in London.
By 2000, at just 25 years of age and with very little commercial experience under his belt, he was already sitting on the boards of directors of H&M subsidiaries in Denmark, Germany, the US and the UK.
The 2004 Sunday Times Rich List ranked Karl-Johan Persson in 222nd place, with the source of his estimated £181m fortune cited as ‘inherited’. Perhaps needing to prove his abilities outside the cushioned atmosphere of the family empire, he pursued an independent business venture before joining H&M full time. In 2001, along with fellow Swede Marcus Ostlundh, Karl-Johan purchased a London-based destination management company called European Network Ltd. With Persson acting as Chief Executive, the business opened offices in Barcelona (2003), and Stockholm (2004), where it rapidly established itself as the leading events management business in Scandinavia. In 2007, it was successfully sold to MCI, a global association, communication and event management company, with Ostlundh staying on as director of the corporate division in Scandinavia, and Persson appointed as an advisor to the board.
By then Persson had joined H&M in an executive role, where he was on a fast track to learn the business. Having started his career with the clothing retailer in 2005, he was head of expansion and business development in 2007, and by the time his selection for the chief executive post was announced early in 2009, he had added responsibility for brand and new business to his remit.
For a family whose wealth, royal connections and position as both major shareholders and senior executives in a global retail business make them objects of considerable public interest, the Perssons are surprisingly media shy. Very little is known about Karl-Johan’s background and business acumen, a state of affairs which the company appears to be taking pains to preserve. A request to the H&M press office for a detailed biography on the newly appointed chief executive was met with an eight line listing of his academic qualification, previous job titles and board appointments.
When asked for details about the 2007 launch of the company’s new retail chain, COS, managing director Karl-Johan was quoted as saying, “Targets we can’t talk about, but we are within our expansion budget for the year.” But surely investors will want to know more about the company’s performance and plans during these challenging economic times? “Unfortunately, H&M’s like for like sales figures have all been negative for the last few reporting periods,” comments Simon Chinn, an analyst with Verdict Research. “This shouldn’t be happening at the value-priced end of the market, and has disappointed analysts who were expecting better performance from the company.”
H&M’s response is to point to its continued sales growth from an ambitious program of new store openings. In a statement released on June 25, the company said it “remains positive towards the future expansion and the company’s business opportunities”, which include the opening of 159 new stores by the end of November – in addition to the 84 new stores already opened earlier this fiscal year. Thanks to a strategy initiated by Karl-Johan’s predecessor Eriksson, the business has also seen positive sales generation from its successful collaborations with high-profile fashion designers and celebrities.
“H&M is very good at celebrity tie-ups with designers such as Roberto Cavalli and Karl Lagerfeld, and celebrities like Stella McCartney and Kylie Minogue,” notes Chinn. “These deals significantly increase footfall in the stores, but generally have a limited time impact on overall revenues.” The latest collaboration will be with luxury shoe brand, Jimmy Choo, whose affordable range will appear in selected H&M stores in November.
Opening scores of new stores each month and working with high profile designers and celebrities comes at a cost, however, and analysts are predicting tough times for the new chief executive, particularly if the recession lingers longer than currently forecast. Should that happen, they may want more expansive answers to some penetrating questions.