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Swedish clothes giant H&M to wind down Russian business

Swedish fashion retailer H&M said on Monday it had decided to wind down operations in Russia, after pausing all sales there in March following Moscow's invasion of Ukraine.

Swedish clothes giant H&M to wind down Russian business
A woman walks past the closed H&M in Moscow back n March 2022. Photo: Kirill Kudryavtsev/AFP)

The company cited “current operational challenges and an unpredictable future” as the basis for the decision.

“After careful consideration, we see it as impossible given the current situation to continue our business in Russia,” H&M Group CEO Helena Helmersson said in a statement.

“We are deeply saddened about the impact this will have on our colleagues and very grateful for all their hard work and dedication,” she added.

H&M, which has about 6,000 employees in Russia and has operated in the country since 2009, said it would reopen stores in Russia “for a limited period of time to sell remaining inventory” as part of the exit process.

It said the entire wind-down was expected to cost the group around 2.0 billion Swedish kronor ($192 million), of which around 1.0 billion would have
a cash flow impact.

“The full amount will be included as one-time costs in the results for the third quarter 2022,” the company said.

Despite stopping sales in Russia, Ukraine and Belarus, H&M’s sales surged 17 percent to 54.5 billion between March and May compared to the same period a year earlier, while net profit soared by 33 percent to 3.7 billion.

The Russian invasion of Ukraine triggered unprecedented sanctions and an exodus of foreign corporations, including Starbucks and McDonalds, and several large Nordic companies.

In June, furniture giant Ikea said it would “scale down” its activities in Russia and Belarus. They had been suspended since early March.

Swedish network equipment maker Ericsson announced in April it would suspend all Russian operations “indefinitely”, while truck maker Volvo has
stopped sales and halted production at its Kaluga plant.

Denmark’s Lego, the world’s largest toymaker, announced earlier in July that it would “indefinitely cease commercial operations” in Russia, ending its
partnership with the retail group that operated 81 stores on the brand’s behalf.

In early May, Russia placed Lego products on a list of goods that could be imported without the agreement of the intellectual property owner, in order to
bypass restrictions imposed over the conflict in Ukraine.

Among the list published by the industry and commerce ministry were Apple and Samsung smartphones, major car brands, game consoles and spare parts used in various industries.

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BUSINESS

‘I was too ambitious’, says Spotify CEO as tech giant cuts 6 percent of workforce

Spotify founder Daniel Ek said he had been 'too ambitious' as the Swedish streaming giant on Monday announced it is cutting six percent of its approximately 10,000 employees.

'I was too ambitious', says Spotify CEO as tech giant cuts 6 percent of workforce

The company did not specify where the cuts will be made.

“In hindsight, I was too ambitious in investing ahead of our revenue growth. And for this reason, today, we are reducing our employee base by about  six percent across the company,” Spotify chief executive Daniel Ek said on Spotify’s official blog.

“I take full accountability for the moves that got us here today,” Ek added.

The 39-year-old CEO added that over the next several hours “one-on-one conversations will take place with all impacted employees.”

He said HR business partners are working with employees whose immigration status is connected with their employment.

Shares in the Sweden-based company, which is listed on the New York Stock Exchange, rose over 4.5 percent following the announcement in out-of-hours trading.

Spotify has invested heavily since its launch to fuel growth with expansions into new markets and, in later years, exclusive content such as podcasts.

It has invested over a billion dollars into podcasts alone and raised hackles last year as it signed a $100 million multi-year deal with controversial star podcaster Joe Rogan.

The company has never posted a full-year net profit despite its success in the online music market.

In 2017, the company had around 3,000 staff members, more than tripling the figure to around 9,800 at the end on 2022.

It planned to reach 479 million monthly active users by the end of 2022, including 202 million paying subscribers and is targeting one billion users by 2030.

“While I believe this decision is right for Spotify, I understand that with our historic focus on growth, many of you will view this as a shift in our culture,” Ek said.

‘Unsustainable’

To offer perspective, Ek noted that the growth of the company’s operating expenditure had outpaced revenue growth by a factor of two.

“That would have been unsustainable long-term in any climate, but with a challenging macro environment, it would be even more difficult to close the gap,” Ek said.

The company’s annual turnover reached 9.6 billion euros ($10.4 billion) in 2021.

Reporting its third quarter earnings in October, Spotify said it had 456 million monthly active users, of which 195 million were paying subscribers – who account for the majority of Spotify’s income.

In recent months, tech giants such as Google parent company Alphabet, Facebook-owner Meta, Amazon and Microsoft have announced tens of thousands of job cuts as the sector faces economic headwinds.

On Friday, Alphabet announced it would cut 12,000 positions, just a day after Microsoft announced a cut of 10,000.

The cuts in the tech sector follow a major hiring spree during the height of the coronavirus pandemic when companies scrambled to meet demand as people went online for work, school and entertainment.

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