Swedish retail giant H&M is signaling a definitive departure from aggressive physical expansion, opting instead for a disciplined portfolio optimization strategy that favors long-term profitability over total store count.
According to the company’s six-month report for FY26, the group operated roughly 3 per cent fewer stores in the Q2, FY26 compared to the previous year, with a net reduction of 128 locations over the past twelve months. This contraction is not indicative of corporate decline but represents a calculated effort to enhance productivity per square foot. By shuttering underperforming assets and reallocating capital toward high-potential markets and digital infrastructure, the retailer has successfully improved its operating margin to 12 per cent - a notable 160 basis point increase from the prior year.
Inventory management and digital integration
The retailer's financial performance in mid-2026 highlights the success of its ‘leaner’ operational model. Despite a 1 per cent decline in net sales in local currencies, H&M achieved significant margin gains by reducing inventory levels and curbing markdown activity. Daniel Ervér, CEO notes, while tighter inventory control occasionally hampered demand fulfillment, the long-term objective remains a more responsive, data-driven supply chain. The brand is reducing organizational complexity to move decision-making closer to the customer, states Ervér, emphasizing the integration of digital tools and AI-driven forecasting. This shift enables the company to maintain high-quality product availability while avoiding the excess stock that previously eroded retail margins. Looking toward H2 FY26, the group is intensifying investments in its digital ecosystem, ensuring that its physical and online channels function as a unified, high-efficiency network.
Accessible fashion with sustainable profitability
H&M Group is a multinational fashion retailer operating a diverse portfolio of brands, including H&M, COS, and ARKET. With a global network of over 4,000 stores, the group focuses on providing accessible fashion while transitioning toward omnichannel growth and sustainable profitability, supported by a 35-year legacy of retail innovation.
