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US election in danger: Trump seeks to undermine legitimacy of vote



At a rally in Pennsylvania on Saturday Donald Trump told a sprawling crowd that the Democrats would resort to theft to try to win a toss-up state that is vital to both parties’ fortunes in this tumultuous election.

“They’re going to try to steal this election,” the US president declared, without any evidence other than his own intuition. “The only way they can win Pennsylvania, frankly, is to cheat on the ballots.”

A week earlier, a Pennsylvania supreme court decision on something known as a “naked” ballot offered a clue as to how Mr Trump hopes to prevail in a contest in which unprecedented numbers of Americans are expected to cast their votes by mail to avoid the risk of coronavirus infection — and one in which he is currently well behind in the polls.

Mail-in voters in Pennsylvania will need to send their ballot contained within two separate envelopes. The court found that any mail-in ballot not enclosed in a second envelope — to preserve its secrecy — would be disqualified.

That may seem like a technicality. Yet the top elections official in Philadelphia, Pennsylvania’s biggest city, estimates it could result in 100,000 ballots being thrown out — this in a state that Mr Trump won by a mere 44,000 votes in 2016. That would take a bigger toll on Joe Biden, the Democratic nominee, since opinion polls suggest Democratic supporters will resort to mail voting in much greater numbers than Republicans.

“The naked ballot ruling . . . is going to cause electoral chaos,” Lisa Deeley, the city election chair, predicted in a letter to state legislators. “I hope you consider this letter as me being a canary in the coal mine.”

Mail-in ballot requests have starting flooding into local election offices . . . © Charlie Riedel/AP

Brian Snyder
. . . as states prepare to process a record number of postal votes in November’s election © Brian Snyder/Reuters

With just over a month to go until the US election, the first presidential debate would normally be the trigger to concentrate the minds of voters on the candidates and their policies. But this year, the dominant issue is whether the US can even conduct a fair election where the result will be respected.

The naked ballot is part of a multi-front legal battle Mr Trump’s lawyers are waging in swing states across the country to try to clamp down on mail ballots.

In states such as Ohio, Wisconsin, Michigan, Florida and Pennsylvania, for example, partisan lawyers are now fighting to determine whether drop boxes, which were used in June primaries to relieve pressure on a creaking postal service and spare voters from having to visit crowded polling stations, will be allowed — and if so, how many? And there are many other issues: how closely a voter signature will have to match that kept on record for their mail ballot to be counted; whether mail ballots will have to be postmarked or received by election day; how soon they can begin to be counted — and for how many days after election day?

Meanwhile, from the campaign trail, Mr Trump has mounted a rhetorical assault to discredit mail voting, insisting — without evidence — that it is rife with fraud, and that this election will be “the most rigged” in US history. At the end of the debate in Cleveland on Tuesday, Mr Trump claimed poll watchers had been barred from observing early voting in Philadelphia. “They were thrown out. They weren’t allowed to watch. You know why? Because bad things happen in Philadelphia, bad things.”

“In any other sane, rational, reasonable time in America we would be trying to make voting as easy as possible,” says Michael Nutter, the former Democratic mayor of Philadelphia, citing the pandemic. “But in the Donald Trump world, he seeks to make it as difficult as possible, as confusing as possible.”

Jason Snead, executive director of the Honest Elections Project, a group that has filed lawsuits in support of Mr Trump in Michigan and Minnesota, argues that Democrats are trying to use Covid and the courts to push through changes to election law that they have been unable to achieve through state legislatures.

He warns that a Democratic victory based on late-arriving mail ballots would not be accepted by much of the country. “That’s not really a legitimate election — in my eyes, and in the eyes of a lot of folks. We want to avoid that outcome.”

Trump has hosted pre-election rallies in key battleground states such as Pennsylvania . . . © Joshua Roberts/Reuters

. . . where he has told supporters that the Democrats will try and rig the election outcome in their favour © Spencer Platt/Getty Images

Legal minefield

The legal confusion surrounding mail balloting is leading many election specialists to warn that it could be days before a winner is confirmed. In one scenario, Mr Trump could declare victory on election night, based on a tally of in-person voting, while piles of mail ballots are still waiting to be counted in key states. By law, neither Pennsylvania or Michigan can begin processing their mail ballots until election day.

“Creating this big question in the public’s mind about what’s going on with this election and then being able to challenge mail ballots, and throwing out enough of them in key states, could rig the election for Trump,” says Lorraine Minnite, a professor at Rutgers University, who has written extensively about voter suppression.

“The pandemic,” Prof Minnite adds, has “created sort of a new terrain for the use of voter fraud propaganda because of the shift to mail balloting.”

Mr Trump’s insistence that he would not necessarily accept the result if he is defeated is also stirring unfamiliar fears in America about political instability and a constitutional crisis if the election is anything other than a landslide.

Stuart Gerson, a longtime Republican election lawyer and former justice department official, worries that election night will descend into a series of legal fights over mail ballots in swing states across the country. Whipped up by the president’s rhetoric, Mr Trump’s supporters may take to the streets. Groups like the Tea Party-inspired True the Vote want to dispatch thousands of military veterans to precincts to serve as poll monitors.

“I’ve seen all sorts of scenarios involving the military and all kinds of things that previously have been unimaginable,” says Mr Gerson, who accuses Mr Trump and his attorney-general, William Barr, of “fanning those flames . . . with demonstratively false statements about the reliability of mail voting”.

Richard Hasen, a law professor at University of California at Irvine, and author of the book Election Meltdown, is not surprised that Republicans would try to suppress turnout to improve their chances of victory.

What is striking is the intensity of the effort and the zestful involvement of Mr Trump in dirty work typically left to others. “Have we ever had a president who has consistently railed against the legitimacy of the election and tried to undermine voter confidence by claiming it’s going to be rigged?” Prof Hasen asks. “If it’s a close election, I think we’re going to be in a lot of trouble.”

Fraud myths

An election during a pandemic was always bound to be difficult for America. The country’s decentralised nature means that November 3 will be comprised of thousands of contests administered by individual counties and overseen by local poll workers of varying quality, and with often limited resources. Poll workers tend to be older, and many stayed home during the June primaries rather than risk infection, leading to the closure of voting stations around the country.

Some western states have a long tradition of voting by mail. Oregon and Colorado, for example, send ballots to all registered voters. Other states require voters to request them. In some, such as Texas, they must present a legal justification for doing so.

The logistical difficulties of a sudden switch to mail voting en masse were evident in New York in June. It took officials six weeks to count a deluge of absentee ballots in the Democratic primary for the city’s 12th Congressional district. The postal service struggled to cope. Thousands of ballots were delivered late, and so never counted. California suffered similar mishaps.

“Voters are much more likely to make errors when they cast mail-in ballots. We saw very high rates of rejected ballots because voters make technical errors because they’re not experienced at voting in this way,” Prof Hasen explains. The possibilities for error are many. In New York, for example, sealing a mail ballot envelope with scotch tape is grounds for disqualification.

For all the challenges voters face, fraud does not appear to be one of them. In spite of the rich folklore about ballot stuffing in the days when political machines ruled big city politics, Prof Minnite, says incidents of fraud in the modern day are “exceedingly rare”. She spent nearly a decade studying electoral data for her book The Myth of Voter Fraud.

Other academics have reached similar conclusions. Sharad Goel, a Stanford University statistician, and colleagues reviewed the 130m votes cast in the 2012 election. They found possible double-voting in one of every 4,000 votes cast, or 0.025 per cent. The rate was so low, they noted, it could be explained entirely by clerical error — not fraud.

The logistical difficulties of a sudden switch to mail voting en masse were evident in New York in the June primaries © John Minchillo/AP

Still, the conservative Heritage Foundation maintains a database that it describes as a “sampling of recent proven instances of electoral fraud”. It counts 1,298 cases since 1982, which, it says, “demonstrate the vulnerabilities in the election system and the many ways fraud is committed.”

Each fraud, the Heritage Foundation argues, dilutes a legitimate vote, and so is another form of disenfranchisement. Its aim, therefore, is to take “reasonable steps” to prevent cheating while still making it easy for honest citizens to vote.

After his 2016 victory — in which he lost the popular vote by nearly 3m ballots to Hillary Clinton — Mr Trump complained of massive fraud, including widespread voting by illegal immigrants, and established a panel led by vice-president Mike Pence and Kansas Republican Kris Kobach to investigate. It disbanded seven months later without issuing a report.

Most damning of all to the so-called “ballot security” movement may be the testimony of Benjamin Ginsberg, the Republican election lawyer, who represented the Bush campaign in the 2000 Florida recount. In a recent Washington Post editorial, Mr Ginsberg stated that: “The truth is that after decades of looking for illegal voting, there’s no proof of widespread fraud. At most, there are isolated incidents — by both Democrats and Republicans. Elections are not rigged.”

“These are painful conclusions for me to reach,” Mr Ginsberg, who recently retired, acknowledged.

Black students in Atlanta gathering at a post office in 1963 protesting against the denial of their voting rights © AP

Voter suppression

While fraud appears to be rare there is a long and well-documented American tradition of imposing measures to disenfranchise minority voters. It is in tension with the country’s lofty mission of expanding voting rights, and, say experts, tends to flare at moments of great societal shift.

The southern states, for example, used devious ingenuity and outright violence to effectively strip black men of the rights they had gained during Reconstruction and through the 15th Amendment. New York City used similar means to thwart immigrants and the poor.

“Race and class explain it,” says Prof Minnite. “The demographic changes of the country are really at play underneath all this.”

The 1965 Voting Rights Act outlawed literacy tests and other abuses. But enterprising political operatives still found ways to thwart minority voters. In November 1981, a man wearing an armband identifying him as a member of the Ballot Security Task Force stopped Lynette Monroe, a young black woman, on her way to the polls in Trenton, New Jersey. He asked Ms Monroe if she had a voter registration card, and warned her — erroneously — she could not vote without one.

It turned out he was one of several off-duty police hired by the Republican party to intimidate voters in minority neighbourhoods. Some were armed and wearing uniforms. The Republican candidate, Tom Kean, won the governor’s election by fewer than 2,000 votes. One of his aides was a young Roger Stone, who went on to become a close confidante of Mr Trump.

“I’m not seeing anything new. It’s just repackaged,” says Lee Harris, pastor at the Mount Olive Baptist Church in Jacksonville, Florida, who recalls being told by county officials on election night in 2000, during the Bush-Gore contest, that maybe 500 ballots had been disqualified for irregularities.

The actual figure turned out to be nearly 27,000 ballots, or about 9 per cent of the total, and they came disproportionately from Jacksonville’s black neighbourhoods. Florida — and the election — was ultimately decided for Mr Bush by 537 votes.

Jacksonville’s black residents have long complained about a paucity of polling stations in their neighbourhoods that result in long lines, or polling stations that are shut down with little notice, or relocated to places that are distant from public transportation.

This election season, Florida politicians have found a novel way to disappoint Mr Harris, who cast his first vote as a student in 1960 amid the optimism of the civil rights movement. It concerns a ballot initiative to restore voting rights to Florida’s felons after they had completed their sentences. It passed in 2018 with 64 per cent support. Activists touted it as a historic achievement that would re-enfranchise about 1.4m people, many of them black men.

But the state legislature subsequently gutted the law with an onerous interpretation of what constituted a “completed” sentence. It should mean not only serving a prison sentence and parole, they determined, but paying restitution to victims as well as court costs and other administrative expenses that even the state was not equipped to calculate. Technically, casting a vote without having paid these unknown costs would be illegal.

“Who does it benefit to say even if you do the crime and you’ve done the time and paid your debt to society, you still are less than human?” asks Mr Harris.

In 2000, after an intense recount the Supreme Court ruled that George W Bush beat Al Gore in Florida by a margin of just 537 votes © Robert King/Getty Images

Pivotal turnout

The pandemic also threatens to be yet another cause of voter suppression. It has prevented campaign workers from going door to door to register voters, and it has made it a hazard to visit a polling station in person.

Mr Harris has taken to Facebook Live and Zoom to try to educate his community about the intricacies of voting in a pandemic — whether by mail or taking safety precautions if they go to the polls. It may not be easy. But, the pastor insists, they will exercise a cherished right.

“The people will vote,” he says. “They are going to vote.”

Meanwhile, in Pennsylvania and other key states the focus will remain on the courts and the legislature. The state supreme court last week ruled that drop boxes could be used, handing a potentially significant victory to the Democrats.

But the state’s Republican-controlled legislature is considering a bill that would override that decision, and bring forward the deadline to apply for an absentee ballot. The Republicans and Mr Trump have petitioned to allow people to serve as poll-watchers outside the Pennsylvania county where they are registered to vote. In an ominous echo of the Ballot Security Task Force, the president has threatened to send law enforcement to polling places.

To Mr Nutter, the former Philadelphia mayor, such acts are desperate and immoral — but not necessarily illogical.

“He knows,” Mr Nutter says of the president, “if there’s massive turnout, he senses that he probably can’t win”.

Line chart showing how Trump and Biden are doing in the US national polls

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McKinsey partners sacrifice leader in ‘ritual cleansing’




The news this week that Kevin Sneader would be McKinsey’s first global managing partner since 1976 not to win a second three-year term stunned many of the consultancy’s partners and influential alumni. 

Few could point to any one mis-step that had felled the 54-year-old Scot. “It added up,” one veteran said simply of the litany of reputational crises he had tried to resolve. 

But nor did many think that Sven Smit or Bob Sternfels, who beat Sneader to the last round of voting, would represent a cleaner break with the past — or that whoever won the final vote in the next few weeks would face an easier task than he had. 

Within days of taking over in 2018, Sneader flew to South Africa to apologise for failures that had embroiled the firm in a corruption scandal. “We came across as arrogant or unaccountable,” he admitted in a speech that began with the word “sorry”.

That set the tone for a tenure defined by the need to make up for other crises that largely predated his promotion, from damaging headlines about McKinsey’s contracts in authoritarian countries to US states’ lawsuits over its work to boost sales of highly addictive opioids

Speaking to the Financial Times less than two weeks before senior partners voted him out, Sneader said he had focused on making the private firm more transparent, more selective about which clients it took on and better structured to avoid surprises in a global group whose rapid growth had made it more complicated. 

According to people who witnessed those efforts, though, pushing them through consumed much of the political capital Sneader needed to win re-election. For some, particularly younger staff, his reforms did not go far enough. For an older group more prominent among the 650 senior partners who vote on their leadership every three years, they went too far.

Kevin Sneader’s failure to win a second three-year term as McKinsey’s global managing partner has stunned many at the consultancy © Charlie Bibby/FT

Sneader’s downfall looked like a case of “the partners not wanting to take the medicine”, one former partner said. Another argued that Sneader’s push for more oversight over partners who prized their freedom had made the firm “too corporate”, while some Sneader allies saw the “protest vote” as a rejection of his reforms rather than a clear mandate for Smit or Sternfels. 

Sneader was not helped by the timing of this month’s $574m opioid settlement with 49 US states, added Yale School of Management professor Jeffrey Sonnenfeld, who said that consultants outside the US did not understand why he agreed to the payout.

Sneader might have been able to reassure them in person, but with McKinsey’s frequent-flyers grounded by a pandemic, “there are limits to what you can do with Zoom”.

‘In business, as in poker, there is uncertainty’

Laura Empson, author of Leading Professionals, said one question now was whether the vote against Sneader was “a ritual sacrifice to appease the bad PR” or a sign that McKinsey’s partners were willing to take more radical action. 

The run-off between Sternfels and Smit may not resolve that issue, say people who know them both, who note that they are of a similar age to Sneader and members of the leadership council that signed off on his reforms. 

Sternfels, a California-born Rhodes scholar who joined McKinsey in 1994, was the runner-up to Sneader in 2018. As head of “client capabilities”, he has a role akin to that of a chief operating officer and is closely associated with the rapid expansion of the firm under Dominic Barton, Sneader’s predecessor. 

Based in San Francisco after six years in Johannesburg, the former college water polo player is known as an effective operator and, the second former partner says, “the guy who built the new business models”. 

But some of McKinsey’s newer activities have dragged him into controversies: last year, he was called to testify in litigation brought by the restructuring specialist Jay Alix — the founder of rival consultancy AlixPartners — over McKinsey’s disclosures while advising clients in bankruptcy. 

When a frustrated judge asked whether he was dealing with “a group of people who are so educated, so arrogant, that they just can’t admit that they’re wrong”, Sternfels apologised, insisting that “we try and not foster arrogance”. 

Smit, who joined in 1992 and is based in Amsterdam, is known inside McKinsey as a more cerebral figure. Now co-chairman of the McKinsey Global Institute, the consultancy’s research arm, “there’s not a university campus he couldn’t parachute into and be received as one of the smartest people in the room,” Sonnenfeld said. 

The Dutch mechanical engineer earlier ran McKinsey’s western European operations and may attract less support from US peers, but the first former partner describes him as “the conscience of the firm”, who will say no to ideas with which he disagrees. The second thinks he may “take the firm back to more of an old-school McKinsey”.

Smit’s writing on topics from urbanisation to the future of work made him popular with clients and provided a glimpse into his thinking on strategy, which he likened in one report to poker. “In business, as in poker, there is uncertainty, and strategy is about how to deal with it. Accordingly, your goal is to give yourself the best possible odds,” he wrote.

Discontent runs deep

Whether the cards fall for Smit or Sternfels, colleagues past and present question whether either will reverse the reforms that seem to have triggered unrest about Sneader. 

“I don’t think Kevin had any choice but to centralise,” said one Sneader ally.

One of the former partners added: “What were the alternatives? It’s a large firm to govern and you do need structures.”

What the election result has already revealed, however, is that discontent with the state McKinsey finds itself in runs deeper than had been obvious outside the firm. 

Whichever candidate triumphs, they will need to listen seriously to the concerns of alumni, clients and policymakers and make clear that he plans meaningful cultural reforms, Empson says.

Sneader’s successor will also have to defy the odds in professional services firms, she adds. “Often with partnerships, when something goes wrong, they appoint someone else in reaction to the problem and that isn’t the solution either and they cycle through another round of leaders quickly,” she says: “It’s almost as though they have to go through this ritual cleansing.” 

McKinsey, which does not disclose its financial performance, earned annual revenues of $10.5bn in 2019 by Forbes’ estimate. Sonnenfeld points to the irony that the firm, which charges a premium for its services, has stumbled in this way.

“It’s odd that McKinsey doesn’t create the kind of leadership that would thrive in a crisis,” he reflected. Before the succession process starts again in 2024, “they need to go into overdrive on leadership development”.

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Investors look to Sunak for clarity on new UK infrastructure bank




Ever since chancellor Rishi Sunak announced the setting up of a UK government infrastructure bank last autumn, investors have wondered what its role will be. Next week, in the Budget, they will get the answer.

The Treasury has only said it will focus on supporting new technologies that are too risky for private finance and would contribute to meeting the government’s target of net zero carbon emissions by 2050. As examples, it gave carbon capture technology and the rollout of a nationwide network of electrical vehicle charging points. 

The selection process has just begun for a part-time chair, working two to three days a week, and it is scheduled to open on an interim basis on April 1.

The bank’s creation has prompted a debate about how infrastructure should be funded in the UK, at a time when the government’s finances are stretched and customers are likely to resist tax or bill increases, the means by which many sectors — such as ports, airports, energy, telecoms, water, and electricity — are funded. 

Many of these assets in England are owned by sovereign wealth, pension and private equity funds, and regulated by arm’s length bodies, under one of the most privatised infrastructure systems in the world.

The government’s finances have been stretched by the coronavirus pandemic, limiting funds for infrastructure projects such as rail © Niklas Halle’n/AFP

Dieter Helm, a utilities specialist at Oxford university, said the bank was “a good idea but it needs scale — a balance sheet and capital funding from the state, in which case you’ve essentially created a new arm of the Treasury”.

“The question is whether this is going to be the primary vehicle through which the government implements infrastructure,” he said. 

John Armitt, chair of the National Infrastructure Commission, a government advisory body, suggested it needed an initial £20bn over five years to make an impact and reach projects the market might be unwilling to support.

The institution, which Sunak has said will be based in the north of England as part of the government’s levelling up agenda, will partly replace the low-cost finance provided by the European Investment Bank, which is no longer available since Brexit. But it is unclear if it will be able to match the €118bn the EIB has lent to the UK since 1973.

Sunak has promised that the government, which spends much less than most European states on infrastructure, will spend £600bn over the next five years. But ministers hope that more than half their national infrastructure plan will be paid for by the private sector. However, private finance is generally more expensive than government borrowing and requires taxpayers to underwrite the construction and financial risks.

Infrastructure spending (as a % of total government expenditure) for Netherlands, UK and Germany. Also a band showing the min and max for all 31 European countries

“The government wants the public to believe that the country can have this wall of private sector investment without higher bills and taxes now but investors will only come if the government will guarantee they will receive a return and it acts as a backstop,” Helm said.

Dissatisfaction with UK infrastructure has been widespread for years: a CBI/Aecom survey in 2017 found that nearly three quarters of businesses were unhappy with facilities in their region.

The lockdowns have taken a heavy toll, for example forcing the renationalisation of rail services. At the same time the Eurostar train service, airports and airlines have called for taxpayer bailouts, while the government is also paying for some households’ broadband.

Although the prime minister has in the past year given the go-ahead to some rail and road schemes, including a tunnel under Stonehenge, other projects — including £1bn of rail improvements — have been axed. 

A road tunnel under Stonehenge is one of the infrastructure projects given the go-ahead © Matt Cardy/Getty Images

Meanwhile, local authorities — which are responsible for urban roads and other key infrastructure — have been forced to shift their limited financial resources to care for the elderly and vulnerable during the pandemic and so want more central government help.

Despite this growing demand, some investors have questioned the need for the new bank, even though they are popular elsewhere — such as Canada, which established one in 2017. 

“Given there is at least $200bn of international capital looking for projects in which they can invest, the government has to be careful it doesn’t just crowd out existing finance,” said Lawrence Slade, chief executive of the Global infrastructure Investor Association, which represents private sector investors.

He argued the new bank, which will take over the government’s guarantee scheme, should only take on projects that are “too risky” for institutional investors, pointing out that the Canada Infrastructure Bank was mandated to lose up to C$15bn (£8.45bn) over 10 years. “It’s not yet clear what question the new infrastructure bank is trying to answer,” he said.

Ted Frith, chief operating officer of GLIL Infrastructure, a £2.3bn fund backed by UK pension funds, said the EIB loaned money at competitive rates to projects that also borrowed from capital markets. “This is a global market and there are plenty of alternative sources of finance to replace the EIB,” he said. However, he added that the infrastructure bank could play a role in addressing the shortage of available projects.

While investors will put equity into existing or smaller infrastructure projects — such as an airport extension or a wind farm — they are wary of new projects, according to Richard Abadie, head of infrastructure at consultancy PwC, because the latter carry long term construction risks and do not provide an income stream for several years.

“The NIB can play a role de-risking projects but the main challenge is how we can afford and manage the cost of energy transition, not whether finance is available to bridge the cost,” he said.

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H&M experiments as it refashions stores after the pandemic




The Hennes & Mauritz flagship store on Stockholm’s main square is trying to break the mould. A woman sewing a patch on to trousers, party dresses for hire, a beauty salon and a personal shopping service is not standard fare for most fast-fashion outlets.

But it could be a taste of things to come as H&M, the world’s second-largest clothes retailer, works out what to do with its vast network of 5,000 stores after a pandemic that has increasingly pushed shoppers online. The Swedish chain is not just looking at services such as renting and repairing clothes, but on whether its shops can play a role in the logistics of online selling.

For Helena Helmersson, appointed last year as the first H&M chief executive outside the company’s founding Persson family, it is all about boosting relationships and engagement with customers.

“The physical store network that we have is one of our strengths. It’s the different roles the stores can play, the different formats. What kind of experiences are there in a store? Could they be part of an online supply chain? There are so many things to explore . . . it’s almost thrilling,” she told the Financial Times.

Helmersson, 47, has had a tough first year as chief executive. At the height of the first wave of the Covid-19 pandemic, four-fifths of H&M’s physical stores were closed and a big push online was unable to offset the hit. Sales fell a fifth in H&M’s financial year until the end of November to SKr187bn ($22.6bn), while pre-tax profits plunged 88 per cent to SKr1.2bn, interrupting a nascent recovery after years of decline.

Line chart of Ebit margins (%) showing H&M has lagged behind Inditex's profitability

Sales plunged in March and April, before rebounding strongly in the summer, and then getting hit again around Christmas.

But as the pandemic has forced H&M into speedier decision-making and increased flexibility and with Helmersson forecasting a wave of pent-up demand when Covid-19 comes under control, the chief executive is emboldened to say: “Overall, we will come out of the pandemic stronger.”

Boarded up H&M store in Minneapolis, Minnesota, US, in April 2020
With four-fifths of H&M’s stores closed at the height of the first wave, pre-tax profits plunged 88 per cent © Ariana Lindquist/Bloomberg

Anne Critchlow, analyst at Société Générale, said that relatively small increases in sales at H&M could lead to bigger rises in profits. “Potential recovery is part of the attraction of H&M to investors at the moment: it’s very highly operationally geared. H&M should be the fastest to recover,” she added.

But she argued that Inditex, the Spanish owner of Zara that overtook H&M as the world’s biggest fashion retailer by sales a decade ago, was a “better quality company”, and that the Swedish group may be a “bit slower” at returning to its pre-pandemic profit levels as some customers steer clear of its stores.

H&M’s shares fell consistently from 2015 to 2018, before largely treading water since then, although they have climbed 50 per cent since their Covid-19 low in March last year.

Helmersson, a H&M lifer who joined the retailer in 1997 as an economist, said she started to see “light at the end of the tunnel” after a “very demanding” period. “I have super-high expectations on myself. Adding a crisis on top of that, it’s been a really tough year.”

Now, however, her focus is moving to a critical question for H&M: “Where do we need to move faster?”

Line chart of Total sales growth (%) showing H&M's sales have kept pace with Inditex

Despite being in fast fashion, critics said H&M had become slow, outpaced by nimbler Inditex and online retailers such as Zalando and Asos. Inditex could get new clothes to Zara stores in weeks from nearby manufacturing sites in Europe while H&M, with more sourcing in Asia, took longer. Opening new stores gave the Swedish group an easy path to sales growth but did not help its profit margins, which have been declining consistently for the past decade.

Helmersson said H&M took “really, really fast decisions” at the start of the pandemic on how it bought garments, worked with its supply chain, and moved to selling more online. She pointed to how technology allowed designers, suppliers and the production office to work together at the same time to produce new clothes, rather than waiting for one to send a garment to another.

H&M’s rental service at a store in Stockholm, Sweden
It is ‘difficult to gauge how big’ trials such as clothes rental could become, said the H&M chief © DAVID THUNANDER

“It sounds really basic but if you do that in many processes you can be much faster. You also have data to give you more customer insight, which means you can act much quicker,” she said, adding that accessories can now go from conception to store in a few weeks, T-shirts in six weeks, and trousers in eight.

H&M is also trying to increase its speed on sustainability, bringing in a target of using 30 per cent recycled materials by 2025. Critchlow said that the group was leading the industry in its attempts to become circular, although many voice concerns over how much fast-fashion groups encourage excess consumption. Strong investor demand this month led to H&M reducing the interest rate for its maiden sustainability-linked bond, which was 7.6 times oversubscribed

Line chart of Share prices rebased showing Inditex has outperformed its rival over the past decade

Helmersson, a former head of sustainability at H&M, said that the hardest task for the retailer was decoupling its growth from its use of natural resources. She added that the trials in repairing and renting clothes as well as selling second-hand garments through the website Sellpy, in which H&M is the majority owner, were important but difficult to gauge how big they could become. “We have such a size that we can to some extent influence customer behaviour. But we will also see how willing they are,” she added.

Critchlow said H&M deserved “full credit” for the trials but that they were unlikely to lead to soaring profit margins. She added that the crucial questions were how fast H&M returned to pre-pandemic sales and profit levels and whether it could go further. “It requires H&M to manage the costs of the stores,” she said, adding that renegotiated leases during the pandemic had only helped a little.

There is also a debate about how much increasing online sales — expected to rise from 28 per cent of H&M’s total last year to about 43 per cent in 2025, according to Critchlow — help given that they come with additional costs such as delivery and returns as well as in logistics.

Helmersson is unbowed, arguing that H&M will offer multiple ways for customers to engage with the retailer through various store formats offering different services, online, and its own club. “The customer journey is constantly evolving,” she said. “We will follow, and influence. Before, it was about transactions, now it’s about relationships with customers.”

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