H&M’s Linear Shift to Circular Growth: Repositioning for Relevance in a Slower, More Selective Market

Yanmei Tang, analyst at Third Bridge, discusses how brand giants, such as H&M, are shifting towards nearshoring, shorter supply chains and resale initiatives…

Consumers are demanding more from the traditional fast fashion model. They are no longer satisfied with just affordability and speed, which are designed to chase every emerging trend, but are looking for more curated product strategies that emphasise agility, focus, and sustainability. Third Bridge industry experts indicate that H&M is no exception. H&M’s pivot to nearshoring is more than a supply chain tweak – it’s the start of a fundamental rewrite of how the brand competes.

In spite of H&M’s pivot, investor response has remained muted. Tariffs and heightened competition, particularly in the US, continue to present challenges. However, a more pressing concern is whether H&M can adapt quickly enough to meet shifting consumer expectations. 

H&M has also started narrowing its range and sharpening its focus. The company’s emphasis on womenswear reflects a more disciplined strategy designed to improve both product relevance and brand positioning. However, Third Bridge experts highlight that competitors such as Inditex, the parent company of Zara, are already further ahead. Zara’s model is built around smaller, more frequent product drops, tighter inventory control, and a faster supply chain. These allow it to respond quickly to emerging trends and reduce the risk of overproduction.

Inditex has also taken a more proactive stance on sustainability through shorter supply chains and resale initiatives such as Zara Pre-Owned, positioning itself positively in the growing market for circular fashion. While H&M has made progress in this area, it still lags behind in execution and consumer perception.

An operational model under pressure

Our expert sources are also paying special attention to H&M’s global supply chain. Once an advantage in scale and efficiency, it is fast becoming a constraint. Long lead times from Asia are increasingly at odds with the speed required to meet consumer demand. By the time products reach store shelves, demand may have already shifted elsewhere.

To improve responsiveness, H&M is investing in nearshoring and quick response manufacturing. Producing closer to home shortens lead times, supports smaller production runs, reduces waste and also brings environmental benefits, such as lower transport emissions and better alignment with demand.

However, nearshoring comes with higher production costs, making precise inventory management and forecasting more important than ever. This is where Inditex holds a long-standing advantage – its nearshored supply model and vertically integrated operations enable Zara to move from design to store in just a few weeks.

Experts agree that for H&M, adopting a more flexible supply model is critical, but success will depend on embedding agility across its operations without undermining margins or consistency.

Cost structure and organisational challenges

H&M carries more overhead than many of its peers, making it slower to adapt. Insights from Third Bridge experts show that leadership has begun addressing this by clarifying decision-making responsibilities and reducing unnecessary layers. However, years of rapid expansion and centralised decision-making have created complexity across the business, slowing down responsiveness and making it harder to adapt. While recent efforts to simplify internal processes are a step in the right direction, our experts recognise that meaningful change will take time.

In contrast, Inditex operates with a leaner and more integrated structure as Zara’s teams across design, production, and retail collaborate closely, allowing it to respond quickly to shifts in demand while avoiding unnecessary build-up of stock. This contributes directly to its ability to protect margins and outperform operationally.

H&M has started investing in areas such as supply chain reform and marketing innovation, but industry experts warn that these investments bring immediate costs, so without an uplift in efficiency or sales, they risk adding further strain. The company’s long-term challenge is to shift from a model built on scale to one grounded in sharper allocation of resources and better cross-functional execution.

Brand focus and the road ahead

With all that’s going on behind the scenes, H&M has also increased its marketing spend in an effort to sharpen brand identity and drive engagement, particularly across digital platforms. So far, the impact has been reported as mixed, with Zara continuing to lead through stronger creative direction and clearer alignment between product, content, and audience.

There are positive signs, however, as H&M’s focus on womenswear has emerged as a bright spot, supported by better messaging and stronger product-market fit. This demonstrates the potential of a more focused approach, but this clarity has yet to extend to other lines, which remain underdeveloped.

Overall, Third Bridge experts believe that H&M is increasingly focused on building around its strengths, refining the brand experience, and staying aligned with the evolving values of its core customers. As the market becomes more competitive and complex, relevance, clarity, and consistency are emerging as priorities that carry as much weight as price in shaping future growth.

*All insights in this article are based on what Third Bridge experts have shared.