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COS: From ‘High Street Céline’ to Stagnation

H&M’s upmarket sister brand was once a proof point for the Swedish group’s ambitions to diversify away from its core fast-fashion business. But COS executives have struggled to keep pace with a shifting market while managing a troubled internal culture.
Source: Instagram
  • Sarah Kent

LONDON, United Kingdom — In the midst of London Fashion Week in September 2017, COS hosted a blowout party at the National Gallery to celebrate a decade in business. Guests — including Olympic diver Tom Daley, model and designer Jasmine Guinness and wellness entrepreneur Jasmine Hemsley — sipped blackberry and apple martinis and bergamot negronis amid a neon forest light installation before enjoying a set by drum-and-bass group Rudimental.

The apparent success of the brand fashion insiders had dubbed “high street Céline” seemed a solid endorsement of Swedish owner H&M group’s efforts to diversify away from its then struggling core fast-fashion business. But the party proved to be a high-water mark.

Less than three years later, COS has stalled and is facing new threats from the sudden shock caused by efforts to contain Covid-19. H&M group doesn't publicly break out financial data by brand, but the company as a whole reported its first quarterly loss in more than a decade as sales fell 50 percent in its second quarter. Though things improved last month, sales were still down 25 percent through June 24 compared to a year earlier. The company has scrapped its dividend and flagged the prospect of big layoffs earlier in the year. Its share price has fallen around 25 percent since January.

But even before the pandemic, the once-buzzy COS was suffering. In 2019, the brand generated just over €800 million ($917 million) in comparable sales, down 2 percent on the previous year, according to an internal financial overview seen by BoF. Though net sales hit €982 million, up nearly 7 percent compared to a year earlier, according to the document, that number has not dramatically increased from the last time the company publicly disclosed COS' turnover in 2018.


H&M group's ambitious goal to build its second-largest brand into a multi-billion-euro business by 2022 now looks unlikely. In January, BoF was first to report the departure of a trio of COS executives: long-time managing director Marie Honda moved to another role in H&M group, while the head of finance and operations and the head of communications also left the company earlier this year.

The underlying problems at COS raise questions about H&M group's ability to navigate today's fast-changing retail landscape beyond the Covid-19 crisis. The company — which itself disrupted the market with its cheap and chic offering, speedy production cycle and high-low collaborations — has long struggled to keep up with shifting consumer preferences and competition from even faster, cheaper digital players.

At the start of 2020, a years-long turnaround at H&M group looked like it was beginning to pay off, but the headline figures masked the performance of its number-two brand. The success of COS and the group's newer labels, like Arket and & Other Stories, have long been central to the company's growth ambitions.

Even before the pandemic, the once-buzzy COS was suffering.

“One of the key drivers of the five- to ten-year view of H&M group is that these businesses become more of a key contributor,” said Citigroup analyst Adam Cochrane.

COS’ challenges will sound familiar to many executives stewarding high-street fashion businesses in recent years: the brand rapidly expanded its retail footprint, increasing its inventory to meet demand that never materialised. It was also slow to build its e-commerce business and is still playing catch up with savvier digital competitors. At the same time, the brand’s minimalist approach to design, once so exciting, fell out of sync with prevailing fashion trends.

Culturally, the brand was struggling too, according to accounts from 20 current and former employees, who for the most part spoke only on condition of anonymity for fear of damaging their careers. Like many others in the industry, its leadership failed to adapt to shifting expectations on workplace behaviour and diversity from employees and consumers alike.

Several pointed to the company’s years-long failure to address allegations against one of its more senior employees as symbolic of the worst of the problems. Emails reviewed by BoF and first-hand accounts from multiple people described inappropriate behaviour they said long went unheeded by human resources and COS’ top management.

What Happened to COS?


COS launched in 2007 as H&M was riding high on nearly a decade of growth, marking the company’s first foray beyond its namesake brand.

It was the heyday of fast fashion's first generation; alongside brands like Topshop and Zara, the Swedish retailer had helped revolutionise the apparel market with a cheap but chic offering that brought the latest trends from the runway to stores with unprecedented speed and frequency, at prices that radically undercut competitors.

Establishing its headquarters in cosmopolitan London instead of Stockholm, COS gave H&M group a toehold in one of the world’s top-tier fashion capitals and introduced a more elevated and expensive offering intended to target a new customer segment.

It was a savvy move that initially paid off. With sleek designs at an affordable price point and stores that could only be found in Europe, it soon became a must-go shopping destination for American fashion editors during trips to London and Paris.

When COS made its US debut, American Vogue labelled it the most exciting trans-Atlantic arrival since French fashion-girl favourite Isabel Marant opened its first store there just a few years earlier. By 2017, COS' sales had reached around $1 billion, or nearly 5 percent of the group's total revenue, and it was expanding its retail network rapidly.

In some ways COS stuck closely to the traditional fast-fashion playbook.

In 2018, H&M group executives hailed COS as the first success in its new business division, a positive growth story that contrasted starkly with their core H&M brand's performance at the time. With the group's share price plummeting after it announced poor numbers for 2017, then COS Managing Director Marie Honda presented the brand to investors at the group's first-ever capital markets day.

“We see a huge potential many years ahead to grow that brand to something really amazing,” then H&M group Chief Financial Officer Jyrki Tervonen told investors in February 2018. “[It’s] already at a good profit level.”

The presentation cemented COS' role as the group’s second brand. “Looking ahead, we expect COS to grow at least 100 percent until 2022, compared to the year ending 2017,” said Peter Ekeberg, then acting head of H&M group’s new business division.


But while the brand has continued to grow into new markets and open new stores, comparable sales dipped last year and net turnover has not grown at the pace suggested in 2018, according to the financial overview seen by BoF. E-commerce has taken off, boosted by expansion into new regions. But on a comparable basis the significant growth in online sales last year was not sufficient to offset the decline in brick-and-mortar. Footfall was down, and across channels customers bought fewer items at lower prices. In June, H&M group said its core brand continues to generate around 90 percent of total sales, little changed from 2017 when it was responsible for 93 percent.

A Weak Digital Strategy

Though it was established to differentiate H&M group’s offering on the high street, in some ways COS stuck closely to the traditional fast-fashion playbook. Like H&M, Forever 21 and other high-street giants, COS initially focused on physical stores, neglecting the e-commerce opportunity. Since 2015, COS has nearly doubled its retail footprint, hitting 291 stores last year. To stock its new locations, it ordered more units, leading to deep end-of-season discounting that undercut the brand’s image.


Though H&M group has been upping its e-commerce game in a years-long strategic shift, the trickle through to COS has been slow. That has forced the company to adapt quickly at a time when online is the only viable sales channel in some markets.

Last year, around 12 percent of COS’ total net sales were generated online, according to the financial review seen by BoF. In the same period, online made up 16 percent of H&M group’s total sales and 14 percent of Zara-owner Inditex’s. Inditex has said it expects online to make up more than 25 percent of total sales by next year, while H&M group said e-commerce surged to represent 28 percent of total sales in the first half of 2020, when many physical stores were closed for a period because of the coronavirus pandemic.

The fast-fashion giant’s transition from a traditional retailer to an omnichannel player has been far from smooth. Across channels, COS still lacks basic capabilities that consumers are coming to expect. For instance, its inventory management system is limited, making it difficult to track stock levels across stores and digital channels.

“COS has a sizeable store footprint and as of now they have not connected the dots between the brand site and stores,” said Supriya Jain, a principal at advisory and research firm Gartner. “We’re seeing brands getting a lot more sophisticated with integrating in-store inventory real-time into on-site pages… when you look at the mid-sized really successful speciality retailers of 2019... that’s a big part of their strategy.”

COS ranked 95th out of 103 companies examined in Gartner’s 2019 Digital IQ Index for specialty retail in the US, which ranks brands based on their digital performance. In the equivalent report for the UK, published in November 2018, it ranked 57th out of 60.

H&M group declined to comment on COS’ financial performance, but highlighted the importance of the company’s ongoing digital transformation. “We, as everybody in our industry, have to adapt to the ongoing changes in the retail landscape, and the corona crisis has accelerated the needs even further,” the company said in an email. “We are confident that COS and the entire group handles the transformation in the best possible way and that we will come out of this well-positioned for the future.”

A Fashion Victim

At the same time as the company’s business practices fell behind the times, COS also failed to keep up with currents in fashion and culture.

When COS launched, its genius was to reference high-fashion shapes, colours and expensive materials rarely seen on the high street at the time and offer them at affordable prices. Under the creative direction of Rebekka Bay — a Danish trend forecaster and design consultant who went on to stints at Gap, Everlane and Uniqlo — the brand tapped into the same aesthetic vein as high-end labels like Marni and Phoebe Philo's Céline, and focused on architectural silhouettes in muted and classic colours that felt sophisticated. Editors and other fashion insiders loved it.

But as more competitors moved into the market for elevated basics, the uniqueness of the concept waned. Meanwhile, fashion's pendulum swung towards the maximalism of Alessandro Michele's Gucci, buoyed in part by the rise of Instagram, where COS' understated aesthetic failed to pop. And yet, for years the label continued to stick rigidly to its core look.

Out of Touch

Worse, the brand also lost touch with the cultural zeitgeist. As diversity and inclusion became an increasingly pressing matter — and a trending topic on social media — in large markets like the US, many brands recognised both the shifting cultural imperatives and commercial opportunities. COS was slow to respond. For years, its communications remained homogeneous, featuring a cast of predominantly white and thin models.

COS — now a global brand, sold in stores in more than 40 markets — has gradually updated its approach, but the casting of more diverse talent remains a battle within the company, said current and former employees. Scroll back only a couple of years on the brand’s Instagram account and the number of diverse faces drops off noticeably.

We're in central London and you have a team dominated by largely white Swedish people.

The company’s external marketing reflected internal issues rooted in a largely monocultural team trying to serve an increasingly multi-cultural market.

When Grant Goulding joined the company in 2017, he said colleagues regularly responded to his comments by attributing his point of view to his Blackness. Though the remarks were sometimes intended as a joke, they were still offensive, he said. Goulding, who is British of Ghanaian heritage and worked at the brand until January 2019, acknowledged that things did improve during his tenure, particularly after the H&M group was confronted with a public scandal for an ad many criticised as racist.

In early 2018, H&M came under fire after putting a young Black model in a sweatshirt that read 'Coolest Monkey in the Jungle.' The company apologised for the incident and went on to hire a group-level head of diversity and inclusion to drive change across the organisation. After that, Goulding said colleagues were more careful about their behaviour, but corporate efforts like unconscious bias training felt like tick-box exercises rather than real change.

“We’re in central London and you have a team dominated by largely white Swedish people,” Goulding said. “It felt like it was just like, tick, done.”


Source: Instagram

After COS posted on social media in support of anti-racist protests in the US last month, several users responded by accusing the company of failing to live up to the values it was claiming to hold. H&M group declined to comment on any individual allegations, but said it has "zero tolerance for discrimination, harassment, or any other improper conduct." In an Instagram post published in June, COS acknowledged it had received feedback that suggested the brand must do better and vowed to take steps to address the issues. Among other things, COS said it had established a working group to drive forward action internally and externally and would review its recruitment, development and retention processes, as well as the partners it works with.

“We need to look through everything; the people that work in our teams, the people we work together with, the creative people we work with, the photographers, models, and that we have role models that are diverse,” new COS Managing Director Lea Rytz Goldman said in an interview. “That is a part of our whole journey within the new brand DNA, definitely.”

A Failure of Process

The company's shortcomings on inclusivity were not the only example of a troubled workplace culture that management struggled to address. Like many in the fashion industry, it has stumbled not only in adapting to mounting awareness of systemic racism, but also in managing shifting standards of acceptable workplace behaviour in the wake of movements like #MeToo and the rise of a younger, more outspoken generation of employees. Even when such issues were flagged to management, it seemed unwilling or unable to address them.

Late on the night of COS' 10th-anniversary party, some of the team working that night gathered in a back room. As they worked, they were joined by a more senior employee. According to two people present and emails recounting the event, the employee approached a more junior member of staff, put one leg up on the sofa next to him and pretended to pour champagne over his head. For the junior employee, the incident was the final straw after he claims that he experienced months of unsolicited shoulder massages, ear nibbling and nuzzling. Half a dozen sources confirmed they witnessed this behaviour.

The junior employee, who was in the final weeks of his tenure at the company at the time of the 1oth anniversary party, went to HR, but the response was muted, he said. According to a report documenting the meeting, he was offered the opportunity to pursue the matter further through the company’s official grievance policy but declined. The employee claimed he was explicit about the issues and was not made aware of the grievance procedure.

A few months after he left the company, he followed up with HR, claiming that he felt what he had experienced was “at best mildly-inappropriate, but at worst… a total abuse of [the senior employee’s] power and verging on sexual harassment” in an email seen by BoF. In response, the junior employee was informed the individual had been provided with feedback and the company was considering “internally appropriate actions,” according to an email seen by BoF. In reality, there seemed to be few actions taken in the aftermath of the incident.

Any type of harassment or inequality is totally unacceptable.

In May 2018, nearly a year after the incident, COS considered launching a formal investigation, apparently in response to concerns over legal action, according to an internal email viewed by BoF. Last spring, then Managing Director Marie Honda offered to meet with the junior employee directly after he posted a long account of his claims online. Eventually, he was referred to H&M group’s global grievance team.

Last July, UK tabloid Metro ran an article in its online edition that addressed the allegations. Internally, it was a morale-sapping elephant in the room that was hardly acknowledged, according to four people who worked at the company at the time. Through a lawyer, the senior employee said he "entirely rejects the allegations as being false and defamatory of him and has indicated that that there are multiple sources to corroborate what he says." H&M group declined to comment on the individual matter. Honda did not respond to emailed requests for comment.

However, many of the employees who spoke with BoF claim they experienced or witnessed issues with bullying. They described the brand’s executive culture as closed and nepotistic, despite its outwardly progressive and inclusive values like “one team” and “straightforward and open-minded.”

Cleaning House

Parent company H&M group appears to be finally cleaning house with some of the recent changes; new leadership at the top could provide the refresh the brand needs. Lea Rytz Goldman, the former head of sister brand Arket, has stepped in to lead efforts to revamp COS, but re-energising the brand will be a challenging task.

Still, many people who spoke with BoF for this story were quick to praise the abilities of their colleagues in the trenches, suggesting the brand may still have the talent it needs to succeed. It helps, too, that COS can lean on the deep pockets and extensive infrastructure of its parent company to help its turnaround.

From a business perspective, “I think what we’ll find with COS is an ability to try and redefine what it is isn’t going to be so difficult,” said Citigroup’s Cochrane.

Goldman has extensive experience within the group, where she has previously run both Monki and Arket. Work has already begun to reinvigorate the brand and navigate through the current crisis.

Last month, she launched an internal workshop to plan out a new brand identity, aiming to modernise the company’s look and feel while retaining its heritage. In an interview, Goldman said COS’ digital transformation has accelerated as a result of store closures caused by Covid-19, but she is also betting on the company’s network of physical stores to remain important points of contact and communication with customers.

According to retail data firm Edited, COS’ online sales have picked up this year, with products selling out online in the UK faster than they did a year ago.

Changes and developments are needed in many parts of our business.

Meanwhile, Goldman said she’s made creating a more inclusive culture one of her core areas of focus. COS has announced plans to establish a forum to allow employees to speak up on issues of racism or other forms of discrimination. It’s establishing an internal working group to suggest and initiate further actions the company can take and reviewing its recruitment, development and retention processes.

“Any type of harassment or inequality is totally unacceptable,” Goldman said. “Naturally we have policies and processes, and if they don’t work, we have to reassess to really make it clear to the organisation and to act when or if things like this happen.”

Whether these actions will prove more successful than previous diversity and inclusion initiatives will be a test of Goldman’s leadership. The new managing director acknowledged that she will have to work to establish trust within the company.

“As a new leader, when you want to create an open environment and an inclusive culture, that takes time. And I, together with the leadership, have to create trust for people to be able to speak up,” Goldman said. “I started in February and we are in a very challenging situation… I know changes and developments are needed in many parts of our business.”

Related Articles:

Inside H&M’s $4 Billion Inventory ChallengeOpens in new window ]

Cos Undergoes Executive Shake-UpOpens in new window ]

Inditex: Agile Fashion ForceOpens in new window ]

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