The product, a beanie hat, was being developed for the H&M-controlled “& Other Stories” fashion chain, which has 70 stores in Europe, the United States and Asia.
“We take the use of racially offensive language extremely seriously. While internal and external investigations are taking place, we have suspended the team and managers responsible for this area of the business,” H&M spokeswoman Ulrika Isaksson said in a statement to AFP.
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The product team had used a racist slur in the name for the hat internally, and it had not gone on sale to the public, according to H&M.
Like other companies, the Swedish retail group has been emphasising its anti-racism credentials in response to Black Lives Matter protests, since the killing by police of unarmed black American George Floyd in May.
But it has been accused of racial insensitivity in the past.
In 2018, the company featured an advertisement of a black boy sporting a hoodie with the words “Coolest monkey in the jungle” written on it.
After a backlash, H&M issued an apology and withdrew the hoodie from sale. Isaksson said the company was making a number of commitments to “improve the diversity of our teams”, and strengthening “internal controls” on images and texts.
“We have already run training on conscious and unconscious bias for thousands of people across the company. As part of our global inclusion and diversity strategy, this will now become mandatory for everyone,” she said.