The new boss of H&M faces a thorny dilemma: increase prices and lose more ground to budget online fast-fashion rival Shein, or cut prices and risk profit margins falling short of target.

Daniel Ervér, 42, took the reins at H&M on Wednesday after Helena Helmersson quit in a surprise announcement that sent the company's shares down more than 10%.

At the same time, H&M said sales continued to fall over the key holiday trading months of December and January, raising questions about how much revenue the retailer is sacrificing in pursuit of a higher profit margin.

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Shein, which sells $8 dresses, $5 t-shirts and $2 jewellery pieces, has eaten into H&M's share of the lower-end of the market while bigger rival Zara dominates the upmarket end of fast fashion.

The challenge for Ervér will be to show that H&M can boost profit while returning sales to growth.

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In an interview, Ervér said he wants to ensure H&M is "100% competitive", including selling some higher-priced items."We have developed an extended range of elevated products where we raised the quality," said Ervér. "We see a very big interest in products with a wider price range than what we were offering before."

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"Protecting the margin is more important than maximising volumes – so the strategy is slowly working," said Adil Shah, portfolio manager at Storebrand in Oslo, which holds H&M shares.

Falling inventories will also enable the company to increase prices, he said. H&M's as a share of 12-month sales fell to 15.8% by the end of the fourth quarter, from 19% a year ago.

Karl-Johan Persson, H&M chairman and grandson of founder Erling Persson, said the company is also investing in improving value for money, increasing the quality of products while maintaining or lowering prices.

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H&M has been closing stores and laying off staff, most recently announcing it would shut more than a fifth of its stores in Spain and lay off as many as 588 workers.

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