By Jasmine Wright, CNN Business

(CNN) -- An internal photo uploaded to a product overview system named a purple hat as 'Nigga Lab Beanie,' last month at clothing company & Other Stories. Upon complaint from employees, they issued a companywide apology and the caption was never made public. The company said it is investigating how the hat was named with the racial slur. Parent company H&M group CEO Helena Helmersson says the team including the responsible managers have been suspended during the probe. The product has also been canceled.

"We are deeply sorry about the word connected to an image of a product that was sent out to our stores during July," Stories' Managing Director Karolina Gutke, wrote in memo to employees on July 21. "This is completely unacceptable and there is no excuse to why this happened." The photo of the internally named hat and companywide letter have been exclusively obtained by CNN Business.

In a statement to CNN, Stories acknowledged the incident, saying it "recently discovered that one of our internal documents included a reference to a product using a racial slur, for this we are deeply sorry."

"We take the use of racially inappropriate language extremely seriously. Although the word was never printed on an actual product, the use of the word was completely unacceptable and is inexcusable," the statement read.

& Other Stories, an offspring of retail giant H&M Group, has 70 stores in Europe, the US and Asia.

H&M Group confirmed the slur appeared on a list in July of all the clothing items and accessories to be sold for the upcoming Fall/Winter season. The list was uploaded to an internal system and under each product was the internal name of the item -- a kind of codename used only by the company. The captions are created and uploaded by design and buying teams — and have to be approved by multiple people before they hit the server, the employees said. H&M Group says name with the slur originated in the & Other Stories Paris Atelier.

& Other Stories did not explain how the error happened or where it came from. But it said it maintains "clear policies and procedures to prevent the use of racially inappropriate and insensitive" material, and the incident is now under investigation. H&M Group pointed to their global non-discrimination policies and their inclusion and diversity policy which condemns the use of racial slurs.

"Clearly these were not followed, and we are currently investigating why. We will take the strongest possible action - to ensure that racially divisive language or images are not used again," the company said in its statement. Although the responsible designers have been suspended, Chief Diversity Officer Annie Wu says she would like to eventually see them terminated following a fair investigation.

"Personally, I am super angry and ashamed that something like this could even happen," Wu said in an interview with CNN Business. "I would want to see them terminated, because there's no excuse for it."

H&M Group says instructions were given to remove the image from the server and any physical copies already printed.

Employees are furious

The apology letter to employees called the naming of the beanie, "accidental in nature." But employees question how such an egregious error was made -- and passed the eyes of nearly a dozen people who they say typically have to approve such pages before they are uploaded. H&M Group wouldn't confirm the figure as they said it varies depending on the product, but said it would be a "smaller" number of people involved at this stage.

Two employees said the company attributed the error as a misspelling in private conversations. One employee faulted the culture at European corporate offices which they said are less diverse than the actual stores both abroad and in the US. "Well, what were you trying to spell? What could you even have been trying to name this product?"

"You have a situation where someone doesn't feel like it's wrong to write that word down, how am I supposed to look at my colleagues of color and tell them that this company cares about them? I can't do that anymore," an employee said.

Another employee said they are now thinking about leaving because of this incident. "I just felt completely terrible for all of my Black colleagues that I've ever met. And how terrible they must feel to work for this brand."

But all three employees, who asked for anonymity to speak freely in fear of retribution, say this may be the most egregious offense by the company, but it is not the only racially insensitive incident in its seven years of existence.

In interviews with CNN Business, employees describe a workforce lacking diversity and a void of a true effort in fostering an environment of racial equity despite multiple workshops on diversity and inclusion created to respond to a variety of sensitive incidents. & Other Stories did not respond when asked for their diversity numbers.

Diversity and inclusion problems

But parent company H&M Group said in their most recent survey of their 17,000 US employees in both corporate and stores, 34% self-identified as Hispanic or Latino, 26% self-identified as Black or African American and 26% self-identified as white, 7% Asian, with every other race below that.

The company's diversity numbers are drastically different in executive management roles, where 63% self-identified as white, 13% self-identified as Hispanic of Latino and just 6% identified as Black, with the same figure self-identifying as Asian . For office roles, 48% self- identified as white, 17% self-identified as Hispanic or Latino, 11% self-identified as Asian and 10% as Black, with the numbers skewing whiter for office management.

H&M group did not provide figures for their offices in other countries, where employees say the majority of race issues stem, citing legal regulations that bar companies from collecting personal information.

The racial slur incident comes during a worldwide reckoning on racial injustice that has forced many industries, including fashion, to reflect on the insufficient diversity and unequal representation in their ranks.

Employees described a troubling episode several years ago on a vision board that's sent out every season to align and provide inspiration to designers on a concept. One slide included the famous late 1700's slavery image "Am I not a man and a brother," that was used as a seal for the British Society for the Abolition of the Slave Trade. The image shows a black man kneeling, with his hands and feet tied up in chains. Again, employees say the deck originated out of Paris as inspiration for calligraphy type.

One employee said that image was sent out to a list of hundreds of designers and collection creators in the company. One employee said there was an "audible response through the office," and they started to complain.

"It's like, why on earth would this image be present here? Why is this something you would turn to for inspiration? And the response was very a canned and diplomatic, 'we'll look into why this happened.'"

Stories did not respond to questions on this incident, but H&M Group said they are aware of the incident and "the image was removed from that internal presentation."

Consequences and action

Still employees say no real consequences came from that racist incident, just various workshops both companies made available.

Stories, in its apology letter for the beanie, said it stands with the Black community and vowed to take action. It also listed ways it has attempted to create a more equitable workplace like using women of color models online, a plethora of trainings and hiring strategies.

Asked how the company stands with the Black community, H&M group pointed to several partnerships from its US office with Historically Black Colleges and Universities for internship programs in the US as well as schools in Harlem to show their commitment, but nothing for the European branches of the company.

H&M group says among other initiatives, the management teams in the top 10 major markets will publish new specific targets for representation like the ones already established in the US that seek "to double the percentage of black representation and increase representation for all underrepresented groups in management roles by 2022," their website says.

And they will identify diversity gaps within their own headquarters and create numerical goals to increase the diversity of their management teams and board of directors.

"We have been and will continue to work super hard on making sure that representation is at the very top of the actions that we're building around our inclusion and diversity work," Wu said.

In its statement, Stories said they were "committed to a safe and inclusive workplace," and it would launch an in depth, mandatory unconscious bias training plan in the Fall for all staff, strengthen internal controls of images, products and text and improve diversity metrics without giving specifics.

But the company has also been criticized by outlets including fashion watch dog and Instagram account Diet Prada in a now removed post for mimicking jewelry from Tanzania's Maasai people. Employees say Stories removed the jewelry line after accusations.

Stories did not specifically address this incident in response to questions and H&M Group did not say whether they issued a statement at the time but said in a statement to CNN they took the accusations seriously and began conducting cultural appropriation training among others across their offices.

An ongoing issue

Still, employees pointed to the continued creation of stereotypical garments of Asian culture as well as calling wrap-style dresses "Kimonos" among other items well after the implementation the trainings.

"There is a huge disconnect about racial identity and politics and that they just truly are ignorant," one employee said. "It's incredibly disappointing and offensive obviously, it's a consistent problem."

H&M Group, is no stranger to controversy either. In 2018, an H&M ad displayed a black child wearing a sweatshirt with the slogan "coolest monkey in the jungle."

The company was forced to apologize for the incident and removed the ad from their website after social media users accused the company of racism.

Following allegations, H&M launched numerous workshops to foster a more understanding and equitable environment. But employees say it hasn't worked.

"The leadership style comes from H&M. And that kind of leadership style has kind of failed us in bringing out fresh ideas and how to combat these things, or creating a new company culture that would fight against these things," one employee said, adding that the number one problem is a lack of diversity.

"The number two problem is, people don't see it as a problem. They have so many excuses for why we're not diverse and don't make it a priority to be diverse, or inclusive."

"A lot of people have taken trainings, but culture is also very difficult to change in a short amount of time," Wu said, acknowledging that European countries approach diversity differently than in the US. "This has been historically a Swedish company. And we are now shifting over to being a global company, but that won't be changed just by training alone, that has to do with how we also expose ourselves to different cultures, to different people and how we really include them in everyday conversations."