High stock volumes and fewer shoppers have impacted H&M's turnover negatively as it remained far below expectations. The fashion group will shut down 170 stores in 2018 and instead will launch a outlet formula called Afound.
Struggle with stock and online
H&M's fourth quarter (from September to November 2017) turnover experienced its largest slump ever: - 4 % to 5.9 billion euro (58 billion Swedish krona). Excluding exchange rate fluctuations, that drop would have been limited to 2 %. The group fared slightly better for its full year, but the results are still far from ideal: operational profit plummeted 14 % in its fiscal year 2017, its largest drop in six years. Even though the Swedish fashion group still managed a 4 % growth (3 % excluding exchange rates), it “clearly underperformed”, as CEO Karl-Johan Persson admitted.
“The industry’s changes will challenge everyone and that will not be any different in 2018”, he added. H&M mainly struggles with a decrease in store visitors because of online competition and a large stock. In order to get rid of that excess stock, it will discount its products in the next few weeks. The group has also withdrawn its 10 to 15 % turnover increase forecast for 2018 and will shut down 170 stores. On the other hand, it still plans to open 390 new stores, which is nevertheless a lower number than in previous years. The fast fashion chain will also limit the number of new markets to Uruguay and Ukraine.
Retailer in transition
H&M’s long-time secret project has also been revealed: Afound, a discount and outlet platform for both its own brands and partner brands. It will not only have an online platform, but also physical stores. The first one will open in Stockholm, Sweden.
H&M realizes it will have to digitize more and will need to change gears faster. “Our online sales and new brands performed well, but our physical store network struggled. The altered consumer behaviour impacted our physical stores the most and people stayed away because of increased online sales”, Persson added. The group will join forces with Alibaba’s Chinese brand platform Tmall in March.
Its new strategy is also based on a multi-brand philosophy, with multiple formulas for each target audience. It recently launched ARKET and Nyden, but also increased its international reach with formulas like COS, &OtherStories, Monki and Weekday.