H&M is losing the battle against Inditex

Swedish H&M is losing the fast fashion battle against Spanish Inditex. It may still be the cheapest of the two, but Inditex taps into new trends faster which in turns brings in more customers.

Lowest price is not enough anymore

With a 24 billion euro turnover, Inditex is the world’s second largest fashion retailer (trailing Inditex), but its lower 2017 turnover shows that its success and growth are no longer self-evident. H&M always targets the lowest price, but it seems that the consumer is not bothered by Inditex’ higher prices, because the latter can follow trends faster, according to FD.

The difference is in how both companies manufacture their clothing. The Swedish company gets 80 % of its clothing from low-wage countries, but Inditex gets 50 % from countries close to its most important markets. That may be more expensive, but the clothes arrive in stores much faster as well. According to Goldman Sachs analysts, H&M’s clothing takes twice as long to arrive in stores, which is a huge setback in the fast fashion industry where trends succeed each other lightning fast.

H&M accepts these issues and wants to manufacture more clothing close to its consumers, asking more flexibility from its suppliers because it wants to be able to tackle smaller production numbers.

More issues

Analysts fear the company may have more deeply-rooted issues, like a failed online approach and the fact that its store network is growing too fast. That is why analysts feel like H&M’s results will suffer this year as well.

It is already too late for shareholder Skandia, a Swedish insurance company: it lowered its stake considerably and also lashed out at the company. According to Skandia, H&M has been too preoccupied with turnover growth and not enough with profitability. That is why it wants the chain to close a large number of stores. It also feels that the company lacks a decent online strategy. “The market is rapidly changing and H&M needs to find a way to keep up with these developments”, according to Skandia asset manager Erik Sjöström. If they can show that they can solve it in a few years’ time, then it will become an interesting investment once again.”