Sweden: H&M lays out turnaround plan to combat falling profit

Source: Mintel 01-02-2018

Swedish clothing retailer H&M has announced a 32% drop in net profit in its fourth quarter thanks to declining footfall and heavy discounting.

Sales in the quarter also declined by 4% to SEK 108.1 billion, but the picture was more positive for annual sales, growing by 4% including VAT to SEK 232 billion. As part of the final quarter profit drop, CEO Karl-Johan Persson plans to close 170 underperforming stores, but open around 390 new ones, leading to a net increase. Around a quarter of the new shops will be H&M’s other brands, such as COS, Monki as well as its soon-to-be-released Afound.

The retailer’s online sales failed to grow sufficiently over the period to combat the decline in footfall, leading the retailer to invest more in ensuring that an online store in every country is available.

“H&M's results are disappointing and are further evidence that the big players in the clothing market have been underperforming. The way people are shopping for clothes and shoes is changing and H&M has not reacted fast enough to these changes. As people are shopping more online, with Mintel's research showing that online sales of clothing grew 17% to reach £14 billion in 2017, H&M has been highly exposed to the decline in footfall on the high street due to its large store network. Its multichannel offer lags behind many of its competitors and given that Mintel's consumer research shows that 46% of online shoppers reserved fashion items online for in-store collection, it is highly surprising that the retailer is only just rolling out click-and-collect services and online returns in store. As a young fast fashion retailer, like Topshop and New Look, H&M is under increasing pressure from the nimbler young fashion pureplays such as Asos, Boohoo and Missguided that have shaken up the youth fashion sector and been delivering the latest trends at breakneck speed. While H&M's strategy of speeding up its supply chain, optimising the store network and improving the digital shopping experience makes sense, in a challenging market it will be hard-pressed to catch up with better performing rivals such as Zara.”