H&M continues to face an uphill battle against mounting sales woes, perpetuated in part by its difficulty to make headway on digital and e-commerce efforts as part of the brand’s turnaround plan.
In a call to investors yesterday, H&M executives reported a staggering drop in operating profit of 62 percent in the first quarter of 2018, its lowest performance in the the first quarter in 16 years. Adding insult to injury, the Swedish retailer reported a stockpile of unsold inventory valued at $4.3 billion, an increase of 7 percent in the last year. While CEO Karl-Johan Persson was quick to ensure investors that the slump is a result of 2018 serving as a transitional period, the company has an uphill battle ahead of it.
“As communicated previously, the start of the year has been tough. 2018 is a transitional year for the H&M group, as we accelerate our transformation so that we can take advantage of the opportunities generated by rapid digitalization,” Persson said on the call.
As part of its digital push, H&M plans to extend e-commerce capabilities to 47 new markets in the Middle East this summer, as well as launch two new brands catered to millennial and Gen-Z shoppers. The first, Nyden, will officially launch next week with a focus on collaborations, pop-ups and social commerce, followed by Afound, an off-price marketplace that will sell both H&M and third-party brands. In the report, H&M also notes that it plans to experiment in artificial intelligence and robotics programs, as well as make “continued investments in our tech foundation with robust scalable platforms, faster development of various customer apps and new technologies.”
Andrew Hemingway, executive director of digital marketing and media at GYK Antler, said H&M is stuck in the trap of many of its traditional retail peers that decided to ramp up digital efforts relatively late in the game. He said the only viable way to move forward will be to make a smart acquisition of a digitally native brand, much like Walmart did with Jet.com.
“Digital is not going to be kind to those that come on as late adopters, and I don’t think it’s going to ultimately work for H&M. It has to be part of your core. Look at Walmart; it acquired Jet.com, then took 12 months before it started to gain some traction. But it was able to use that Jet.com acquisition as a real launching point.”
Beyond H&M’s sluggishness on digital, he said the brand’s fundamental flaw may be a mix of misinformed decisions around design and purchasing strategies. Particularly for a fickle fast fashion shopper, H&M is failing to listen to its consumers and make smart design decisions, in part because it lacks the depth of data and consumer insights that a digitally brand has at its disposal, he said. It’s also missing key capabilities that are table stakes for retailers today, like free shipping and returns.
“Why would they have warehouses full of clothes they’re not selling? What are the buying decisions based on? It’s clear the buyers don’t have a strong feedback loop. If you’re a digital shop, analytics are baked into the core of who you are,” he said.
Inii Kim, creative director at King & Partners, said H&M’s faltering performance is emblematic of a brand losing relevance by delivering bad product. While H&M gained popularity for its designer collaborations in recent years, she said the frequency and hype around the collections has continued to wane. Adding to the perception headache is the brand’s loss of buzzy partners like The Weeknd following a recent racist marketing gaffe that buried the company with bad press and public outcry.
Further, while H&M is investing in brands like Cos and & Other Stories, which boast higher-quality products at higher prices, its bargain-store reputation is turning away consumers increasingly gravitating toward environmentally friendly products. Kim said she anticipates that H&M will continue to struggle in the wake of these blips, as consumers grow disenchanted and competition grows stiffer among competitors and emerging brands.
“H&M, in particular, failed to retain a good brand image in the last few years, while some of the other brands and fast-fashion competitors really made an effort to find their identity and ways to appeal to consumers,” she said. “I feel like H&M lost its focus. Consumers are confused about what they’re about. I don’t find it particularly fashion-forward or innovative.”
As the brand moves forward into the rest of the year, carrying promises that technological advances will improve sales, Hemingway said he remains skeptical that it will be enough to help the struggling retailer in the end.
“You have to wonder: If the mall shopper isn’t interested in H&M at this point, what makes them think being online will make them any more interesting or appealing?” he said.