Fast Fashion Brand H&M Expanded Too Much And Suffered Three Consecutive Quarterly Losses.

Factory external release Cost factor Difficult to control

Unlike ZARA, most of H&M's factories are in Asia, and Asia's rapidly rising labor costs and raw material costs have more direct impact on H&M. "The buyers of H&M have become more and more picky, and they are still not satisfied with the offer that we have managed to control." H&M, a supplier in Zhejiang, China, told reporters.

According to the financial report, H&M does not own its own factory. 75% of its factories are located in Asia, and 35% of them are in China.

"They have begun to target countries such as Kampuchea, which are beginning to start manufacturing, and we have already lost some orders this year." The supplier pointed out.

According to Societe Generale data display The labor cost of Chinese factories increased by 89% between 2005 and 2010, while India increased by 3 times. H&M pointed out that it is for these reasons that the gross profit margin has dropped from 65.9% to 61.7%.

By contrast, ZARA, the world's largest apparel retailer, has been catching up with H&M. Most of its factories are located in Europe. Only 17% of its goods come from Chinese suppliers, and a larger proportion comes from its distribution center in Spain. "The production chain is mostly located in Europe, allowing it to better control costs." Cui Hongbo, senior partner of the brand strategy management joint venture group, told reporters. Data from Societe Generale showed that the cost of labor per hour in Spain increased by only 17% from 2005 to 2010. Bad news followed. Not long ago, GAP, the largest clothing retailer in the US, said that inflation was the most serious in nearly 30 years.

"H&M and most other garment suppliers have benefited from cheaper labor costs in Asia over the years, but the good times are over." Simon Irwin, an analyst from the high seas capital, said.

Over expansion of horse race enclosure

"These fast selling brands have done a lot of sweetness in China," Cui Hongbo pointed out. Emerging markets such as China have made up for the decline of these brands in the European market. "Nearly three years after entering China, the test stage of these brands has ended." "Now is the stage of rapid expansion of their horse race enclosure." Cui Hongbo told reporters. As the commercial real estate of the first tier cities boom has been gradually carved up, the commercial section of the two or three tier cities has become their target.

ZARA said that the number of stores that cover China's cities in 2011 will increase from 30 to 42. In the first quarter earnings report, H&M announced plans to open 97 new stores in the second quarter of this year. Analysts expect China, Britain and the United States to be the largest market for expansion in 2011.

Rapid expansion will inevitably lead to a sharp increase in costs. "The essence of H&M is more suitable for intensive cultivation in Stockholm." Cui Hongbo believes that the performance in emerging markets is worse than expected, indicating that there may be a brand problem in itself. Bloomberg notes that rising costs are putting pressure on garment producers, some of whom are trying to shift some of their costs to consumers. H&M is aware of its market share and its parity image, so it has not done so. "Compared with ZARA, H&M has chosen a more youthful image, but it also means that there is limited space to raise prices." Cui Hongbo said.