Is H&M Likely To Be Too Fast At The Shop?

Fast fashion The giant H&M has built up a strong capability in the past to identify the fashion trend of T, and to react quickly to the market and sell goods at relatively low prices. But as a retail companies famous for its speed, the industry generally thinks that H&M may be a bit too fast at opening up.
The Swedish retailer, which has 4000 stores all over the world, is opening up with 10-15% growth every year. In 2016, it opened up 425 new stores.
At the same time, H&M Sales and profit growth per cubic meter is very slow. In other sectors of the industry, retailers have been expanding their stores over the past few years, and are gradually reclaiming their store area and trying to increase profitability of their own stores.
In the quarter ended in May, H&M sales increased by only 2% after the value added tax was removed. So far, nearly 400 stores have been increased compared with the number of stores at the end of last year. At the same time, from last year's growth, it also marked a substantial slowdown, using the same metric, sales increased by 21%.
Although the exchange rate volatility has made the brand lose a lot, it has become a very habitual financial risk for multinational retailers. In a report to investors earlier this year, Geoff Ruddell, a senior analyst at Morgan Stanley, gave an estimate that 2016 might be an important turning point for H&M. Since 2007, the retailer's flat shop performance has been declining.
Based on the analysis of Geoff, H&M's annual expansion of 15% feet makes its operating profit higher, which effectively obscures the decline of its single store output rate. Geoff believes that the trend to increase turnover by opening stores is unlikely to last forever, and this year is likely to deviate from the profits of the retailer.
Of course, not everyone is so concerned about the expansion plan of H&M. After all, the global expansion of the retail giant, its various brands and its experience in international stores have led some analysts to believe that the expansion of H&M is far from being "dangerous" or "crisis".
"H&M has a lot of control over its growth, and it is also very principled. "It's not planned expansion," Ricard Jaffe, an analyst at Stifel, told CNBC. "
The international expansion of the retailer is inevitable.
For a company rooted in Swedish Stockholm, "you have to be willing to travel" has become the standard survival rule of enterprises. H&M only ranked its sixth largest market in its country (Germany's largest, followed by the United States).
"They use the best systems and equipment to operate this cross international retailer," Jaffe said. "They have been doing this for many years."
According to Jaffe, although hundreds of new stores open every year, it sounds like a very radical expansion strategy for retail enterprises. But when Messi decided to close 100 department stores recently, it was a blank retail business window for those developers.
Jaffe said: H&M keeps adding new markets to its resume, but in general, even in a very mature retail market, there are plenty of white spaces waiting to be developed. When Messi stores completed its last round of closure, H&M will become the most popular clothing brand retailer in the shopping center. Because of the general appeal of consumers to the retailer and its strong customer attraction, the owner often gives the retailer the rent of the main tenant and invites it to enter. Sometimes, even if H&M agrees to open stores in a less desirable shopping center, shopkeepers will try their best to provide the best location in the shopping mall. They need the deal too much.
"The retailer has a high demand for space, and it needs a lot of space, but it does play a drainage role," Jaffe said.
Falling into traditional retailers can not stop the dilemmas of expansion.
Despite H&M like, these fast fashion players have always been traditional. Retailer They are not immune to the wider industry plight. In recent months, sales of H&M have also been affected by uncooperative weather factors and currency fluctuations, and are under greater pressure than planned price cuts.
"This half year is very challenging for many fashion retailers in the market, but we are confident that we can continue to move forward," CEO Karl-Johan Persson said in a May first half work summary.
From the local currency statistics, from May to June, the sales trend slowed down to 8%. Although the retailer has rebounded slightly to 10% in July, it is still far below the 16% growth rate of the previous year. The company will issue its third quarter fiscal sales next week.
Even in the doldrums of the second quarter, Morgan Stanley analyst Ruddell still doubts whether H&M can maintain its profit driven sustainability. So far, he has pointed out that the retailer's sales space is growing rapidly, and its output is declining compared with its single floor output, making it heavily dependent on operating profits and revenues to maintain revenue.
A year ago, Morgan and Stanley estimated that H&M's earnings per square metre exceeded 10000 Swedish's pre tax income (nearly $1200), and now it has dropped to 5000 kronor. H&M did not disclose its sales space, so Morgan Stanley used the retailer's store number and the retailer's guidance to estimate the average business size.
H&M's online business investment also weights the company's profit margin.
"Obviously, we do not expect this year's profits to fall," Ruddell wrote. On the contrary, he hoped that the slowdown would slow down and began to rebound.
"If the current trend continues to be a simple mathematical calculation, the profit will drop by 40% in 2020, and by 2022, the retailer will have disappeared." Ruddell said.
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