H&M Betting On Digitalization For Global Expansion

Overall slowdown

Betting on digitalization and continuing global expansion.

In addition to Zara, which continues to grow strongly, fast fashion seems to be experiencing development bottlenecks. The performance of H&M, a fast fashion group in Sweden, is slowing down.

According to the world clothing and shoe net, H&M (STO: HM) released its first 9 months of fiscal year 2017 as of August 31st.

The report shows that H&M Group sales rose 7% to 173 billion Swedish kronor, or about 21 billion 200 million US dollars, lower than expected.

The pre tax profit is 15 billion 900 million Swedish kronor, or about 1 billion 950 million US dollars, and the gross profit margin is 53.6%.

H&M group did not stop shop in the global market.

In the first nine months of fiscal year 2017, the group successfully opened the first stores in Kazakhstan, Columbia, Iceland and Vietnam.

Georgia stores in the United States will open this fall, and the market for opening stores in 2018 will be Uruguay and Ukraine.

In the first 9 months of this year, the group opened 269 new stores, closed 67 stores, and added 202 new stores.

As of August 31, 2017, H&M group has 4553 stores worldwide, 4135 in the same period last year, 209 of which are operated by franchising partners.

By Region:

China's H&M group has the most significant growth in the first 9 months.

Sales increased by 8% to SEK 8 billion 380 million.

Germany sales of H&M group's largest market increased by 2% to SEK 27 billion 310 million.

Regional sales increased by 8% to 21 billion kronor in the US.

British regional sales were affected by Europe, down 2% to SEK 10 billion 870 million.

Sales in France increased by 3% to SEK 10 billion 330 million.

Sales of Sweden in the H&M group grew 2% to SEK 7 billion 630 million.

Italy's sales increased by 4% to SEK 6 billion 770 million.

Sales in Spain rose 5% to SEK 6 billion 160 million.

Sales in Holland recorded a decline of 2% to SEK 5 billion 550 million.

Norway's sales increased by 7% to SEK 4 billion 640 million.

Sales in other parts of the world surged 14% to SEK 64 billion 630 million.

In terms of the number of stores, the European and American markets have opened 40 new stores in the first 9 months of this year. The Asia Pacific region has opened 109 new stores in the first 9 months of this year, and the Americas region has opened 18 new stores in the first 9 months of this year.

Financial reports said the group will open online stores in two markets in Philippines and Cyprus in 2017. In addition to the 6 online markets already opened in 2017, the 2018 group will continue to conquer the online market in India and other places. The ultimate goal is to provide H&M business services in all market and wider market.

Excessive inventory is one of the problems of H&M, so the group carried out promotional activities in the third quarter, but to a certain extent, it slowed down the growth of performance.

In the three months ended August 31st, H&M Group sales rose 5% to 59 billion 380 million kroner, or 7 billion 420 million US dollars.

In China, the embarrassing H&M in the main market is still hard to escape.

This month, there was an uproar in the news that the H&M store at the north entrance of Xidan's pleasure city in Beijing was being withdrawn from the store. It was also one of the first stores opened by H&M in Beijing.

3 floors of gold shops from minus one to two were emptied.

According to well-informed sources, this is not a temporary store consolidation, but will be formally closed down, or will be replaced by the flagship flagship store.

Moreover, according to the practice of signing a contract for more than ten years with fast fashion, the lease has not expired, which means that the city is risking the cost of paying liquidated damages, and H&M has to give up the pavement.

Some analysts believe that H&M's opening up from China to its current store is now reflected in the golden age of fast fashion in China.

However, in comparison with ZARA, such a conclusion may be premature.

According to fashion headlines, ZARA sales in the world in the first quarter of this year have increased by two times that of H&M, and more reasons may be sought from H&M itself.

From the group's various occasions, including the statement of the first nine months, the H&M strategy is still actively expanding.

The group's tentacles are always ready to reach the new market. H&M brand's official website has entered 6 new markets this spring. They are Turkey, Taiwan, Hongkong, Macao, Singapore and Malaysia. They are now open to 41 countries and regions around the world.

In terms of physical retail, Karl-Johan Persson, the group's chief executive, said after the release of the earnings report that the H&M group will maintain a positive attitude of expansion. In 2017, it will open about 500 new stores while closing 100 undesirable stores.

The September earnings report also confirmed the group's determination to expand the entity.

But for slower sales growth and reduced passenger traffic, H&M's response is less positive.

H&M seems to be a little blind to the problem of direct impact on consumer decision-making because of the lack of fast new speed, lack of design, and low fashion.

In fact, the H&M group is already aware of the current situation, and the group CEO Karl-Johan Persson said in a statement that fashion retailing is growing and that it is in a period of wide and rapid change, which is the result of digital.

As new participants enter the market, competition is being redefined, and customers' behaviors and expectations are changing. Online sales are increasing.

However, he acknowledges that H&M's growing online sales have not fully compensated for the decrease in passenger traffic in several important markets, which has led to unanticipated sales, and the group is not satisfied with it.

Therefore, H&M said in the latest earnings report that the future group development will focus on digitalization, and the annual online sales growth is expected to be at least 25%.

Now, H&M group should devote more energy to digitalization.

But people wonder whether the group has proposed a better product strategy.

From the product itself, the situation of H&M is becoming more and more embarrassed because its quality is not better than that of UNIQLO, but its fashion ratio is less than that of Zara.

The rule of fast fashion is to pursue the fastest.

Under the Zara craziness, when a fast fashion brand can't be the fastest, it may have to consider other directions.

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There are various signs that H&M group's overall strategy is undergoing subtle changes, and it seems that it will pform to high-end lifestyle brand.

First of all, from the brand layout, the group's COS has become a new growth power of H&M group, and its design and quality are excellent.

For the COS brand, H&M group still has great expectations. The brand is expected to reach 10 billion Swedish Swedish sales of 1 billion 170 million dollars this year, and has the potential to become the second largest brand besides H&M.

The COS brand opened its first flagship store in Regent Street, London, in March 2007.

And in just a few years, it has attracted rapid attention in the fashion industry and consumption boom. According to the fashion headline data, the brand expands with the average annual opening of 22 stores.

According to the relevant data, sales of COS grew rapidly. From 2009 to 2014, the sales volume of COS increased from $132 million to $625 million, and nearly 5 times that of COS.

As the H&M group's high priced medium sized minimalist brand, COS has a surprising profitability. Earlier, data showed that COS's single day profit in London has surpassed all the H&M shops in the same city.

This year, H&M launched the new brand ARKET, which is considered to be the second COS.

On the 25 day of last month, ARKET's new store in London just opened.

Fashion headlines earlier reported a detailed analysis of the intention of H&M to "recreate" a COS.

This new brand is completely different from the fast fashion H&M, which is the main Nordic design style. It insists on pure color, comfortable fabric and sharp tailoring.

The store will not only sell products such as men's clothing, children's clothing and home products, but also sell ARKET's selected brands from other brands of the group, and have a Nordic cafe for consumer entertainment.

H&M has been looking forward to this new brand for nearly two years.

The introduction of a brand similar to COS is more likely to replicate and expand the latter's success mode. In other words, the group will increasingly distribute in the boutique lifestyle area to reduce its dependence on fast fashion brands and weaken the positive competition with ZARA.

People can smell different smells from H&M's newly announced designer collaboration this month.

The group's choice of designers is not so high a topic of Erdem, the latter is famous for its printing and dress, and avoids the street style that is best sold nowadays.

This month, the group also announced that it will launch the H&M Studio 2017 autumn winter cooperation series with Colette, a buyer shop in Paris. The cooperation includes 9 single products, and special color combinations, hand painted graffiti and burlap jacquard are derived on the basis of Colette landmark blue.

H&M has become more and more cautious about the selection of partners, and is more inclined to choose the partners who have higher wind ratings rather than topics.

In the fast growing fashion market in China, as the middle class continues to expand, they are no longer satisfied with the short pleasures brought by cheap and fast fashion, and begin to "break off" too many consumer goods. Instead, they choose "small but fine" and have a high pursuit of quality of life.

COS's success coincides with the demand of the expanding middle class, although sales of H&M are higher than that of fast fashion, but sales growth is very impressive. It also proves that the market space of the middle class has not yet been fully explored.

This is why the 3 floor H&M of Xidan's Joy City has been withdrawn from shops, and the COS of Sanlitun's Taigu lane is high throughout the year.

In a large number of two or three line city H&M stores, you can hardly feel the fast fashion group's adherence to environmental protection and lifestyle because of its extensive expansion and display.

To be more precise, the biggest difference between H&M group and other commercial fast fashion groups is not widely recognized by consumers.

From the perspective of corporate social responsibility, H&M is indeed respected by the industry.

The problem is that the natural contradictions between fast fashion and sustainable development make it more difficult for H&M to pursue sustainable production.

If the group adhered to the brand like COS and ARKET more effectively, it would be more effective.

With the continuous improvement of Chinese consumers' awareness, many new middle class consumers are very willing to pay for products of high quality and social responsibility.

Therefore, some analysts suggest that for fast fashion H&M, brands need more theme oriented and efficient shops.

At the same time, the group should realize that although fast fashion H&M has met the ceiling in China, its &Other Stories and ARKET have not yet entered China's potential market.

H&M may need a clearer product strategy.

H&M shares fell 5.13% to 211 Swedish kronor after the earnings announcement.

Since its start in 2017, its stock price has fallen by about 18%, and its market value is 308 billion 200 million kronor, or 252 billion 400 million yuan.

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