Can Streamlining Entities Change Stores And Promote Performance Degradation?

Faced with the threat of electricity providers, the action of European fast fashion giants has been very slow, but in this competition, they are more like they have already opened up enough distance from their rivals, not only do they survive without problems, they may even go to prosperity.
Sweden's H&M, Monki and Weekday brands Hennes & Mauritz, and Spanish Inditex made a decision last year to streamline the physical network and increase investment in online sales. Now both sides have seen the benefits of this decision.
18 months ago, H&M was still struggling to rebuild its online store again, and seemed to desperately open more profitable shops. Fast forward to the unusually volatile stock market this summer, H&M announced in its latest quarterly earnings report at the end of June that the company successfully maintained a 15% growth. This achievement is commendable for two reasons: first, its summer clothing series is very popular, sales increased by 12% year-on-year; second, the company said it expected to reduce its unsold stock for fourth consecutive months, and predicted that inventory levels will continue to decline at the end of the current fiscal year. The company's share price has risen 1/3 from its lowest level in 14 years last August.
An employee was dressing up at H&M, M Hungary Budapest store. Surprisingly, the fast fashion chain giant got rid of its predicament in just 18 months.
One of the important factors that H&M can get rid of is its fastidious view of its own shop imprinting. After shutting down 140 stores last year, H&M lowered its plan for opening stores this year, from 130 to 175 in the world. The guidelines for its continuous optimization of store portfolio also imply that the company will further reduce the number of stores. A spokeswoman declined to say whether the company will further adjust the figure because of the current global economic slowdown. Carle John Pearson, chief executive, told investors that the opening of some stores may be delayed because the company is waiting for more reasonable rental rates. But the imminent problem is that the company is cutting its excess capacity in Europe, and will also cut the net number of H&M stores in the continent this year.
Meanwhile, Inditex, parent company of Zara, found that the number of its own global stores has doubled to nearly 7500 under the leadership of former CEO Pablo Isla. Although this measure reflects the diversification strategy of the group asset portfolio to a certain extent, that is, the high-end brand Massimo Dutti and youth brand Bershka are included, but the expansion has also left many Inditex stores in the era of e-commerce. As a response, Isla closed 355 stores worldwide last year, 76% higher than its original plan. This year, under the leadership of the new CEO Carlos Crespo, the company will close 250 stores and open 300 new stores. Inditex did not reply to the request for comment.
On the one hand, the number of Spanish retail giant Inditex's global stores has reached nearly 7500. Image source: Alex Tai - SOPA Images/LightRocket via Getty Images
However, although both H&M and Inditex are closing the store, they are still growing in the real store, and the net stores of the two companies are expected to increase this year. Coresight Research said that the number of retailers that the US retailer has announced this year exceeds the total in 2018. Since the beginning of the year, the retail sector, including Gap and A&F's local iconic brands, has announced that it has cut about 4500 net stores (if the number of new stores is not calculated, the total number of closed stores is over 7500). In 2018, the number of closed stores in the United States was slightly more than 2600. In view of this background, the performance of H&M and Inditex is really amazing.
The two companies' plans to sell online are even more shocking. (bold measures may be appropriate, because the two companies say their online sales are less than 15% of the total sales. By comparison, about 27% of American apparel sales come from online sales. Inditex has opened online stores in Saudi Arabia, UAE, Lebanon, Egypt, Morocco, Israel, Serbia and Indonesia this year, covering nearly 500 million people, and the company plans to open online stores for its autumn and winter series in South Africa, Qatar, Kuwait, Bahrain, Oman, Jordan, Columbia, Philippines and Ukraine (275 million new population).
Isla said in May: "no matter where the customers are, even those companies that do not have a physical store now, we also hope that every customer can buy our fashion products."
As Inditex fine-tuning its physical store imprint, the company will rapidly expand its online store. Image source: Jason Alden - Bloomberg via Getty Images
At the same time, H&M has promised a big upgrade to its online store, including improving H&M navigation and product display, and shortening delivery time (compared with other professional online retailers, such as Zalando and Boohoo, and of course Amazon, delivery is indeed a short board for H&M). The company also promised to use the financial technology Unicorn Klarna invested by the company last year to enhance the flexibility of payment.
It is undeniable that as long as the reorganization of enterprises will bring losses. The profits of H&M may decline due to higher investment costs, and it will have to raise the amount of loans to pay dividends last year. After raising the dividend payout at the beginning of this year, Inditex's total dividend payout to shareholders now accounts for about 80% of annual profits. But this is opposite to Morgan Stanley analyst Ciov Rudel. He thinks that Inditex has adopted some legal but very obscure accounting methods to whitewash its profit level in the past four years.
Even so, the Inditex empire of Amancio Ortega, the world's richest retailer, may not be hurt even if it has a market value of 85 billion euros, and Persson's H&M seems to have had the most difficult time. This is something many other retailers like to see.