It turns out a master of fast fashion is having troubling mastering e-commerce.
Hennes & Mauritz, the Swedish purveyor of cheap but trendy clothing, admitted in a earnings report on Wednesday it is struggling to get a handle on e-commerce, a surprising admission from a company that has outmaneuvered countless retailers globally, particularly department stores and specialty apparel chains, for years and peppered the planet with its stores.
The chain, known informally as H&M, also said it would drastically slow the pace of net store openings. For years, H&M’s successful formula has relied on new stores in new markets, with less emphasis on robust e-commerce, a tack that is now coming to bite it. As Bloomberg reported, the store closings are the greatest in number in 20 years for the company.
Referring to shopping’s move online, H&M CEO Karl-Johan Persson said there is a “need to transform and re-think faster and faster” and that the company’s performance was “clearly below our expectations.”
H&M’s profit, and shares got hammered: after the company reported a 33% drop in its fourth quarter profit along with a 2% drop in sales in the fourth fiscal quarter, which ended in late November. The company also said sales in December and January would only be up modestly. In contrast, Inditex, the owner of the Zara chain, is killing it, with booming sales.
At the core of H&M’s problems is a drop in shopper visits of late, which Persson ascribed to “the changes in customer behavior are being felt most strongly and footfall has reduced with more sales online.”
And so the company, which has long been aggressive about making a retail land grab around the world, plans to open 220 net stores this year (390 new ones and 170 closings) well below last year’s clip of 388 or so.
So while H&M tries to get up to speed with e-commerce, hardly a trend anyone could claim not to see coming, it is banking on a number of higher-end brands it has launched n recent years, and pinning its hope on the “Afound” label it is launching this year in 2018 that focuses on cheaper items from outside brands and H&M brands. The company will also start selling items on Chinese e-commerce platform Tmall later this year.
Still, the company knows this isn’t a panacea. “The industry changes are challenging everyone and this will continue in 2018,” Persson said.