Fast-paced Swedish fashion house H&M saw a gradual recovery in sales over the six months to the end of May as its stores gradually reopened, a signal that physical retailing remains relevant for mass brands.
The pandemic has increased consumer demand for good-value fashion from fast-thinking retailers like Primark and Uniqlo, which has created a highly competitive environment. Some have not followed suit and Gap’s decision to leave the company’s run stores in Britain is an example of how the powerful can fall.
H&M, whose brands include Arket; Cos; Monki; & other stories; and Weekday — has adjusted quite well so far. Group sales for the six-month period in May rose 12% to $ 10.1 billion (or SEK 86.6 billion), helped by a 75% increase (in local currency) in the second quarter.
While just over a third of the group’s retail businesses were temporarily closed at the end of 2020, the equivalent of around 1,800 stores, they have been reopened sequentially as restrictions were relaxed. As of March, at the start of H&M’s second quarter, approximately 1,300 stores were still closed and at the end of May, only approximately 140 stores remained closed.
A Covid-19 effect makes the second quarter rebound from March to May 2021 better than it actually was, because at the same time last year, the start of the pandemic forced the closure of around 4 000 stores. This year’s comparisons are therefore very favorable. Nonetheless, in the six months from December, the fashion group has seen a strong turnaround, generating an after-tax profit of $ 198 million (or SEK 1.7 billion) against a loss of $ 357 million. over the same period last year.
CEO Helena Helmersson said in a statement: “Despite the continued restrictions, sales have increased significantly. The third quarter has also started well and we are almost back to where we were before the pandemic. In June, the company recorded a 25% increase in sales.
America in charge as China shrinks
Looking at the 75% rebound in the second quarter, there was very good performance in H&M’s top 10 markets, and notable weakness. The United States has advanced with stellar growth of 269% (in local currency) thanks to the country’s opening to Covid-19 faster than elsewhere. The United States is now the biggest market for H&M ahead of Germany (see table below). Other markets where sales soared were Russia (198%), Italy (113%) and the UK (96%).
The only top 10 market to contract was China with a 23% drop. In the second quarter of last year, China was H&M’s third largest market, but has now fallen to sixth. In a call to investors Thursday, Helmersson avoided questions about China, saying only that “we are still in a complex situation”.
A problem for the Swedish retailer has been consumer backlash linked to a decision to stop using cotton from China controversial Xinjiang region. But another factor is that fast fashion brands in general are does not adapt quickly enough to the demanding requirements of Chinese consumers. H&M also closed 13 stores in China, reducing the number to less than 500.
250 store slaughter
Overall for the full year of 2021, H&M plans to close around 350 stores, mostly in established markets, and open just over 100 in growing / new markets. For example, the retailer will debut in Panama in the second half of the year via the franchise. As part of the ongoing store reshuffle, H&M is renegotiating a large number of leases and says about a third of them can be renegotiated or terminated each year.
E-commerce was another priority, and second-quarter sales increased 40%. Helmersson said: “Online sales have continued to grow very well even as stores have opened, showing that customers appreciate being able to shop through their preferred channel. “
In March, H&M opened online in Qatar through a franchise and was also successfully launched on the Zalora e-commerce platform in Indonesia, the Philippines, Malaysia and Singapore. In April, the Weekday brand, which has 58 stores, was launched on the About You e-commerce platform in 23 markets in Europe. About you, Zalando competitor, floated on June 16 and expects to go global with its listing funds.
In search of what Helmersson calls “top-up revenue streams,” H&M has also co-owned Sellpy, the second-hand platform since 2015, but took a majority stake before the pandemic. The retailer is now expanding its business from the four current markets of Sweden, Germany, Austria and the Netherlands with 20 other countries across Europe. To achieve this, Sellpy will work with H & M’s global supply chain.