In a nutshell, H&M needs to sell more. After years of glowing reviews, popular embrace, and successful operations, the Swedish clothing retailer is struggling, caught in an outdated approach that belies its reputation for speed and fast fashion.
In particular, H&M has been terribly slow to embrace online operations, despite the vast evidence suggesting that omnichannel approaches are a requirement for modern retailers. The reason for the slow embrace of online channels is closely related to H&M’s persistent advantages. That is, it invested everything into supply chains that enabled it to get products into stores faster than anyone else. This fast fashion concept held great appeal, but shoppers want to be able to pick up the latest looks online, as well as in stores. By failing to invest quickly enough in the online option, H&M fell behind competitors with better established online presence, from Zara to Amazon to ASOS.
As sales dropped in stores, H&M thus had little recourse. Faced with way too much inventory, it had to slash prices drastically to try to move items. Such big markdowns meant that it earned far smaller margins, and its net profit fell by approximately 20 percent.
According to some observers, the prospects for the company are not much better. Although it has embraced a digital presence, H&M still plans to open nearly 400 new stores in the coming year, suggesting that its focus remains on the brick-and-mortar channel. Arguing that the CEO Karl-Johan Persson has not done enough to change the situation, one commentator notes that “With its global scale and net cash position, the company has the foundations to mount the necessary turnaround. Whether it has the will is another question; Mr. Persson needs to be much bolder.”
Boldness in this realm implies challenging some of the key factors that enabled H&M to become such a force in clothing retail. But not being bold might mean losing any position in this highly competitive market.
Discussion Questions:
- Perform a SWOT analysis on H&M.
- Would you invest in or want to work for H&M? Why or why not?
Source: Dominic Chopping and Saabira Chaudhuri, The Wall Street Journal, September 28, 2017; see also Stephen Wilmot, “H&M’s Old Formula Needs a New Look,” The Wall Street Journal, September 28, 2017