Good news if you’re a shopper at H&M. Prices are going down and there’s a big sale going on!
Bad news if you’re an investor of H&M. There’s $4.3B of unsold merchandise sitting around waiting to be sold that’s causing this big sale.
Stockholm, Sweden based “fast-fashion” darling, Hennes & Mauritz AB, known widely as just H&M, released their quarterly report this week and it has analysts and investors scratching their heads.
How does a company who prides itself on moving merchandise from the factory to the consumers’ closet possibly end up with a $4.3B glut of clothing? The CEO says it’s because the mega-retailer is opening new stores and is ramping up their online shopping infrastructure, claiming that the extra merchandise was necessary to stock the shelves of these new outlets, but not everyone is buying it.
“2018 is a transitional year for the H&M group, as we accelerate our transformation so that we can take advantage of the opportunities generated by rapid digitalization,” Chief Executive Karl-Johan Persson said.
The real problem facing the group, slumping sales, is what caused the glut in the first place. H&M reported a first-quarter profit that plummeted 44%, dropping to $170 million from nearly $300 million the previous year.
What’s causing the decline? Some say the definition of fast fashion is changing, well, fast.
The New Fast Fashion
Despite the success fast-fashion brands like Zara, H&M, and Primark, the consumers’ taste for spending on clothing has been dwindling. In the average U.S. household alone, spending on apparel has plummeted by half since 1977, accounting for 3.1% of expenditures. Apparel and clothing spending is being displaced by experiences, and just recently, technology spending.
Some say it is because there isn’t a need to have different attire for work. With neckties and suits being displaced by jeans and sneakers, consumers no longer have distinct wardrobes. Another theory is that consumers are being more eco-minded with regards to their purchases; they’re beginning to value quality over quantity, and the thought of wearing something only a few times before it’s worn out isn’t as appealing as it had been in the past.
But the definition of fast-fashion might be changing altogether.
Take Farfetch as an example. The company is creating what it calls the “store of the future”, and is working to not only transform the shopping experience, but how they receive their new purchases now, too. Sporting an augmented reality shopping experience of luxury brands like Gucci, to 90 minute delivery of those items to your door (depending on where you live, of course), the organization’s take on fast-fashion is all about luxury and service. Fast-fashion is evolving from cheap items with contemporary style, to novel shopping experiences and lightning quick delivery.
But the questions remain for H&M, the second biggest clothing retailer in the world behind Zara, can they change their business model as quickly as consumers change their taste in fashion and shopping habits?
And what are they going to do with $4.3B of unsold merchandise?
They’re already feeding almost 20 tons of defective clothing per year to an energy plant in Eskilstuna, Sweden, which powers about 150,000 households in the town neighboring its headquarters.
Perhaps they’ll start there, and a phoenix will rise from its ashes.