With Store Traffic Down, H&M Throws Resources Behind Digital

H&M
H&M
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Hennes & Mauritz AB had a bleak 2017 — the Swedish fast-fashion giant reported its biggest profit drop in years due to a decline of in-store foot traffic, a trend that has quickly become the norm for brick-and-mortar stores as they face an increasingly tough retail climate. And it had an even rougher start to the new year when it found itself at the end of a punishing wave of racist accusations after posting a controversial ‘monkey’ sweatshirt ad (its celebrity partner The Weeknd severed ties as a result).

But now the H&M group is attempting to find its footing and regain control of its retail destiny. On Wednesday, it hosted a Capital Markets Day in Stockholm to address its current state and its hope to grow digitally for the rest of the year and onward, with the expectation to see online sales increase by at least 25 percent in 2018.

The retailer cautioned that overall improvements could take longer to surface, noting that 2018 is expected to “remain challenging.”

H&M’s sales in comparable stores are expected to remain negative with a gradual improvement during the year,” the company added in a statement. “A tough start with high opening stock levels from Q4 2017 and imbalances in the product range are resulting in high markdown costs, with a negative effect on earnings at the start of the year.”

Sales in newly opened stores, net, are expected to add approximately 4 percent to group sales in 2018, H&M noted. And overall, “good opportunities” should yield better results than the previous year.

In 2017, its online business as a whole made up 12.5 percent of total sales (SEK 29 billion, or $3.6 billion), with 45 percent of the company’s investments and initiatives going toward digital. The group plans to allocate even more resources and funds to ramp up its e-commerce this year.

On a longer lead timeline, online sales are expected to increase 20 percent per year from 2019 to 2022, with the hope to reach SEK 75 billion ($9.4 billion) in 2022 as it continues to shift its retail strategy from brick-and-mortar to online. Combined with lower price markdowns, H&M group believes it will “lead to good increases in profit.”