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H&M is a mess both figuratively and literally. Its figurative mess is reported in Hennes & Mauritz AB’s recent annual report and analyzed well by fellow Forbes contributors Andria Cheng and Walter Loeb.
In reviewing the latest financial results, Karl-Johan Persson, CEO of H&M’s corporate parent, said, “The weakness was in H&M’s physical stores where the changes in customer behavior are being felt most strongly and footfall has reduced with more sales online. In addition, some imbalances in certain aspects of the H&M brand’s assortment and composition also contributed to this weaker result.”
With disappointment in its current strategy, the company also announced it would close 170 stores, the largest number since 1998, according to Bloomberg, while opening 390 new ones. Though the company hasn’t announced which locations will close, Persson hinted in an analysts’ conference call that stores on the hit list are likely to be in its mature markets, e.g. the U.S., which is its second largest after Germany, when he said, “In comparable H&M stores, performance was weak in many of our large mature markets.”
But unlike investors and analysts, customers don’t read financial reports. They see H&M’s mess at street or mall level. And that is what is bringing this once high-flying brand down.
In order to clean up H&M’s financial mess, it needs to fix the mess at the store level, where the people that matter most experience it. Full disclosure: I have never visited an H&M store in my international travels, but have been to plenty here stateside, so this article looks at why H&M is falling out of favor with American fashionistas.
Uninspired fashion
To put it simply H&M’s fashion supply far exceeds its demand. And while the company has been slow to migrate sales online and sees a fix in expanding its online presence, uninspired fashion isn’t going to sell any better online than it does in the stores.
“Consumers have felt that H&M has been somewhat drab and not on trend as much as competitors,” says Michael Dart, co-author of Retail’s Seismic Shift and an AT Kearney partner. “With slower supply chain (unlike super-fast Zara), they have not responded as quickly to rapid shifts in taste and increasing fragmentation in the consumer market with many more small segments. As a result, they have had more markdowns, promotions and less inspiration for the consumer. It’s a formula for sagging results.”
Shelley Kohan, assistant professor at the Fashion Institute of Technology, sees getting the product right as the key element that will sustain the company long term. “H&M needs a laser focus on product assortment and to ensure products in the market are meeting the needs of their customer in terms of content and availability.”
H&M stores are a mess
And all that unsold product in the stores needs tending, which this recent shopper, Solange Strom, who also happens to be managing partner and co-founder at Infranext Capital and a former retail executive, tells me makes shopping there singularly unappealing.
“I went shopping over the holidays with my 22-year-old son (a pure millennial) and despite being a keen online aficionado, he prefers to go to a physical store when he wants to buy clothes. We entered the H&M store and exited within seconds," she shared. "My son told me there was no way he was shopping there as the store was an absolute mess, clothes everywhere left by clients and with no merchandising to talk about and even less customer service."
They ended up instead at Uniqlo where he made all of his purchases. “Clean store, nice merchandising (good lighting too) competent staff and simple, well-cut basics,” was what they found there.
Fat-shaming sizes
For those intrepid shoppers that don’t turn back at H&M’s door, they too often find pain in the dressing room due to the funky sizing which doesn’t conform to cross-country standard sizing conversions. U.K.-based Look magazine recently sent a U.K.-sized 12 (U.S. size 8) student to the store who found she couldn’t even fit into a size 16 dress there. Not only that but a standard U.K. label 12, or a European 40, is actually labeled EUR 38 at H&M which is a UK 10. Confused? I am, and so surely is anyone who ventures into an H&M dressing room.
We all know the problem of finding the right size across brands, which is only magnified by the challenges of having to size up two to three sizes at H&M. And with people getting bigger anyway, the fashion industry has widely adopted vanity sizing, where patterns are cut larger to fit yesterday’s size 8 into today’s size 6. But H&M is going in the opposite direction, making even normal-sized girls feel fat. London’s Daily Mail did a similar sizing study sending a curvy girl into H&M where she was felt fat-shamed. “I feel fat, ugly, horrible,” she said.
Prices going up, not down
Noting that H&M has shifted merchandising emphasis from accessories to tops and bottoms as its dominant categories, Katie Smith, retail analysis and insights director at EDITED, analyzed pricing across key categories from end of 2014 through 2017, and found the average price point has gone from $23.90 to $27.04, despite the company’s growing emphasis on kidswear. For example, H&M’s prices for women’s jeans were up 15% and T-shirts by 25%. By contrast, Zara, H&M’s closest competitor, has dropped prices on jeans 7.5% and T-shirts by 21%. The result, Smith writes, “Zara and H&M are moving further apart.”
She further notes that by deemphasizing accessories, in-store styling and visual merchandising is threatened.
Capsule collections aren’t the crowd pleasers they once were
H&M was one of the first fast-fashion retailers to collaborate with A-list designers in cheap-chic capsule collections, starting with Karl Lagerfeld in 2004 which reportedly sold out in minutes. But this strategy that has been adopted by other retailers, notably Target, has now become “formulaic,” according to Sarah Shannon's Business of Fashion article, “Do fashion collaborations need are revamp?”
H&M’s most recent collaboration introduced in November 2017 with U.K.-based Erdem, a designer brand favored by Kate Middleton, the Duchess of Cambridge, didn’t grab the attention that many previous collaborations with the likes of Kenzo and Alexander Wang did.
In its introduction of the Erdem collection, the company admitted the brand was “less known that its most recent predecessors,” to which Shannon concurred. “To be sure, Erdem Moralioglu has a relatively small following. And coming after collaborations with major names like Karl Lagerfeld, Stella McCartney, Versace and Balmain, it looked as if H&M was running out of names,” she wrote.
Kohan adds that higher price tags associated with its recent designer capsule collections may also be dampening response. “Some of the newer collaborations come with a higher price tag which may be slightly off their target market.”
Mall strategy fail
Upon landing on US shores in 2000 with the opening of its NYC Fifth Avenue flagship store, H&M followed a largely indiscriminate real-estate strategy heavily weighted toward malls with over 80% of its stores located in such, according to an analysis by real-estate services firm JLL.
With some 536 U.S. stores, H&M faces off with against the other failing mall-based fashion retailers. “Their real estate strategy worked when the brand was cool and in hot demand, but when it is not and with so much choice, the poorer locations become a problem (cost) not a benefit,” Dart says. “The context that I think is important is that with such incredible supply of apparel in the U.S. even small missteps get heavily punished.”
Hennes & Mauritz should fix what ails H&M first
In what might be considered a strategy of distraction rather than a solution, Hennes & Mauritz AB has announced expansion plans, including Nyden for affordable luxury fashions online, the Arket retail concept as a “modern-day market that will offer essential products for men, women, children, and home,” a new eco-friendly Conscious Exclusive collection made from sustainable or recycled materials, and Afound as a “style- and deal-hunting” marketplace for fashion and lifestyle products.
Regarding Afound, which will sell both internal and external brands under an off-price model and is initially opening in Sweden, Kohan sees gaining traction in the U.S. to be particularly problematic with so many established competitors in that space. “Like many other retailers that have added off-price to their portfolios, this may distract H&M from focusing on their core business model,” she says.
In closing, the company may be taking its eye off the ball. Rather than trying to add more products, new stores and marketplaces into the mix, it should fix the mess it is in at its flagship H&M brand. As Dart suggests, “The recent misstep with the racially-insensitive ‘monkey’ sweatshirt is a symptom not the cause of an organization that has significant challenges - of course, with the recent negative publicity, it will only make it that much tougher!”
