The retailer’s worst sales performance since at least 2001 has prompted the retail giant to accelerate the pace of store closures
Too late for this holiday shopping season, the owner of mall fashion stalwart H&M is finally getting serious about resizing its store footprint for the digital age. The move is long overdue, and will be painful.
Hennes & Mauritz sales fell 4.3% year-over-year for the quarter through November, the Stockholm-based retail giant warned Friday. This is the worst quarterly performance since at least 2001, according to FactSet data. The stock plunged 15% and is now down 35% over the year.
For years, H&M operated a hugely successful store rollout model. Planting flags in new cities and countries required a lot of capital but seemed to guarantee top-line growth and healthy returns. But the model has come under intensifying strain from e-commerce and new bricks-and-mortar competitors, like Primark, that offer fashion at a lower price.
Chief Executive Karl-Johan Persson, grandson of H&M’s founder, has been slow to react. As recently as September he was targeting 9% net growth in the company’s store count for the year through November. From now on there will be more closures and fewer openings, the company said Friday, though firmer details may not come until an investor day in February.
Meanwhile, Zara-owner Inditex continues to pull away: Third-quarter results published Wednesday showed sales up 10%. Zara competes with H&M in malls across the world, but its logistically sophisticated operations have proven much more adaptable to an era of click-and-collect and whipsawing fashion trends.
Shifting resources out of bricks and mortar is the right long-term strategy, but in the medium term it will remove the only prop to H&M’s growth. Investors should brace for further declines.