After years of underperformance, the Swedish fast fashion chain is using the crisis to slash rents, close stores and speed up its digital makeover.
By guest author Carol Ryan from Wall Street Journal
Global fashion retailers face a potentially harsh winter, but at least they aren’t wasting the crisis.
Shares in Swedish clothing chain Hennes & Mauritz HM.B -1.71% rose 8 % in morning trading Thursday, October 1, 2020, after it reported good news about September sales. Revenue was 5 % lower in the month compared with a year ago—a sharp recovery from the 16 % year-over-year drop for the three months through August that the company announced a few weeks ago.
H&M also beat earnings expectations for the summer quarter. The business made a pretax profit of 2.4 billion Swedish krona, or roughly USD 260 million, while analysts had thought it would barely break even. The same thing happened at Zara-owner Inditex, the world’s largest clothing retailer by market value, and fast-fashion chain Primark, that both reported better-than-expected summer profit.
Global clothing brands have done a good job of controlling what they could during the pandemic. Despite widespread store closures in the spring, H&M ended August with the same amount of stock that it held a year earlier. Inditex, which has an especially flexible supply chain, is carrying one-fifth less. Having stores in Asia, where the pandemic first appeared, undoubtedly gave them more insight into what was coming next than regional retailers in Europe and the U.S. “They canceled orders early on and then were cautious about new ordering. So there has been less discounting and stock levels are better than expected,” said Aneesha Sherman of brokerage Bernstein.
The crisis has handed retailers leverage with landlords too. H&M negotiated rent cuts of up to 30 % in certain markets and plans to close 5 % of its stores in 2021 as it reverses decades of expansion. Inditex will shrink its physical network by a more dramatic 12 % over the next two years as more sales move online.
There are still issues to be fixed. H&M offers a “click-and-collect” service, where customers order online and pick up in store, in just 14 of the 70-plus markets it operates in. Rolling this out quickly is a priority. Overall, though, the Swedish company seems to have vastly improved its operating flexibility, bringing it more in line with best-in-class Inditex.
With case numbers rising in Europe and the U.S., investors need to worry about the risk of a relapse in the consumer recovery. Against this backdrop, it is reassuring that Europe’s global fashion chains have found a sharper look.