Category: Fashion

Weekly sales data from H&M China stores are a harbinger of what faces the world’s fashion industry after the coronavirus passes, says GlobalData.

The data shows that while stores are slowly starting to recover from the peak of the coronavirus pandemic in Mainland China, “there has clearly not been an immediate bounceback,” says principal analyst Honor Strachan.

“H&M’s performance in China paints a harsh reality for what is to come across much of the world’s major retail markets, with the US, Spain, Italy, Germany, France, Iran, the UK and Turkey now having the highest number of confirmed coronavirus cases (excluding China) leading to significant slumps in consumer spend on fashion. Moreover, H&M operates in a winning segment of the apparel market, it has the scale to negotiate with suppliers, it has a strong physical portfolio where many stores are new or have been modernized, and stores operate in core retail locations – making its recovery more advantageous than many of its rivals, especially smaller domestic chains.”

“Looking at H&M China’s data, sales were down 79 percent in week 10 despite 89 percent of its stores in the country being open, raising the question whether this is a financially viable strategy in other affected markets due to the burden on operating costs.

“In China, nearly all retailers have now reopened stores, but consumer propensity to spend is significantly higher than in mature retail markets such as the US and much of western Europe so we expect store reopening schedules and the recovery process to be longer than what we have witnessed in China.”

Strachan says retailers must start planning a recovery strategy for each country they operate in, taking into account consumer sentiment and confidence, the country’s financial stability, consumer propensity to spend on fashion, online penetration and the time in the season and promotional calendar.

“All of these factors will impact how and when physical stores should reopen.”

“Understandably retailers will be keen to reopen stores to clear seasonal stock and recover lost revenue, but the impact on profitability by opening these stores too early could be severe.”

He says some retailers may need to consider whether consumer demand after the pandemic’s peak will be sufficient to warrant reopening all stores in any one market at once.

Retailers in some markets around the world will be able to draw on government support to help them through the recovery stage. For example in the UK, business rates have been suspended, and landlords barred from taking back possession of store space due to unpaid rent. Furthermore, in many markets around the world, including in Hong Kong and Singapore, consumers are receiving cash handouts from governments to help stimulate the economy. In others, governments are providing income for furloughed staff and in that case, it may serve retailers’ interests best to keep store staff out of work until consumers resume spending on non-essential items and footfall recovers.

“Understandably flagship and tier-one stores will be a priority to reopen as soon as possible, but retailers must consider what their neighbors are doing in each location as trading from under-occupied high streets or shopping centers will impede traffic and draw out the recovery period.”

Solid results from restructuring have been dented, but fast-fashion label sees potential online.

A recovery in fast-fashion retailer H&M’s sales and profit has been muted by the impact of the coronavirus pandemic on stores across Asia.

First-quarter data for the company showed global sales growth of almost 8 percent, despite sales in China, the company’s second-largest market, plunging 24 percent in local currency.

Demand collapsed in February when more than two-thirds of the chain’s stores in China were closed, driving sales down 84 percent.

Kate Ormrod, the lead retail analyst at GlobalData, said that while a slow recovery in the Chinese market offered hope for the brand as stores began to reopen, the spread of coronavirus through other markets including Hong Kong, Japan, Macau, Singapore and Taiwan saw March sales slump by 46 percent, contrasting with a 7-per-cent rise in the same month a year ago.

Online has provided some respite with H&M’s e-commerce sales lifting 17 per cent during the first month of the second quarter, and 47 out of 51 online sites it sells through still operating.

With three-quarters of its stores worldwide now shuttered, including all shops in Australia and the US, H&M is looking at ways to boost turnover online.

“We do think that the crisis, in general, will lead to a fast shift towards digital,” new CEO Helena Helmersson told the Financial Times. “We need to be ready for that and accelerate some parts of our work.”

Despite a plan to see operating overheads reduced by up to 25 percent, H&M’s sales during the second quarter are projected to fall far enough to result in a loss.

‘‘Present in 74 markets, H&M’s global operation makes the challenge of dealing with Covid-19 all the more harder, ensuring the pandemic is a true baptism of fire for Helmersson,” said Ormrod.

Evidence of the impact of restructuring undertaken during the last year, H&M achieved a net increase in an operating margin of 2.9 percentage points to 4.9 percent during the first quarter, despite the impact of the coronavirus.

“H&M has reaped the rewards of its extensive transformation plan – which we expect to help protect the retailer in the long run and ensure it can better cater to a post-coronavirus consumer,” observed Ormrod.

Meanwhile, the Swedish-headquartered company has suspended new orders but undertaken to pay for stock already fulfilled or in production.

“Protecting the business is a priority but just as it continues to lead the way on sustainability H&M has an opportunity to set itself apart from other fast-fashion retailers by setting the standard when it comes to treating stakeholders ethically amid the crisis,” said Ormrod

“Producing PPE equipment and making donations is commendable, but all eyes are on how H&M treats its thousands of workers, with reduced working hours and temporary lay-offs already enacted and redundancies remaining on the table.”