21st Century Business Herald reporter Gao Jianghong and intern Zhang Yizhen report from Beijing
On March 27, local time, fast fashion giant H&M Group released its performance report for the first quarter of fiscal year 2024 as of February 29, 2024.
The company's sales in the first quarter were SEK 53.669 billion, down about 2% from SEK 54.872 billion in the same period last year, and the net profit was SEK 2.077 billion, far higher than SEK 725 million a year ago and above analysts' expectations of SEK 1.430 billion, thanks to which its share price posted its best one-day performance since June, rising about 15% on the day.
In terms of regional revenue, all regions experienced a decline in revenue, except for Eastern Europe and Southern Europe, which increased by 8% and 1%, respectively, and revenue in Asia, Oceania and Africa, where China is located, did not increase at constant exchange rates. In terms of brands, portfolio brands, including Cos, Monki, & Other Stories and Arket, all performed stronger than the flagship H&M in the first quarter, with sales up 8% in local currency. Although the company doesn't break down by brand, executives have repeatedly highlighted Cos' performance.
After the results were released, Daniel Ervér, CEO of H&M Group, said that he would continue to reduce prices - in the high-end strategy of another fast fashion giant ZARA and the low price impact of cross-border e-commerce Shein, H&M will continue to reduce prices, what kind of calculation is this?
Change of coach and steering
H&M said sales were up 2% in March so far in local currency, higher than the company's estimate of flat sales in the second quarter. The company also said that there is still room for positive correction in the 2024 gross margin level against the backdrop of strong gross margin in the first quarter, and the positive "external factors" will benefit the growth of gross margin in the second quarter. In addition, H&M did not provide new financial guidance, but had earlier stated that it was targeting an EBIT margin of 10% in 2024.
At the beginning of this year, H&M had just undergone a personnel change. The position was taken over by Daniel Ervér after the abrupt resignation of former CEO Helena Helmersson in January. In response to the results disclosure, the new CEO, who has been in office for less than two months, said that the company's top priority is to increase sales, which is different from the company's previous emphasis on profitability, which was also echoed by the market and some analysts. In terms of future strategy, Daniel Ervér noted that the company must focus on its core customers, targeting young women, and said that women in their 20s and 30s are "extremely important" to H&M.
Daniel Ervér describes a difficult "balancing act" in which the company continues to lower prices while trying to improve its brand image and quality. In the first quarter of the current fiscal year, H&M's discount was about half a percentage point higher than the same period last year, which Daniel Ervér said was a strategy in an inflationary environment rather than a portfolio mistake. He said the company experienced an environment where price reductions were needed to activate its customer base, but price reductions will stabilise in the coming quarters. Currently, H&M is investing in artificial intelligence to better predict the right product mix and investing in nearshoring production to shorten the reaction time to fashion trends.
It is also worth noting that the United States is its main hunting position in the future. In the first quarter, US sales fell by 7% in local currency, and Daniel Ervér said that inflationary pressures and the popularity of platforms such as Shein weighed on performance, and in this case, the US is one of the markets where H&M is able to offer the best value for money and a strong competitive advantage.
Meanwhile, H&M's new retail positioning, which was launched on 21 March at a new concept store on King's Road in London, offers a more upscale and curated mix of fashion, with a greater focus on customer service and styling advice. It is reported that H&M will renovate 250 stores around the world, focusing on cities such as New York, Berlin and Stockholm, which will be modeled after the "new concept store" in London and will continue to upgrade in the future.
To boost the brand's image, H&M will also increase its marketing spend on social media platforms, and the company is currently piloting a new shopping site in Denmark and will launch it in other markets at a later date.
Pinch hits the breakout
H&M faces a very competitive market. Not long ago, Inditex Group, the parent company of rival ZARA, just announced its full-year results for 2023, and its sales and net profit in fiscal 2023 are both at an all-time high compared to previous years, and it is the third consecutive year of double-digit growth.
Although H&M's annual sales in 2023 are higher than that of ZARA, a single brand, it is still far from Inditex Group's sales of 282.5 billion yuan, which is still more than 100 billion yuan.
At present, ZARA has shown a trend of transformation to high-end by emphasizing fashion propositions, improving store experience, improving quality and increasing prices. The management also made it clear that it is not fast to be fast, but agile and flexible. At present, Zara has fewer offline stores, but they are larger, and the show-style live broadcast it pioneered on Douyin has also sparked heated discussions. The brand has created a range of products at different prices and continues to expand the consumer market, which is very different from the price reduction measures proposed by H&M after the release of this financial report.
In addition to its old rival ZARA, Chinese cross-border e-commerce Shein is also a major challenge for H&M. In terms of product update frequency, according to Lu's data, from November 2022 to November 2023, ZARA and H&M launched 40,000 and 23,000 new products in the US market, respectively, and Shein launched 1.5 million products during the same period, which is 37 times that of Zara and 65 times that of H&M—a type of e-commerce update that can launch the products that H&M offers in a matter of months in 2 days. It can be said that in addition to fast fashion and "ultra-fast" fashion, e-commerce represented by Shein and Temu has created the era of "real-time fashion".
Temu is expanding even faster than Shein. Previously, Kantar Research, a data agency, collected Google search data from around the world, and the analysis results showed that as of January 2024, although Shein's average monthly search volume was close to 62 million, which was greater than Temu's 19 million searches, Temu's search rate increased by 3,022% year-on-year, much higher than Shein's 9% growth rate. At present, Temu ranks first in terms of clothing and accessories advertising exposure in the UK, higher than Amazon, eBay, Asos, Shein and Nike, however, some industry insiders point out that Temu's verticality in the fashion category is lower than that of fashion brands such as Shein and H&M, and closer to a low-cost factory.
In addition to the pressure brought by competing products, H&M's "environmental protection cause", which has been vigorously promoted, has also been repeatedly questioned. As the first fashion company to launch a global used clothes recycling program, H&M has been accused of "greenwashing" in recent years, and in the face of an investigative report launched by Swedish media Aftonbladet in 2023, then-CEO Helena Helmersson responded that this is a common problem in the industry, which once sparked heated discussions.
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