H&M store

PARIS Executives at Hennes & Mauritz AB will spend Valentine’s Day explaining their plans to investors on how they expect to rejuvenate the business. The company is revisiting its vast network of stores and testing new ideas as part of its adjustment to the shift in consumption online.

“We expect the event to be very well attended and we think it will give the company a chance to explain more how it can correct product range mistakes for the main H&M brand and more color on how it can reignite sales growth,” said Richard Chamberlain of RBC Capital Markets.

A dip in annual profits reported a few weeks ago showed the Swedish fast-fashion retailer is struggling against competition from nimbler rivals on several fronts, adding pressure on the company to offer a convincing turnaround program during its rare capital markets day.

“With online sales growing, it’s becoming easier to buy online — the stores need to offer something more and more of a great experience, not only as a place for buying garments, maybe offering other things as well, and also packaged in a nicer interior, easier to shop and easier to return and maybe other services as well,” said Karl-Johan Persson at the H&M’s earnings presentation in January. “We’re looking into a wide range of things.”

Executives cited services meant to better integrate physical and digital stores, such as click and collect, the return of online purchases in physical stores and mobile payments.

The company was looking into offering shareholders the option of reinvesting dividends in exchange for stock, which would have provided more funds for turnaround projects. But on Tuesday, H&M said it has shelved that idea, citing technical complications and time constraints, and will propose an annual dividend of 9.75 Swedish kronor, or $1.21 a share, at its May shareholder meeting, the same level as the previous year.

With anticipation growing ahead of the Valentine’s date, the looming question is what can H&M do to improve its vast network of stores — the retailer counted nearly 5,000 at the end of last year.

Cedric Lecasble, an equity analyst with Raymond James, noted his team has for months puzzled at why the company continued to pursue such aggressive network expansion when the performance of existing stores called for attention.

“It took a long time and a lot of pain before management finally challenged the business model that has propelled H&M to being the second-largest apparel retailer in the world,” Lecasble said.

While the analyst explained he’s not a specialist in store merchandising, he sees room to make simple improvements, in signage or by reducing the number of products in some stores, for example.

“I wouldn’t be able to teach them their business — they’ve had phenomenal success, they’ve been very good at what they do for a long time, but beyond their online model falling behind, in the physical stores, the products, their display, merchandising, signage — it could all be revisited.”

The main problem, according to Lecasble, is the drop in store traffic. A well-organized click-and-collect system that offers fluidity between online and off-line activity, for example, could help drum up traffic, he noted:

“That’s a way to bring people into your stores.”

The analyst added that it could make sense to focus on more volume per product to improve profitability per unit, noting that it’s easier to manage fewer product references.

The chain could focus on sending a clearer message to consumers about specific products and how they are different from what the competition offers, he also said, pointing to Japanese rival Uniqlo’s method of highlighting items like the puffer jackets which are displayed prominently in stores, with special displays to show how they are different from products from rivals.

Interior designer Dillon Garris worked on Lacoste’s store network for six years and more recently helped the skiwear company Fusalp relaunch the brand, shifting from a wholesale model to building its own network of stores. During his time at Lacoste, the label stripped down the amount of furniture as part of a bid to focus on the products, which were arranged around the floor in a way that allowed salespeople to notice best-selling items at a glance around the store.

Garris said H&M should consider focusing on specific spaces where the label can interact with customers, starting with the dressing room.

“While they’re in there you have a captive client that you can help buy other things….You want to incite them to have an impulse buy with that extra ten dollars that they didn’t want to spend or hadn’t thought of spending,” he said.

Citing the often sprawling size of the retailer’s stores, Garris suggested crafting small living room environments. At a recent store visit, he said he noticed there wasn’t any space for people to sit.

“I understand the philosophy ‘We don’t want our clients to lounge, we want them to zip in and zip out.’ But the thing is they’re not just selling T-shirts and jeans — if there’s one person in a party of shoppers who would like to lounge, I think that option should be there for them,” he said.

Such loungers can turn out to be “fantastic buyers,” he added.

“When I have someone sitting, I know how to direct his attention, with the environment I’ve put the seat in. I know his or her eyes will be at a certain height, and maybe they can see the next promotion I have on the new products coming up….I know that that’s an opportunity to sell.”

Garris said the layout of cash registers could also use attention.

“This huge long massive lines of cash registers, it reminds me of when you turn off onto the turnpike and you don’t know where your card is and you say, ‘Oh my god, I have to get out the money.’ And it says to me in a very ominous way, ‘Take out your wallet — I’m looking at you.’”

He suggests making the payment system easier and as user-friendly as possible, citing Ian Schrager boutique hotels that put a normal desk out with someone siting behind it in a more informal manner.

Lara Hinton, who advises brands for development strategies, pointed out the importance of the sensory experience of visiting a store.

“What’s interesting in the approach of human beings, in communication or even marketing, we can affect people with senses, what you see, what you taste — this is all part of the client experience,” she said.

She cited the example of a European urban supermarket chain that tucked a couch and a spot for drinking an espresso into a corner of the store:

“It’s a little corner that’s a bit like home.,” she said, suggesting H&M could introduce an environment invoking a space in an apartment where things could be displayed.

“Sometimes people want to sit down when they’re in a store — one could make a spot that’s cozy and at the same time perhaps changes in function of the collections — it could be a place of promoting products, for example, coffee, and feature a brand in a cobranding effort, providing tasting experience for a spell,” she said.

The global retailer could also seize the chance to introduce a local element to stores in its network by teaming with local players, displaying local items or doing an event with a local business to bring brands closer to people, she added.

“These are ideas, but they are real subjects that brands are working on,” she said, referring to other companies.