PARIS — Is the future for fast fashion in the secondhand market?
As shifting consumption habits continue to pummel the fast-fashion industry, Hennes & Mauritz Thursday outlined measures to fortify its business, including plans to take its secondhand and discount market Afound to new European countries as well as roll out the Klarna payment systems in the U.S. this fall.
“Fashion retail is going through a major shift…with competition growing increasingly intense, new players are entering the scene, many competitors are improving while others are having a tough time leading to increased price and markdown activity in many markets,” said Karl-Johan Persson, chief executive officer of the Swedish group. The executive was speaking to analysts on a conference call about first-half results.
The group announced that its label Afound, an outlet and secondhand market that has a handful of stores and an online platform in Sweden, is ripe for expansion in Europe, and plans to start with a digital platform in the Netherlands in the fall.
It established the brand last year, billing it as “giving fashion new life by offering products that have already been produced.”
Afound sells everything from discounted Puma and Adidas sneakers, home goods and clothing — from H&M as well as outside labels — to vintage Dior Saddle bags priced over $2,000; the vintage section is curated by This Old Thing London.
Executives expect the discerning Dutch consumer to take to the new discount platform “offering really good deals on products that are already produced—such as overstock,” said Joanna Hummel, Afound managing director.
Fast-fashion companies are under pressure from consumers, who have grown increasingly alarmed by the amount of clothing that winds up in landfills, and H&M last year pledged to work toward a circular and renewable business model while its Spanish rival Inditex, the owner of Zara, has been focusing on recycled materials.
H&M Thursday reported a 1.5 percent drop in second-quarter profit after tax, noting intensified investments in a company overhaul weighed on the performance, but that the efforts are showing results — with more full-priced sales, fewer mark downs and an increase in market share.
“We can see clearly we are moving in the right direction,” said the executive, noting the group gained market share in most places including the U.K. and Sweden, where conditions are challenging.
H&M has been investing in technology infrastructure, artificial intelligence and logistics, as it seeks to adapt for more demanding consumers.
“We also see a big shift in customer behavior and customer expectations are moving constantly higher,” said Persson, noting the company has made “substantial investments” and transformed “large parts” of the company’s operations. This has included reducing the number of new stores to clear funds to bolster digital activities, and the group reduced its full-year projection of new stores by a quarter, to 130.
H&M is expanding its partnership with payments provider Klarna to the U.S. as it pushes for deeper integration of physical stores and online channels. This includes a “shop now, pay later” product offer and easier delivery and return services, for members of the retailer’s loyalty program. Following a push by the company this spring, the loyalty program now counts 43 million members.
Klarna services will be rolled out in Switzerland in August — the first country — followed by the U.K. and five other markets before the end of the year.
H&M, which reported a 1.5 percent drop in second-quarter profit after tax, noted intensified investments in the company overhaul weighed on results.
Sales for the month of June have risen 12 percent at constant rates, according to the fast-fashion retailer’s estimates.
Analysts said the figure beat expectations.
“Current trading is very strong,” said Richard Chamberlain of RBC Europe, in an e-mailed note to clients. Chamberlain had projected 4 percent growth, and said the beat could prompt an increase in full-year earnings forecasts from analysts.
H&M said it continues to bulk up the proportion of full-price sales, and projected a 1.5 percentage point decrease in the cost of markdowns in relation to sales over the third quarter — which would be the fourth successive quarter marking a reduction in markdowns.
Many operators in the lower-priced segment, including H&M last year, get caught up in a spiral of discounting, while Inditex has been focusing on improving margins by beefing up full-priced sales.
Profit after tax came to 4.57 billion Swedish kronor, or $490 million for the three months ended May 31.
H&M previously reported an 11 percent rise in sales over the second quarter, lifted by a currency boost, and said that it needs to continue working hard to revamp operations to match shifting consumption habits.
Sales for the three months ended May 31 were 57.47 billion Swedish kronor, or $6.05 billion, representing a 6 percent rise in local currency terms.