H&M

PARIS  The brick-and-mortar side of the retail scene may already seem awfully bleak, but it looks set to worsen, with Hennes & Mauritz AB planning to add to the wave of store closures — no longer the temporary sort — sweeping across Europe and the U.S.

The Swedish fast-fashion retailer, which owns Cos, Monki, Weekday and & Other stories, as well as its namesake chain, said Friday it would close around 170 stores, revealing its intentions just weeks after rival Zara-owner Inditex said it would close as many at 1,200 stores over the next two years — 500 to 600 annually.

To be sure, the fashion groups also have expansion plans in the works, with H&M targeting 130 openings while Inditex expects to open 150 stores a year over the next two years while expanding stores.

But as the Spanish retailer focuses on weeding out smaller stores while emphasizing larger flagships — outfitted with state-of-the-art garment tracking technology — and H&M flags a net decline in its fleet of around 40 locations, deeper change is under way.

“We believe a more significant restructuring will be required, potentially announced at [full-year 2020], if the company is to protect profitability,” said Michelle Wilson, an analyst at Berenberg, referring to H&M’s net figure of 40 closures.

“Without a doubt given you’re probably seeing five years’ worth of digital shift in one year — this year,” said Richard Chamberlain, analyst with RBC.

Store rationalization of the sector will be highest in the U.S., predicts Chamberlain, where pressure on shopping malls is most acute.

“Retailers are operating in a new reality,” said Michelle Evans, senior head of digital consumer at market research firm Euromonitor International.

“Apparel and footwear specialist retailers are among the hardest hit,” said Evans. “As of 2019, 13 percent of goods were bought online globally, up from 6 percent in 2014. The pandemic will accelerate such shifts as many consumers learn or perfect the skill of online shopping.”

Indeed, Inditex and H&M noted that lockdown periods served to boost business online, with Inditex saying e-commerce sales were up 50 percent over its last quarter, which started in February, while H&M said online sales rose 32 percent in local currencies over the second quarter.

Inditex expects the online channel to account for over a quarter of total sales in 2022, compared to 14 percent last year.

The Spanish retailer is betting on digital prowess to navigate the choppy environment, with plans to invest nearly 3 billion euros over the next two years in bolstering its digital platforms and integrating store and online stock. Inditex’s plans to continue culling smaller stores while focusing on spruced up flagships were not changed by the arrival of COVID-19, even as some industry observers noted consumers were opting to shop in smaller, closer locations.

Highlighting the struggle of brick-and-mortar to survive in a digital era, Microsoft has abandoned its 11-year experiment with retail, closing a network of 83 stores around the world while keeping only a handful of locations as “experience centers.” And in the U.K., where mall operator Intu went into administration Friday, stores in the country are set to shut at a higher pace this year, with 27.1 percent more closures than last year, according to the Centre for Retail Research.

H&M said Friday it plans to accelerate the integration of online channels, and is using RFID tracking technology in 20 markets.

“We can already see that the pandemic has caused changes in customer behavior that will accelerate the digitalization of our industry,” said chief executive officer Helena Helmersson, speaking to analysts in a conference call.

“We have increased our customer base online and many of our customers — in-store customers — are now multichannel customers,” she added. More men have embraced online shopping, executives also noted in the conference call.

Looking to the future, the group seeks to “meet the customer wherever they choose to go,” Helmersson said, describing the omnichannel approach.

H&M reported a first-half loss after tax of 3.06 billion Swedish kroner, or $328 million. Executives flagged a faster recovery rate in recently reopened stores.

“It is encouraging to see that sales are starting to pick up even though market conditions are still challenging, there is no question about that, our sales recovery so far has been better than was expected,” Helmersson said.

Sales in June, through June 24, were down 25 percent in local currencies compared to the same period last year. Most of the label’s stores have reopened, but 350 units, or 7 percent, remain closed.

Earlier this month, the Swedish firm reported sales of 83.61 billion Swedish kronor, or $8.96 billion, for the first half, down 24 percent in local currencies, with the strongest impact from the COVID-19 crisis felt in the second quarter.

The group’s inventory decreased 3 percent year-on-year in local currencies at the end of May, compared to a rise of 2.5 percent at the end of April, which was a positive surprise, noted Chamberlain. The analyst had expected an increase due to delayed shipments from China and Bangladesh but noted the company was able to make “rapid adjustments” to purchasing plans.