PARIS — Hennes & Mauritz AB is hoping to return to higher levels of top-line growth through improved cost control, investment in omnichannel and ramping up its supply chain.
“The world of the H&M group has become more complex compared with, say, 10 years ago. Today we have more brands, we are present in more markets and we have more channels, and at the same time it is as important as ever to always ensure we have the right products at the right time in the right place,” said chief executive officer Karl-Johan Persson during a conference call with analysts and journalists.
“The H&M group has invested heavily for a number of years to build a digital infrastructure based on the latest technology in order to secure long-term growth,” he commented. “This has been costly but necessary, and now we have set a solid platform that is flexible and scalable. Going forward, a smaller share of our investment will be related to infrastructure, and a larger share will benefit the customers directly.”
Current areas of focus include integrating a faster, more efficient and flexible supply chain, impacting purchasing, transportation, product allocation and logistics. The company is working on new logistics hubs, including automated solutions, and on sourcing closer to its markets. Some such initiatives are already in place, while others are in test phase, Persson said.
“With these changes, we see great potential to improve sales, reduce stock levels and lower the markdowns. The results of this work will not come overnight, but it will bear fruit gradually,” he added.
The Swedish fast-fashion retailer’s long-term sales growth target is between 10 and 15 percent in local currencies, an ambition that has been unchanged for several years, yet its sales came in up 5 percent in local currencies for the six months ended May 31, lower than anticipated, meaning it enters the second half of the year with high excess stock levels. Last year, sales growth in local currencies stood at 7 percent, as reported.
“There has been a big shift in the market, resulting in tough market conditions in many markets for us,” said head of investor relations Nils Vinge. “We haven’t improved enough to grow 10 to 15 percent. We need to improve further.”
“We believe we will get there in 2018,” added Perrson.
Developing online is a key part of meeting growth targets for H&M, but the company also believes in continuing to develop its store footprint, especially in emerging markets, as well as rolling out its new formats like Arket, set to debut this fall.
“We believe we will have a good development online,” Vinge said. “We will open new stores as well, so part of that will be from expansion. We have a nice development from the other brands that continue to grow rapidly, and then we believe we will have a better like-for-like development as a result of [these] initiatives.”
Projects for the second half include store openings in new markets Iceland, Vietnam and Georgia and the addition of online in the Philippines and Cyprus. In total, around 400 new stores net are expected to open this year, and core brand H&M will test two new store formats this fall.
While H&M does not disclose the proportion of its sales made over the Web, it revealed that in more established markets for e-commerce – Scandinavia, Germany, Austria and the Netherlands were among the first markets to get H&M websites – as much as 25 to 30 percent of sales are now done online, with profitability levels on a par with physical stores. The firm anticipates its online sales will grow by at least 25 percent per year in the future as it moves towards a more streamlined, omnichannel approach.
“Going forward, it will be increasingly difficult to say what’s online sales and what’s physical stores, as we are integrating the channels a lot,” Persson observed.
H&M is investing in improving and broadening its assortment and expanding its online offering, said Persson. “This means more and faster delivery options, more payment alternatives in all our online channels. Improvements also include giving customers more inspiring, easier and convenient shopping experiences online.”
He continued, “Over the past few years, the traffic to H&M.com has tripled. Both this year and next, we will add several new online markets for H&M including India in 2018.”
The firm is also investing in integrating our physical and digital stores, to give the customer a smooth shopping experience across the channels. “Here we see our global store network as a great asset which gives us an important advantage over pure online players,” said Persson. “Our store network gives us a unique proximity to customers, and it allows us to offer our customers more shopping alternatives where the physical stores also become hubs for paths to delivery, pick-ups and returns in addition to being places where you can get inspired by fashion and shop.”
Advanced analytics are helping the retailer to offer a more targeted assortment, he said. “This will allow further improvements in areas such as product range development, quantification and allocation of the assortment as well as more personalized communication with our customers.”
The company downgraded its capital expenditure forecast for 2017 to 13.5 billion Swedish kronor from a previous estimate of between 14 and 14.5 billion.
In the three months to May 31, H&M saw a 10.1 percent increase in its net profit to 5.9 billion kronor. Net sales grew 9.6 percent to 51.38 billion, boosted by strong sales in the U.K., Scandinavia and Eastern Europe as well as online and new formats. Business conditions were challenging, however, in the U.S., China, the Netherlands and Switzerland, all major markets for the firm. H&M’s operating profit for the period climbed 15.8 percent to 7.65 billion kronor.
The company anticipates sales including VAT will increase by 7 percent in local currencies in June.
H&M shares rose 2.83 percent to 210.40 kronor in trading Thursday on the Stockholm stock exchange.
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