H&M China’s slow recovery paints ‘bleak’ picture of retail post pandemic
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Weekly sales data from H&M China stores are a harbinger of what faces the world’s fashion industry after the coronavirus passes, says GlobalData.
The data shows that while stores are slowly starting to recover from the peak of the coronavirus pandemic in Mainland China, “there has clearly not been an immediate bounceback,” says principal analyst Honor Strachan.
“H&M’s performance in China paints a harsh reality for what is to come across much of the world’s major retail markets, with the US, Spain, Italy, Germany, France, Iran, the UK and Turkey now having the highest number of confirmed coronavirus cases (excluding China) leading to significant slumps in consumer spend on fashion. Moreover, H&M operates in a winning segment of the apparel market, it has the scale to negotiate with suppliers, it has a strong physical portfolio where many stores are new or have been modernized, and stores operate in core retail locations – making its recovery more advantageous than many of its rivals, especially smaller domestic chains.”
“Looking at H&M China’s data, sales were down 79 percent in week 10 despite 89 percent of its stores in the country being open, raising the question whether this is a financially viable strategy in other affected markets due to the burden on operating costs.
“In China, nearly all retailers have now reopened stores, but consumer propensity to spend is significantly higher than in mature retail markets such as the US and much of western Europe so we expect store reopening schedules and the recovery process to be longer than what we have witnessed in China.”
“All of these factors will impact how and when physical stores should reopen.”
Strachan says retailers must start planning a recovery strategy for each country they operate in, taking into account consumer sentiment and confidence, the country’s financial stability, consumer propensity to spend on fashion, online penetration and the time in the season and promotional calendar.
“All of these factors will impact how and when physical stores should reopen.”
“Understandably retailers will be keen to reopen stores to clear seasonal stock and recover lost revenue, but the impact on profitability by opening these stores too early could be severe.”
He says some retailers may need to consider whether consumer demand after the pandemic’s peak will be sufficient to warrant reopening all stores in any one market at once.
Retailers in some markets around the world will be able to draw on government support to help them through the recovery stage. For example in the UK, business rates have been suspended, and landlords barred from taking back possession of store space due to unpaid rent. Furthermore, in many markets around the world, including in Hong Kong and Singapore, consumers are receiving cash handouts from governments to help stimulate the economy. In others, governments are providing income for furloughed staff and in that case, it may serve retailers’ interests best to keep store staff out of work until consumers resume spending on non-essential items and footfall recovers.
“Understandably flagship and tier-one stores will be a priority to reopen as soon as possible, but retailers must consider what their neighbors are doing in each location as trading from under-occupied high streets or shopping centers will impede traffic and draw out the recovery period.”
Questions & Answers
Q.What specifically indicates H&M China's slow recovery, despite store reopenings?
What specifically indicates H&M China's slow recovery, despite store reopenings?
Weekly sales data showed a 79 percent drop in week 10, even though 89 percent of H&M's stores in China were open. This performance suggests there hasn't been an immediate rebound in consumer spending.
Q.Why might H&M's recovery in China be more favourable than that of its competitors?
Why might H&M's recovery in China be more favourable than that of its competitors?
H&M operates in a strong segment of the apparel market and has the scale to negotiate with suppliers. Its physical store portfolio is robust, with many new or modernised stores in core retail locations.
Q.Why might store reopening and recovery processes in Western markets be slower than in China?
Why might store reopening and recovery processes in Western markets be slower than in China?
Consumer propensity to spend in mature retail markets like the US and Western Europe is expected to be significantly lower than in China. This will likely prolong both store reopenings and the overall recovery.
Q.What factors should retailers consider when planning store reopenings and recovery strategies?
What factors should retailers consider when planning store reopenings and recovery strategies?
Retailers must assess consumer sentiment, confidence, and spending propensity in fashion, alongside a country’s financial stability. Online penetration, the seasonal calendar, and governmental support also play crucial roles.
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