H&M hoping to recover profits from its Tmall launching
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Stung by a profit slump, the H&M group is pinning its hopes on China by launching a store on Alibaba’s Tmall next month.
As well, the Swedish fast-fashion retailer is targeting India, Saudi Arabia and the UAE with new digital stores this year.
Releasing its full-year report yesterday, H&M admits it has been struggling to keep pace with evolving shopping habits that have depressed sales in its physical stores.
Sales grew 4 per cent last year but profit after taxes slumped 13 per cent, with CEO Karl-Johan Persson saying the fashion industry is “changing fast”.
“At the heart of the transformation is digitalisation, and it is driving the need to transform and rethink faster and faster,” he says.
With physical stores in 69 markets, H&M has an online presence in 43.
Full-year global sales (to November 30) including VAT increased by 4 per cent to SEK231 billion (US$29 billion). This was a 3 per cent rise in local currencies. Sales excluding VAT reached SEK200 billion.
Gross profit increased to SEK108 billion, corresponding to a gross margin of 54 per cent, down from 55.2 per cent the previous year.
Profit after financial items amounted to SEK20.8 billion, down from SEK24 billion. The group’s profit after tax amounted to SEK16 billion, down from SEK18.6 billion.
Final-quarter fall
For the fourth quarter, H&M group sales including VAT were down 4 per cent to SEK58.4 billion (2 per cent in local currencies). Sales excluding VAT fell from SEK52.7 billion to SEK50.4 billion.
Gross profit fell to SEK27.9 billion from SEK30 billion, corresponding to a gross margin of 55.4 per cent (57 per cent). Profit after financial items amounted to SEK4.8 billion, down from SEK7.4 billion.
Profit after tax was SEK3.9 billion, down from SEK5.9 billion.
Weak store sales led to increased markdowns and handling costs, impacting the quarter’s results.
During the year H&M opened 479 stores (497 the previous year) and closed 91 (70), resulting in a net addition of 388 outlets. Eight online markets were launched and the brand entered five new markets. It ended the year with 69 sales markets, 43 of them including an online presence.
This year the group plans to add about 390 stores to its network and close about 170, a net addition of about 220 stores. On Tmall it will have both H&M and H&M Home.
At home in Sweden it will also introduce the Afound brand, an off-price marketplace offering products from fashion and lifestyle brands.
Questions & Answers
Q.What specifically caused the decline in H&M's profits last year?
What specifically caused the decline in H&M's profits last year?
The profit slump was primarily due to increased markdowns and handling costs. These issues stemmed from weak sales in its physical stores, as the company struggled to adapt to changing shopping habits.
Q.Beyond Tmall, what other digital expansion plans does H&M have for this year?
Beyond Tmall, what other digital expansion plans does H&M have for this year?
This year, H&M is also targeting India, Saudi Arabia, and the UAE with new digital stores. These launches are part of a broader digitalisation strategy to recover profits and adapt to evolving shopping habits.
Q.How many new physical stores does H&M plan to open this year, after accounting for closures?
How many new physical stores does H&M plan to open this year, after accounting for closures?
H&M plans to add about 390 stores to its network this year, while also closing approximately 170. This will result in a net addition of about 220 physical stores globally.
Q.Which specific H&M brands will be available on the new Tmall store?
Which specific H&M brands will be available on the new Tmall store?
The new store on Alibaba’s Tmall will feature both the main H&M brand and H&M Home. This expansion is a key part of the group's strategy to recover profits in China.
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