H&M to scale back store openings and focus on E-commerce

H&M says it will scale back its store-opening program in the year ahead, and reported strong sales in its stores this month.

The company had already announced a 5 per cent increase in same-store sales in the second quarter; now it is estimating June’s growth at 12 per cent. It is also selling more stock at full price, lessening its reliance on discounting which had been necessary to shift an unusually high inventory during the last year.

“Inventory increased by less than sales, the composition of inventory is better and markdowns are lower,” said CEO Karl-Johan Persson during an investor conference call. “We will see more improvements, it’s heading in the right direction.”

As the company slows its rate of store openings, forecasting 130 now rather than the 175 flagged earlier, it will invest more on building up its e-commerce business.

“We have decided in certain markets to hold back from new openings. We think rents are higher than they should be,” Persson said.

Kate Ormrod, lead retail analyst at GlobalData, says the company’s results and Persson’s comments shows H&M remains on track with its transformation plan.

“Efforts to strengthen its product ranges and availability are clearly resonating with shoppers, helping to drive full price sales and reduce markdowns. One sticking point for the first half remains profitability, with operating profit still down on the year, and margin falling from 7.3 per cent to 6.4 per cent. The true test of its strategy lies in the second half where tougher comparatives can be found – although with the retailer reporting a strong June, … the signs are encouraging.”

She said that having been a laggard for so long in e-commerce, H&M’s investment continues apace as the retailer is still yet to fully harness the opportunities that lie within online.

“While it now plans fewer store openings, minimising costs, the new strategy puts pressure on H&M’s existing stores and online operations to deliver.”