H&M continues to battle excess stock issues

Mark Lane | 2nd July 2018

STOCKHOLM – Are we witnessing a changing of the guard in the fast fashion sector? It is starting to feel very much like that. Last week H&M said it plans to cut prices further, with supply problems apparently continuing to impede its ability to respond to changing fashion demand. Its financial results were disappointing to say the least. Sales and profits remain stagnent.

The business is said to still have stockpiles of unsold clothing. Indeed, the group’s inventories and markdowns have been expanding at an alarming rate in the past couple of years, while its website has a seemingly never-ending sale occurring. H&M’s latest results show inventories grew by 13 per cent and markdowns by 1 per cent in the first half of the year.

This is bad news – bad news for business and bad news for the environment. It is made all the more galling given that arch rival Inditex – owner of Zara – is so brilliantly ahead of the curve when it comes to inventories and logistics. As well as having invested heavily in streamlined systems, it is also the case that Inditx sources much of it’s apparel closer to its key markets in Spain, while H&M’s sourcing is primarily in South East Asia and China. Suddenly sourcing closer to home is not an option for H&M. Its sprawling Asian supply chain will take years to unravel – if, indeed, that is a road it wants to go down.

“The first half of the year has been somewhat more challenging than we initially thought, but we believe that there is a gradual improvement and that we will see a stronger second half,” CEO Karl-Johan Persson said.

We are not convinced. H&M has another problem too. Its name: ASOS. The online business is seeing the kind of double-digit growth which for years was the norm at H&M. It is winning hearts and minds among young consumers and has also cracked the critical American market, where it is in the process of establishing key distribution channels.

We’ve seen with M&S now tough it can be to stop the rot when customer sentiment turns against you. H&M’s next few sets of financial results will be very interesting indeed.