H&M reverses store expansion plans to focus on omnichannel

Dive Brief:

Swedish fast-fashion retailer H&M on Tuesday said it’s replacing its previous target of boosting its store count by 10% to 15% per year with a strategy to increase sales by those percentages through its physical store and online channels, according to a press release.
The retailer’s fourth quarter net profit was 5.91 billion Swedish krona, up 7% from the year ago period, besting analyst expectations released by FactSet of SEK5.42 billion, according to MarketWatch. Q4 sales including VAT and adjusted for currency fluctuations were SEK61.10 billion, up 8% from the year ago period.
Full-year 2016 sales including VAT rose 7% in local currencies and 6% adjusted for currency fluctuations to SEK 222.9 billion. Full-year profit after tax amounted to SEK 18.64 billion or SEK 11.26 per share, and were negatively affected by increased mark-downs and by higher purchasing costs from the strengthened U.S. dollar, the company said.

Dive Insight:

Perhaps seeing the downfall of overstored apparel retailers, including the likes of The Limited, Wet Seal and American Apparel, H&M is reversing its previously ambitious strategy of massive physical store expansion worldwide. Still, last year the retailer rolled out 427 new stores and 11 new H&M online markets. At this point, H&M has 35 online markets and its stores number 4,351 in 64 markets.

CEO Karl-Johan Persson had previously dismissed the notion that the retailer’s tepid sales would slow its expansion plans, and blamed some of its troubles on weather and the strong dollar. As seen again in Tuesday’s report, the strong dollar has indeed once again taken a bite out of the retailer’s performance. Unlike rival Inditex, parent of Zara and fast-fashion innovator, H&M has been faltering of late and Persson is now acknowledging the effects of its store expansion.

“In the light of this development, it is natural for us to rephrase our growth target,” he said in a statement Tuesday. “This means that our previous target of increasing the number of stores by 10% to 15% per year will instead become a sales target that includes both stores and online sales.”

But there may be other challenges aside from rising e-commerce: H&M’s move to pull plus-size options in stores, for example, could also be leaving money on the table while it chases categories, including cosmetics and activewear, that signal departures from its fast-fashion focus.