Following today’s release of H&M’s figures for the three months ending 31st August 2023; Alice Price, apparel analyst at GlobalData, a leading data and analytics company, offers her view: “H&M continues to report lacklustre results, as though net sales in Q3 FY2022/23 were up 6.0% to SEK60.9bn, this represents a stark contrast against its key competitor Inditex, which reported an increase of 13.5% for the six months ending 31 July 2023. In local currencies, H&M’s revenue was also flat on the year, which the group attributes to poor weather in Europe and the temporary reopening in Russia in the comparative period last year. H&M’s Portfolio Brands, which is comprised of COS, Weekday, Monki, Arket, and & Other Stories, were the driving force during the quarter, with reported revenue rising by 16%, suggesting that it was H&M’s core brand dragging down the top line. While its strategy currently focusses on ensuring competitive prices and value for money, this alone is not enough to entice consumers to shop, so the group should also prioritise elevating the fashion credentials of its core H&M brand to stand out against its competitors. Group operating profit in the quarter jumped an impressive 425.4% on the year to SEK4.7bn, attributed to the group’s focus on improving profitability through methods like reducing inventory and refining its store portfolio. However, sales in September are anticipated to decline by 10% in local currencies, as unseasonably warm weather in Europe delays consumers shopping for autumn/winter products.
“In its strategy to reach an operating margin of 10% by 2024, H&M must ensure it does not compromise customer satisfaction, having received criticism earlier this month after announcing the introduction of fees for both instore and online returns. Although it later U-turned on its announcement of instore returns, claiming that this was purely a mistake on its website, it must now stick to its guns to ensure it does not drive customers away to competitors such as Zara.
“Sales were muted across all of H&M’s regions, though Southern Europe and the Nordics proved to be most resilient. While total group sales remained flat in local currencies during Q3 YTD FY2022/23, these two markets both rose by 5%, with the better weather in Southern Europe likely driving greater engagement with its summer collections. Ongoing macroeconomic challenges in North & South America and Western Europe continued to hinder sales there, with revenue remaining flat and rising by just 3% respectively in these regions, while Asia, Oceania & Africa witnessed a decline of 1%. Eastern Europe remained the group’s weakest region though, with revenue decreasing by 17%, driven by the continued suspension of its operations in Russia, which previously accounted for roughly 4% of group sales.
“H&M is aiming to capitalize on the strength of its portfolio brands by launching them in new markets. In August, the group launched its first COS store in Mexico, to tap into the region’s emerging economy and strong consumer appetite for apparel, while during the quarter, & Other Stories was also added to the Australia and New Zealand-based marketplace The Iconic, and Monki was introduced to the Hong Kong-based marketplace Zalora. In September, the group also launched its eponymous brand on one of China’s largest e-commerce platforms JD.com, enabling H&M to gain greater exposure in the region. Launching via marketplaces in new markets is a smart strategy, as it allows the group to test its reception in the regions before committing to the cost of opening its own websites and stores there.”
