STOCKHOLM--Sales at Hennes & Mauritz AB declined for a fifth
consecutive month in February, underscoring the difficulties the
once-thriving clothing retailer is now facing in appealing to
discerning customers in the intensely competitive fast-fashion
market.
H&M said on Friday it has opened 327 stores in the past
year, helping total sales to increase 5% in February, but sales
from stores open more than a year fell 3%.
A quick glance at the Stockholm-based retailer's competitors
around the world shows that customers are still shopping, just not
at H&M's stores. Spain's Inditex SA, which owns the highly
successful Zara chain, reported an annual sales increase of more
than 16% earlier this week, while Japan's Fast Retailing Co., which
operates the Uniqlo brand, said like-for-like sales in February
were up 9.6%. Even U.S.-based Gap Inc., which has previously come
under fire for poor fashion choices, reported an 11% sales increase
in February and hasn't seen a drop in sales since last April.
But H&M is struggling to find its niche in the changeable
world of high-street fashion. Zara capitalizes on a lightning-fast
supply chain which, with 50% of its clothes made in Western Europe,
means it can capture catwalk and luxury trends and have them
available at its stores within weeks--something customers are
prepared to pay a premium for.
H&M's longer supply chain means it can't compete as fast on
fashion, so it tries to do so on price instead: H&M is on
average about 60% cheaper than Zara. But it is still more expensive
than budget competitors such as Primark, owned by Associated
British Foods PLC, and U.S. chain Forever 21, leaving it struggling
to position itself.
While H&M's fashion designer collaborations and celebrity
collections get a lot of media attention--actor Helen Hunt attended
the Academy Awards in a specially designed eco-friendly H&M
dress--most of its ranges comprise basics such as T-shirts and
trousers, for which customers tend to shop around to get the best
price. Primark, for example, is about 50% cheaper on comparable
products and also recently opened a distribution center in western
Germany that could lead to significant new store openings in the
country--H&M's biggest market.
Bernstein analyst Jamie Merriman thinks H&M has two choices.
Either it must cut prices in response to the growth of lower-priced
competitors and put further pressure on its margins. Or it should
stop trying to compete at the bottom end of the market and start
targeting customers who are prepared to pay more, through products
such as its recently launched Conscious Collection of clothes made
from organic cotton.
"The question is how successful they can be in convincing
customers to pay a higher price for their products," said Ms.
Merriman. "It's still early days."
H&M in January announced the coming launch of a new line of
stores called & Other Stories, aimed at a more affluent
shopper. But Ms. Merriman said that while the launch of & Other
Stories is a good long-term strategy, it won't make a difference in
the short term as new store concepts take a long time to become
established. Inditex's Massimo Dutti brand, for example, has been
around for 20 years and now has 500 stores, but still only accounts
for 7% of company sales. So H&M's launch of seven new stores
"is just not going to be meaningful for group results," said Ms.
Merriman.
Write to Jens Hansegard at jens.hansegard@dowjones.com
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