At first glance, H&M’s 2017 annual report had good news. Sales from December 2016 to November 2017 rose to a record 231.8 billion Swedish kronor, or 23.6 billion euro. However, the group is facing declining operating profits, too little online business, and competition from low-price providers. The company plans to address this with an expansion of its online business, store closures, and the launch of a new low-priced brand.

The company had mixed news for investors, shareholders, and journalists. In addition to sales, gross profit also rose from 106 billion to 108 billion Swedish kroner. But what’s important is the bottom line. Here, the gross margin fell to 54% (from 55.2%). At 20.8 billion Swedish kroner, the operating profit was 14% less than in 2016. After taxes, that amounted to 16.2 billion Swedish krona, compared to 18.6 billion last year. In addition, H&M opened fewer new branches (479 compared to 497 last year), while closing more existing locations (91 compared to 70 last year). The fourth quarter of 2017 was particularly disappointing for the company, with sales falling by 4% to 58.5 billion kroner. After the figures were announced on 31 January, the company’s share price fell from 16.30 euros to 14.30 euros.

Immediate measures include a stronger online presence and fewer new openings

H&M CEO Karl-Johan Persson said: “Our online sales and our new brands performed well. But the H&M branches have shown weaknesses, which meant that changes in customer behaviour were felt most strongly here. Customer footfall has fallen, and online sales have increased.” As a consequence, the company will be significantly more cautious about new openings in 2018. Around 390 new stores are planned, with around 170 closures. At the same time, the company has plans to further address the increasing shift towards online retail. Most recently, H&M was active in 69 markets, but offered online sales in only 43 of these countries. In 2017, online shops in eight countries were integrated. Now the Indian market will receive an online shop too. Saudi Arabia and the United Arab Emirates will receive an online shop via franchise. In addition, the company will focus on digital partnerships. From March, H&M and H&M home are planning a presence on the Chinese retail platform Tmall.

New budget brand planned for 2018

The group is also focusing on growing competition in the lower price segment. Persson says: “The H&M Group is developing new brands for new needs and new segments. We now have eight brands, which are all scalable, and we will soon be launching our ninth brand, Afound.” This new budget platform will be launched in 2018. The Afound label will sell reduced clothing from H&M brands and from other brands. It will begin with an online presence and a store in Sweden.

More about H&M here.



Image: H&M