Analysis: H&M’s China sales trend offers fashion retailers coronavirus hope

As China’s retail industry begins to recover from the effects of the pandemic and stores reopen, H&M may show the likely pattern of recovery for fashion retailers elsewhere.

The impact of coronavirus was brutally evident in H&M’s quarterly update last week. In February, H&M’s sales in China plummeted 84% as demand slumped in reaction to the rapid development of the virus and the government’s decision to place the country into lockdown.

From the start of December last year to January 23, 2020, H&M’s group sales in China actually increased 27% in local currency, but the impact of the infection meant that revenues in China slid by 24% in the quarter as a whole.

However, now that the effects of coronavirus in China have begun to ease, H&M has seemingly started on the road to recovery. The sales decline moderated to 23% year on year in the last week of the quarter.

In China, almost all H&M stores have been reopened. Chief executive Helena Helmersson said the retailer has implemented some “incentives to shop” to bring customers back to stores, such as promotions.

The discounts should help H&M to shift excess stock and the fashion giant anticipates that inventory levels will normalise in the coming weeks as demand returns.

Online sales in China were stable throughout March, according to H&M, as digitally savvy Chinese shoppers continued their use of online channels

Helmersson said it is important to understand how to “welcome people back into store” when they do choose to return. By offering friendly service as well as promotions, store associates can begin to rebuild relationships with customers. 

Online sales in China were stable throughout March, according to H&M, as digitally savvy Chinese shoppers continued their use of online channels. 

Despite the effects of coronavirus in the rest of the world, online sales across all markets were ahead 17%. The retailer was able to keep digital channels open in 47 out of 51 markets where those channels operate.

H&M chief financial officer Adam Karlsson explained that, as online remained stable in China, the recovery of the store portfolio is where other markets might look for indicators of consumer behaviour.

H&M’s weekly sales performance in China year on year during quarter one

More generally, H&M reported a channel shift in multiple markets as customers who had previously only shopped in stores moved their spend online.

Helmersson believes that the impact of the coronavirus pandemic will accelerate the pace of digitalisation in general in the fashion industry. That will force channels to better complement each other – something H&M has been working on through initiatives such as its new Milton Keynes distribution centre, which opened last year.

The group hopes to replace all existing logistics centres with similar high-tech warehouses to service both stores and online. With all stock in the same location, the new distribution centre will allow for greater flexibility on product availability between the two channels.

If other countries such as the UK were to follow the Chinese pattern of store recovery – and that, of course, remains uncertain – local fashion markets could be heading towards normality over a roughly 12-week period. 

Citi analyst Adam Cochrane drew a comparison between H&M and fellow fashion retailer Next’s sales “stress test” scenarios.

If other countries such as the UK were to follow the Chinese pattern of store recovery, local fashion markets could be heading towards normality over a roughly 12-week period

In Next’s “shorter pandemic duration” scenario – created before the retailer temporarily closed its online business – sales by week 10 after lockdown would be down 25%. According to H&M’s sales table above, its sales in China 10 weeks after lockdown were 23% down – a punishing number, but much improved from the low point of 89%.

The correlation between Next’s forecast and H&M’s actual figures for China provides some hope for UK retailers that recovery will come at an increasing rate once the peak of the outbreak has passed.

Cochrane cautions, however, that the Chinese market is generally younger, more digitally savvy and less risk-averse than its European counterpart. As indicated by the relative stability of H&M’s online sales throughout lockdown, Chinese consumers are used to shopping online and continued to do so. 

In Europe, therefore, fashion retailers will need to work harder to persuade customers who may have shifted channels back into store, as Helmersson noted. Similar to in China, promotions could be used to shift excess inventory in store, but full-price retailing could hold up as normality resumes. 

Online, Cochrane also expects that, while demand for fashion items has dipped and will continue to, orders will come flooding back once a clear end to lockdown is in sight – meaning ecommerce is likely to recover faster than bricks-and-mortar retail.

H&M will suffer a financial loss in its second quarter because cost-cutting measures will not make up for all the lost sales. However, its Chinese experience offers encouragement that fashion sales can recover once the outbreak is under control, even though apparel retailers will still have pain to endure.