Fashion giant H&M has been battered by coronavirus, with swathes of its global store estate shut and profits plummeting. Chief executive Helena Helmersson reveals how the group plans to rebound in 2021.
Even with its enormous size and huge global customer base, H&M was not immune from the travails of the Covid-19 pandemic last year.
In the year to November 30, 2020, profit after extraordinary items tumbled 88.2% to SEK 2bn (£174.4m), while sales dropped 18% to SEK 187bn (£16.3bn).
Although H&M is still cautious about the year ahead – company spokesman Nils Vinge said it was “ready to pull the brakes” and is only expecting a “gradual increase in investments” going forward – chief executive Helena Helmersson has bold plans to ensure the fashion giant can not only recover, but thrive post-pandemic.
Store closures
In a phrase that has oft been repeated since the pandemic first struck in March, Helmersson said customer behaviours that were already on the rise pre-Covid have been accelerated in the last 10 months.
Most notably for H&M is the growing rise in ecommerce, exacerbated by the on-off closure of much of the retailer’s sprawling 5,000-plus international store estate for much of the past year.
With around 36% of its store estate still closed going into the first quarter, H&M has already begun to rationalise its store estate.
In 2021, Helmersson says the retailer will close 250 net stores around the globe.
“When it comes to the revised store portfolio, I would say this is for sure a plan that we will continuously revisit, and probably also revise,” she says.
“What we see now is a net closure of 250 stores this year at our best estimation,” she says.
Alongside reducing its overall store numbers, H&M also spent much of 2020 fiercely renegotiating existing leases with landlords as it looks to reduce base rents.
It has also secured rental holidays and is vying to move the majority of its stores to turnover-based rents.
H&M chief financial officer Adam Karlsson says these efforts have continued into 2021.
“There were some store closures last year, and obviously there will be some more in 2021,” he says.
“With store closures we will take out rents and other costs related to running the stores. The teams have done a tremendous job renegotiating the rents level. Some of this will continue, but also some of it will bounce back when we are able to open stores again.”
That is an important point. H&M does think some shops will return to pre-pandemic levels of trade.
“What we saw in the recovery after the first wave was that customers wanted to come back to our physical stores and buy from them”
Helena Helmersson, H&M
Helmersson says she was buoyed by the performance of some stores in key markets, such as the UK and Germany, when they were allowed to trade last year.
She also points to the success of shops in Russia, where in-store sales were up 27% in the fourth quarter of 2020. They have continued to trade strongly in the first quarter of 2021.
“What we saw in the recovery after the first wave was that customers wanted to come back to our physical stores and buy from them. We saw this behaviour across existing customers, as well as from many new online customers.”
Omnichannel investment
H&M had already been focusing more online pre-Covid, with big investment in its supply chain, but the rapid acceleration of ecommerce over the last year has allowed for other more nimble brands in the fashion space to steal a march.
Analyst S&P Global says: “H&M’s online presence may not be as well developed across all of its markets, leaving room for other pure online and omnichannel players to challenge H&M’s competitive position.
“The threat could come from omnichannel retailers with a stronger online presence, such as Next in the UK, pure online platforms such as Amazon, Zalando or Asos, or from branded apparel manufacturers reaching out to their customers directly or via online platforms.”
S&P Global notes that, in the first nine months of 2020, H&M generated 26% of sales online, which “is still lower than the 50% achieved by Next before the pandemic”.
It also flags that H&M’s market share is highest in countries that have strong online penetration, which could leave it exposed to rivals.
To prevent this happening, H&M is investing hard. It is looking to generate some SEK 10bn (£880m) in working capital this year through operational efficiencies, with funds earmarked for creating a more agile online operation.
“We want to be more flexible when it comes to customer demand and also accelerate the use of AI. We want to know more about what the customers want and what to react upon”
Helena Helmersson, H&M
Helmersson says: “Speed and flexibility will definitely be one of the big focuses going forward, and that will involve some new ways of working.
“We want to be more flexible when it comes to customer demand and also accelerate the use of AI. We want to know more about what the customers want and what to react upon.”
H&M is also harnessing the power of its stores to improve its online operation.
The retailer has begun trialling online order fulfilment from stores, albeit “on a very small scale” according to Karlsson. While still a small channel, Helmersson says integrating bricks-and-mortar stores with online is a key focus this year.
“The integration of the channels and the fact that they strengthen each other feels quite clear to us. The plan going forward is continued strong digital growth, optimisation of the store portfolio and the integrations of the channels to keep on strengthening each other.”
H&M is also preparing to pump a lot of capital into improving its existing online infrastructure.
Green machine
The final pillar in Helmersson’s recovery plan for H&M post-pandemic rests on pushing its sustainability credentials.
Helmersson says the pandemic has increased both customer awareness and demand for products to be both sourced and manufactured ethically.
She says: “Our Conscious Exclusive range, launched last year, has been very well received by our customers.
“We will continue with this journey for two reasons. One, customers demand more sustainability. Two, we want our business to be more resilient, meaning that we can grow without the huge dependency on natural resources.”
The retailer has been pushing ahead with sustainable initiatives, such as its launch of Looop in Sweden last year, which allowed customers to come into stores with unwanted H&M items and have them recycled into new garments.
H&M also recently partnered with jeans giant Lee to improve the sustainability credentials of its denim.
Like all retailers, H&M will undoubtedly have its fair share of struggles as it looks to rebound this year from the pandemic.
However, with its store rationalisation programme already well under way and free capital to invest in growth channels and product areas, H&M is better positioned than most to recover.
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