Inditex vs H&M: Which fashion giant will win in five years’ time?

As similar as they may appear, a closer look at the businesses reveals vast differences in strategy and success. But how do they stack up? And where will these strategies land them in five years’ time? We spoke to Retail Week senior analyst Beth Bloomfield to find out.  

Who owns what?

These bitter rivals have a host of brands under each of their umbrellas, all intending to steal share from a different demographic. 

At the premium end of the market, H&M has Cos and & Other Stories, while Inditex has Massimo Dutti. For younger customers, H&M’s Monki takes the fight to Inditex’s youth brand Pull & Bear.   

Bloomfield says: “Inditex has a broader reach with both Pull & Bear and Stradivarius catering for Gen Z customers, while Zara, Bershka, Oysho and Uterque lean more towards millennials. 

“Massimo Dutti caters for those looking for a more luxe, formal styling. H&M’s Monki label, which describes itself as “being brave, friendly and fun” acts as a strong competitor to Pull & Bear or Stradivarius, yet one could argue none of the brands is that well-known in the UK.” 

Outside of fashion, both are advancing in homewares through H&M Home and Zara Home standalone outlets, which compete with the likes of Next, Ikea and Dunelm in the UK.  

Online 

The two groups were relatively late adopters of ecommerce, beaten to the punch by players like Asos.  

As a result, they share a similar trade split between in-store and online, but Bloomfield says H&M has stolen a march over its rival when it comes to retaining shoppers. 

“H&M is marching forwards as the stronger online leader, with a compelling loyalty arm under its banner that encourages spend.” 

“It is also further ahead in terms of web3, having launched its first virtual showroom in April 2022 and more recently partnered with global gaming platform Roblox in January 2023 on Loooptopia. Inditex’s metaverse attempts have been tamer by comparison, with limited collections. As yet it has no loyalty scheme in the UK. 

“Both retailers are also targeting omnichannel shoppers through a raft of in-store initiatives such as click-and-collect lockers, concierge services and smart mirrors.” 

According to our five-year forecast, both retailers’ ecommerce sales share is estimated to hit 35% by FY2026 and each is expected to increase online sales by over 10%.  

Stores 

Omnichannel retail’s impact on the market is illustrated by these two retailers in tandem. Both show a decreasing trend for store numbers, with H&M dropping 217 locations and Inditex dropping 352 between 2020/21 and 2021/22.  

H&M is more stable than Inditex, as its trend for decreasing store numbers has been less intense, dropping just 58 stores compared with Inditex’s 640 between 2019 and 2020. 

As store numbers decrease, so does each business’ headcount. In 2020/21 Inditex dropped staff numbers by 18% to 144,116, a considerably steeper drop than H&M’s 12.7% to 110,325. Closer to the present, employee numbers have steadied with H&M’s staff down 2% and Inditex flat at 0.7%. 

According to Bloomfield, their separate approaches to store design and layout “signal their intent in the UK”.  

She says: “H&M revamped its Regent Street store to include fashion rental and beauty services as well as click-and-collect lockers, phone-charging points and self-checkouts, while Inditex launched its Battersea Power Station concept last year, a luxe store across 40,000 sq ft that hosts a raft of technologies including a fitting room reservation service, an online shopping collection point and a self-checkout area, among others.” 

Outside of the UK, however, Bloomfield says H&M has the upper hand when it comes to innovation. 

H&M’s concept in Williamsburg in Brooklyn, New York, is an example of retailing at its finest. H&M group describes the store as “a first of its kind in the world for the brand, the experience is an invitation into the DNA of H&M – a destination that is experimental in design, progressive in programming and a place for the curious to explore style in a fun and community-focused setting”. 

“The space is designed to evolve throughout the year, with a new ‘chapter’ unveiled every four to 12 weeks through updated fashion, visuals, experiential events and a crop of local partners.” 

Sales and profits 

As it stands now, with £23.8bn in revenue versus H&M’s £16.9bn, Inditex is certainly the bigger of the two players. However, a closer look reveals a far more nuanced picture.  

Though the pandemic hit both retailers’ sales, Inditex’s revenue felt the brunt of it and fell considerably faster than its rival retailer. When lockdown shuttered stores in FY2020, Inditex’s sales fell 26.8% compared with H&M’s 17.8%.

However, it also recovered far faster, with year-on-year growth for FY2021 up 31.3%, dwarfing H&M’s slow recovery growth of 6.3%. H&M isn’t expected to return to its pre-pandemic sales level until FY2023. 

While both retailers have healthy gross margins, hovering in the mid-50s, Inditex is the most profitable of the two retailers with pre-tax margins of around 15% to 16% pre and post-pandemic whereas H&M hovers around 6% to 7% pre-tax margin.  

According to Bloomfield, this is most likely to be because H&M has a far more extensive international presence and is therefore more exposed to market volatility. 

When looking ahead, in just a few short years sales for these fiercely competitive fashion icons are predicted to be neck and neck, packing in revenue growth of 7%, representing a value of £5.7bn to Inditex and £3.9bn to H&M between 2021/22 and 2024/25. But it will be Inditex that remains top of the food chain, breaking the £30bn mark by 2025.

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