Swedish fast fashion giant H&M has reported a quarterly earnings drop after reduced footfall in stores and increased competition in the fashion sector.
Net profit for the three months to end-August, the third quarter of the retailer’s financial year, came in at 3.84 billion kronor ($470 million), a drop of 20 percent. Sales grew 4.6 percent to 51.23 billion kronor.
Despite the drop, which was in line with analysts’ forecasts, there was rapid and profitable growth of the retailer’s online sales, which in some established markets already account for 25 to 30 percent of total sales.
“The fashion retail sector is growing and is in a period of extensive and rapid change as a result of ongoing digitalisation,” said Karl-Johan Persson, CEO, H&M.
“The competitive landscape is being redrawn, new players are coming in and customers’ behaviour and expectations are changing, with an ever greater share of sales taking place online.”
Persson said the shift to online was “clearly reflected” in H&M’s increasing online sales, however did not fully compensate for reduced footfall to stores in several of its established markets.
“This is of course something that we are not satisfied with and which, among other things, resulted in that we entered the third quarter with inventory levels that were too high,” he said.
“Through our aggressive summer sale we succeeded in improving the inventory position. This contributed to the autumn collections getting off to a good start, although sales slowed somewhat towards the end of September.”
The fashion retailer is now looking to refine its store portfolio, with a raft of renegotiation, rebuilds, relocations and closures to take place.
“Overall we will be closing around 90 stores during the year, resulting in a net addition of approximately 385 new stores,” said Persson.
“We still see good potential for more physical stores primarily in many of our growth markets. In the year to date we have opened four new H&M store markets: Kazakhstan, Colombia, Iceland and most recently Vietnam. With Georgia which will open later this year.”
H&M will be present in 69 markets.
H&M said there had been a successful reception of its new brand, Arket, in London as well as online in 18 markets.
“Creating and launching new brands is an important part of our growth strategy, and next year we plan to launch another new brand,” said Persson.
