H&M said for 2021, a net decrease of around 250 stores is planned

H&M said for 2021, a net decrease of around 250 stores is planned

Swedish fashion giant H&M Group will shutter about 250 stores next year as it steps up the pace of its transformation work following the impact of the Covid-19 pandemic, which has led to a boom in online shopping.

While it did not divulge in which regions the closures would take place, H&M noted around a quarter of its stores have a contractual right to renegotiate or exit their leases each year. For 2021, it said a net decrease of around 250 stores is planned.

The group, which saw its share rise by more than 7% this morning (1 October), has 51 online markets and operates about 5,000 stores in 74 markets including franchise markets. 

In its nine-month report, H&M said the rapid changes in customer behaviour have been accelerated by Covid-19 and, as a result, the group is accelerating its transformation work further, with digital investments, optimisation of the store portfolio and increasingly integrated channels.

"More and more customers started shopping online during the pandemic, and they are making it clear that they value a convenient and inspiring experience in which stores and online interact and strengthen each other," said CEO Helena Helmersson. "The substantial investments made in recent years have been very important for our recovery and we are now accelerating our transformation work further to meet customers' expectations. We are increasing digital investments, accelerating store consolidation and making the channels further integrated.

"To ensure that our offerings are relevant to customers and improve availability in all channels, speed and flexibility will be even more important in the future, particularly in the supply chain."

Covid-19 has also highlighted the importance of sustainability, Helmersson noted.

"Demand for good value, sustainable products is expected to grow in the wake of the pandemic and our customer offering is well positioned for this. Through our work to become circular and climate positive we are increasing the share of sustainable and renewable materials and we are developing new revenue streams. Together with our accelerated transformation work, this will strenghten resilience and contribute to long-term profitable growth for the H&M Group."

Return to profit

The news comes as the retailer reported profit after tax of SEK1.8bn (US$201.5m) for the third quarter ended 31 August. Excluding IFRS 16, profit after tax amounted to SEK1.7bn, compared to SEK3.9bn a year earlier.

The group's net sales fell 19% to SEK50.9bn from SEK62.6bn last year. In local currencies, net sales decreased by 16%.

Not surprisingly, sales reflect the Covid-19 situation, which saw about 900 of the group's stores closed at the beginning of the quarter. At the end of the three months, just over 200 stores remained closed.

Despite the drop in sales, the retailer said its recovery is going better than expected, with more full-price sales and strong cost control enabling the company to return to profit in the third quarter. 

Sales in September decreased by 5% in local currencies compared with the same period last year. Currently 166 stores, representing 3% of the total number of stores, are still closed. A large number of stores still have local restrictions and limited opening hours.

For the nine-month period, the group reported a loss after tax of SEK1.2bn. Group net sales amounted to SEK134.5bn, down from SEK171.1bn a year ago.

"Although the challenges are far from over, we believe that the worst is behind us and we are well placed to come out of the crisis stronger," Helmersson said.

Gradual recovery

Sofie Willmott, content head of apparel at data and analytics company GlobalData, notes despite an improving trend in its global sales performance following a "terrible" Q2 (March-May), H&M's online channel has not picked up the slack of store closures to the extent that it has at many of its multichannel competitors.

"H&M's online performance in Q3 was similar to last year's growth despite around 900 stores being shut at the beginning of the quarter (down to just over 200 by the end) and it has not benefitted as significantly from the same dramatic level of channel shift that other clothing specialists have. Global fashion giant, Inditex's online sales rose 74% for the six months ending 31 July 2020 whereas H&M's online sales rose 40% in Q2 and just 27% in Q3 (which together cover a similar period). Although H&M is prioritising digital investment, it must act quickly to improve its online proposition globally, in response to rapidly changing shopping habits."

Willmott adds two of H&M's biggest markets have been hit particularly hard by the pandemic with US and UK Q3 sales declining 34% and 20% respectively in local currencies.

"The retailer has been and will continue to be hindered by its excessive store estate and although it plans to trim this down, it will have to consider accelerating closures. With 130 branches planned to open this year and 180 closing, 50 net store closures accounts for just 1% of its estate. It plans to close 250 stores next year but this is still just 6% of its locations and considering that apparel online penetration is set to remain high, at between 30-40% in key markets including the UK and US, H&M should make more significant changes."

Meanwhile, she notes H&M's value-focus and sustainable credentials will stand it in good stead as global economies reel from the effects of Covid-19 and shoppers reduce spending on non-essential items as a result.

"Sales in September fell just 5% demonstrating the relevance of its product offer as shoppers start to feel more confident returning to stores. Both its value appeal and environmentally-friendly reputation, boosted by new initiatives such as the launch of the Cos resale platform, sets H&M apart from its competitors but it must enhance its online proposition given the importance of digital channels, to succeed in a very tough market.''