Hennes & Mauritz Chief Executive Officer Karl-Johan Persson forecast the clothier will more than double its number of stores to close the gap with larger rival Inditex SA and as Amazon.com Inc. increases competition in fast fashion. “I think we will go to 7,000, 8,000 stores plus and beyond,” Persson said Wednesday in a phone interview. “We’re not stressed to reach a certain size or to be number one but it’s still expansion ahead of us.”
H&M would reach that level within four to eight years, based on its goal of increasing its store count 10 percent to 15 percent a year. The expansion comes as e-commerce giant Amazon.com reportedly has introduced a roster of private-label fashion brands and Zara-operator Inditex reins in plans to increase store space in favor of investing online.
The Swedish retailer reported quarterly earnings Wednesday that fell the most in five years as the strong dollar inflated the cost of Asian-made garments. Earnings before interest and tax fell 29 percent to 3.27 billion kronor ($400 million) in the three months through February. Analysts predicted 3.21 billion kronor, according to the average estimate. Gross margin of 52 percent slightly beat analysts’ estimate of 51.5 percent.
H&M’s drop is partly because H&M has been hit hard by the strength of the dollar against the krona since the start of 2015. Retailers mostly pay for products from factories in China and south Asia in dollars, so a rising greenback lifts the cost of clothing made there. H&M is particularly exposed to this, as it sources about 80 percent of its stock from the region. That compares with about 35 percent at Inditex, the owner of the rival Zara brand, according to analysts at Bernstein.
It's worth remembering that there are still some clouds on H&M's horizon. It's facing some serious structural problems. With the rise of value rivals such as Primark and Forever 21, H&M's cheap chic isn't quite as cheap, relatively speaking, as it used to be.
In response, H&M has been investing heavily in its online sales and developing other brands, including & Other Stories and Cos, and said this would continue for many years to come. This is sensible given the competition it faces in the core value fashion sector. And H&M can afford it. It had cash of 12.95 billion krona at the end of its last financial year.
There are some early signs that this investment is paying off. H&M says online is profitable. Cos meanwhile is as profitable as the core H&M chain, while it reckons & Other Stories has started even better than Cos.
Inditex has more than 7,000 stores, according to Bloomberg data. H&M had 2,000 stores in 2010 and soon will open its 4,000th in New Delhi. H&M also plans to bring online sales to 11 new countries this year, including Ireland and Japan.
“I’m a huge admirer of Amazon,” said Persson. “H&M and many other companies will bring something different to the fashion world, and I think we can fare well, as we have shown.”
H&M is also investing online “where we have good profitability,” Persson said. And H&M is set to unveil more details of a new chain it has in the works in the latter part of this year, he said. “It will be a free-standing brand,” Persson said. The first stores will open in 2017.