When already low-priced H&M sees profits slide as a result of markdowns, it’s even more evident how systemic retail’s problem is. Regardless, H&M has plans in place to improve its supply chain and open hundreds more stores in hopes of seeing a better 2017.
The fast fashion retailer released its fourth quarter and full year financials Tuesday and profits fell nearly 12 percent to 24.04 billion Swedish krona ($2.74 billion) for the full year ended Nov. 30, 2016.
“Profits during the year were negatively affected by increased markdowns but also by higher purchasing costs from the strengthened U.S. dollar,” the company said in a statement.
Despite that, expansion was still strong as H&M added 427 new stores (bringing its total to 4,351 in 64 markets). Sales for the full year rose 6 percent to 222.8 billion krona ($25.43 billion)
“2016 was an eventful year which included many positive things but also challenges for us as well as for the industry,” H&M CEO Karl-Johan Persson said, adding that the company had its highest sales turnover to date but that “sales performance was lower than planned, which led to markdowns.”
For the fourth quarter specifically, things picked up a bit, with sales climbing 8 percent to 61.1 billion krona ($6.97 billion) and profit up 3.65% to 7.4 billion krona ($844.6 million).
With a focus on digital, H&M opened 11 new online markets last year—the latest of which were Canada and South Korea—bringing its total to 64 markets that can shop its product online. This year H&M will also add online options in Turkey, Taiwan, Hong Kong, Macau, Singapore and Malaysia.
“From an already high level we took further market share, which clearly proves that our investments in our online business have been successful.” Persson said.
Successes from e-commerce, however, weren’t enough to make 2016 that much less challenging, and H&M has new supply chain strategies in place to help improve its overall sales for this year. Plans include upgrades to help speed and flexibility through investments in RFID technology and automated warehouses. The company will also offer next-day delivery options, which it already has in five markets, and allow for time-slot deliveries in Japan.
H&M has its sights set on a new growth target of a 10 percent to 15 percent increase in sales (in local currencies) per year, and plans to expand its physical store presence.
Persson said H&M will open 430 new stores in 2017, including in five new markets: Kazakhstan, Colombia, Iceland, Vietnam and Georgia.
“In 2017 we are looking forward to delivering strong collections and customer experiences and launching one or two new brands,” Persson said. “This, combined with the ongoing improvements and our investments in the omnichannel offering, the supply chain and advanced analytics make us positive towards our opportunities for reaching our newly rephrased growth target, both in 2017 and going forward.”