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H&M to Open First Arket China Store Despite Closing 350 Sites This Year

Pandemic lockdowns weighed on Hennes & Mauritz‘s fourth quarter sales, as the company reiterated plans to close 350 and open 100 stores this year while forging ahead with recycled materials. It’s also planning to open the first Arket store in China later this year, making the lifestyle label’s varied wares available to consumers in and visitors to Beijing.

In a Nutshell: The Swedish fashion giant will open an Arket store in the Chinese capital in the fall after testing the waters with a store on Tmall as well as a WeChat miniprogam. “The new store gives us an opportunity to welcome people into our world and invite them to experience the rich diversity of our collections—from beautifully-made fabrics and fashion designs to nature-inspired interiors, sustainable childrenswear and contemporary Swedish cuisine,” said Pernilla Wohlfahrt, managing director of Arket.

Meanwhile, H&M says 1,800, or 36 percent, of its roughly 5,000 global stores are closed, which are likely to trim net sales by 23 percent for the first two months of fiscal Q1 2021.

The company said it has also streamlined its invoice and payment process and based on 2020 purchasing volumes, expects to free up around 10 billion Swedish kronor ($1.20 billion) in 2021. It also has a framework in place to issue sustainability-linked bonds to finance an accelerated transition to recycled materials. “The H&M group’s goal is for 100 percent of the materials used in the products to be recycled or come from other more sustainable sources by 2030. By 2025 at least 30 percent are to be recycled materials,” said H&M, which has a stable BBB credit rating from Standard & Poor’s. “The group is continuing to monitor the bond market; if the need and the right market conditions arise, the group intends to issue a first bond,” it added.

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H&M said a deal with banks means it can pay suppliers earlier than an invoice due date, an offer extended to all suppliers. The program has been “well received in the markets where it has been implemented to date [and that m]ost suppliers have chosen to take part. This could improve the working capital of both the H&M group and the product suppliers.”

And as it continues to integrate digital and stores, the company said it will move ahead with closing 350 locations in 2021 while opening 100. Of note, most closures will affect established markets, while new stores will arrive in growth hubs. In addition, a franchisee will open the first H&M store in Panama in the second half of the year. The company said it renegotiated a large number of store leases last year; about one-quarter of store leases will be renegotiated or exited annually. Last year, it closed 187 stores and opened 129.

“The H&M group stands strong after all the challenges brought by the pandemic. Thanks to much-appreciated collections, rapid and profitable online growth and strict cost control, the company succeeded in ending the year in profit and in a strong financial position,” said CEO Helena Helmersson.

“Our measures to mitigate the negative effects of ongoing restrictions and closures are continuing,” she added, despite the “highly challenging” environment.

Net Sales: Net sales for the fourth quarter ended Nov. 30 fell 15 percent to 52.55 billion Swedish kronor ($6.31 billion) from 61.69 billion Swedish kronor ($7.40 billion). Online sales rose by 50 percent in local currencies during the quarter.

A strong recovery at the quarter’s start was “significantly slowed” by new restrictions and lockdowns amid Covid’s second wave. About 20 percent H&M’s stores were closed during the period.

The company said gross margin for the quarter was 52.1 percent.

For the year, net sales fell 20 percent to 187.03 billion Swedish kronor ($22.45 billion) from 232.76 billion Swedish kronor ($27.94 billion) in 2019. For the year, online sales rose by 38 percent in local currencies, representing 28 percent of the group’s total sales for the full year.

Earnings: Profits for the quarter fell 41 percent to 2.49 billion Swedish kronor ($298.3 million) from 4.21 billion Swedish kronor ($505.5 million) in the year-ago period.

Liquidity at the end of the quarter was “very good,” with cash and cash equivalents totaling 16.54 billion Swedish kronor ($1.99 billion), up from 12.312 billion Swedish kronor ($1.48 billion) a year ago, it said.

H&M said it will increase digital investments to foster online-offline integration this year. It plans to increase sales in local currencies by 10 to 15 percent each year. With 1,800 stores closed in the current quarter due to the pandemic, H&M said the cost of markdowns in relation to sales is expected to increase by 1 to 1.5 percentage points in the first quarter, compared with the same year-ago quarter. “The ongoing restrictions, along with the many temporary store closures, will have a substantial negative impact on the first quarter,” it said.

For the year, profits plummeted nearly 91 percent to 1.243 billion Swedish kronor ($149.2 million) versus 13.443 billion Swedish kronor ($1.61 billion) a year ago.

CEO’s Take: “The recent years’ transformation initiatives and investments, focusing on the digital, have been especially important for managing the crisis and this work is continuing at full speed. Customers want to meet us where, when and how they choose—in the stores, on our websites, on digital marketplaces and on social media. They are showing us clearly that they appreciate a convenient and inspiring experience in which the channels interact and strengthen each other. We are continuing our initiatives for digital growth, integration of the channels and optimization of the store portfolio. Speed and flexibility will be even more important going forward, particularly in the supply chain, to ensure the best customer offering and increase availability in all channels,” Helmersson said.

H&M’s focus remains on developing “strong, unique brands in order to always offer the best combination of fashion, quality, price and sustainability,” she continued. “The percentage of recycled and sustainable materials in the collections is consistently increasing and our brands are offering an ever-growing range of services for a more sustainable lifestyle. Together with our transformation initiatives this will help increase our resilience and adaptability and will contribute to sustainable and profitable growth for the H&M group.”