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H&M Decreasing Store Count as Digital Blossoms

Hennes & Mauritz AB revealed plans to double sales by 2030, and with an increasing focus on digital, it doesn’t need as many stores. The fast-fashion retailer will close up to 240 locations in 2022.

In a Nutshell: Noting that the pandemic has accelerated that ongoing transformation in retail to digital, H&M said it continues to negotiate rental terms for stores as it optimizes its network. It expects one-third of its store leases to be renegotiated or exited each year.

For 2022, the retailer said it will shutter 240 stores and open 120 new doors, resulting in a net decrease of 120 locations. H&M will open stores in six new markets, with company-operated locations in Ecuador, Kosovo and North Macedonia and franchised locations in Costa Rica, Guatemala and Cambodia. The rollout of the H&M’s online platform this year will include Belarus, Colombia, Kazakhstan, Peru and Ukraine.

H&M also said its & Other Stories brand will launch a store in Singapore this year, while Arket will open its first store in France in the second half. COS will launch online in Australia this year and in the Philippines via Zalora, while Monki will be launched on About You and on Zalora in Singapore and Malaysia.

As many as nearly 3,000 store associates could be impacted as the consumer shift to online means the need for people to work in online-related parts of the business in tech and logistics is increasing, while those needed in operations at physical stores are decreasing. The company said that the “reduction in employee numbers is mostly due to the expiry of temporary contracts, probationary employment coming to an end and natural attrition.”

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“Most of the store openings will be in growth markets, while the closures will mainly be in established markets,” the company said.

In contrast, 2021 saw the closure of 321 doors and the opening of 104 stores, resulting in a net decrease of 217 locations.

As of Nov. 30, 2021, H&M ended the fourth quarter and full year with 4,801 stores, with 273 operated by franchise partners.

“The H&M group’s strong recovery continues. Customers are showing that they appreciate our customer offering with the best combination of fashion, quality, price and sustainability. By quickly taking decisive action we have succeeded in managing the negative effects of the pandemic. We ended the year strongly, with sales back at the same level as before the pandemic and with profitability better than it has been for several years,” Helena Helmersson, CEO, said. “Now that we are back to a more normalized situation with a strong financial position and good profitability, we can fully focus on growth again. We see significant opportunities to grow both sustainably and profitably. The goal for 2030 is to double sales while at the same time halving our carbon footprint. Profitability is to exceed 10 percent over time.”

“The optimization of the store portfolio remains successful. Now we are stepping up the pace of investment in both our physical and digital stores to elevate and strengthen the integrated experience further,” she said.

The CEO said H&M continues to develop and broaden its offerings to include more products and services. Through its investment art Co:lab, the company now has 20 investments in new companies that it believes are important for H&M’s growth strategy.

“In a short time these investments have created significant value both financially and in the existing operations, for example by improving the customer experience and enabling innovation in sustainable materials,” Helmersson said. “In an industry in rapid transition exciting opportunities arise, and we are constantly evaluating investments and acquisitions that could contribute to the H&M group’s continued sustainable growth.”

The company said that sales in local currencies from Dec. 1, 2021, to Jan. 31, 2022, are expected to increase by 20 percent when compared with the same year-ago period. “The period was negatively affected by the latest wave of the pandemic and its consequences in many of the group’s larger markets,” H&M said.

The company also said that costs for markdowns in relation to sales fell by 1 percentage point in the fourth quarter, mostly because of successful collections but also due to supply chain and technology initiatives that helped to mitigate the impact from disruptions.

“Despite substantially higher shipping and raw materials prices, for the fourth quarter the market situation as regards external factors that influenced purchasing costs was slightly positive overall compared with the same purchasing period the previous year. Increased prices for shipping and raw materials were offset by a more advantageous US dollar exchange rate,” H&M said.

The company said it has a number of ongoing initiatives to offer customers the best possible shopping experience. Those initiatives include more payment options, digital receipts, next day and express delivery roll out, scan and buy, click and collect and self-service checkouts. The company also has a visual search feature using image recognition to help customers by making recommendations based on pictures the customer has taken. It also offers climate-smart delivery options in the Netherlands, Sweden, Italy and France using a bicycle delivery service, and its H&M Home X Augmented Reality pilot allows customers to preview select products by virtually “placing” them in their own homes using the camera on their mobile phone. Consumers in Sweden—and Germany this spring—can also create mood boards in the H&M app and shop directly from it, or use the style board feature to also add items from other brands.

Net Sales: For the fourth quarter ended Nov. 30, net sales rose 8 percent to 56.81 billion krona ($6.02 billion) from 52.55 billion krona ($5.56 billion). H&M said online sales in the fourth quarter rose by 10 percent in local currencies and by 6 percent in krona.

H&M said that despite continued restrictions and negative impact from the pandemic, sales in local currencies were back at the same level as in 2019. At the start of the quarter, 100 doors—mostly in Southeast Asia—were temporarily closed, and by the end of the quarter, that number was around 115 stores, mainly in Austria and Slovakia.

Gross margin was 55.2 percent in the fourth quarter and 52.8 percent for the year.

For the full year, net sales rose 6 percent to 198.97 billion krona ($21.07 billion) from 187.03 billion krona ($19.80 billion). The fast-fashion firm last month guided full-year net sales to a 6 percent gain.

Earnings: For the fourth quarter, profits rose 64 percent to 6 billion krona ($635.6 million) from 3.554 billion krona ($376.3 million) a year ago.

For the year, profits after financial items jumped to 14.30 billion krona ($1.51 billion) versus 2.05 billion krona ($217.3 million) in 2020 during the Covid-19 pandemic.

CEO’s Take: “The H&M group’s strong cash flow and financial position will be crucial for our ability to invest in sustainable growth. In 2022 we will double the level of investment. Alongside initiatives linked to each growth area we will invest further in infrastructure such as tech and the supply chain, but also in renewable energy and sustainable materials,” Helmersson said.