H&M's omni-channel turnaround picks up pace, but there's a lot of catch-up still to be done
H&M’s omni-channel turnaround picks up pace, but there’s a lot of catch-up still to be done
Tue, 07/02/2019 – 03:54
- Signs of omni-channel life continue at the Swedish retailer.
One of the more depressing omni-channel transformation stories that weâ€™ve tracked in the retail sector has been that of fashion firm H&M. â€˜Highlightsâ€™ in recent times have included the need to dispose of â‚¬3.2 billion of unsold stock in a logistics nightmare and the revelation that in 2019 the firm can only offer click-and-collect to customers in 7 of the 47 markets in which it operates.
But there are finally hints that a turnaround is underway. Following some encouraging signs back in March, the Swedish retailer has built on this to deliver some positive numbers as its summer sales get off to a good start.
For its second quarter, net sales rose by 11%. year-on-year to SKR 57.47 billion (Â£4.81 billion). Pre-tax profit fell to SKR 5.93 billion (Â£500 million), but the overall direction of travel was enough for CEO Karl-Johan Persson to be more upbeat than defensive.
There is still the â€˜wider world in crisisâ€™ contextualising going on as he argues:
Fashion retail is going through a major shift. With competition growing increasingly intense, new players are entering the scene. Many competitors are improving while others are having a tough time, leading to increased price and markdown activities in many markets. And we also see a big shift in customer behavior and customer expectations are moving constantly higher.
But on an H&M specific note, he adds:
To meet this shift, we have made substantial investments, and we are transforming large parts of our operations. And we see that this is having an effect already. As customer satisfaction and sales have increased, the transformation work has been further intensifiedâ€¦ In addition to investments in the customer offering, we have, among other things, made large investments in our tech infrastructure, AI, and logistics. These initiatives involve costs that are dampening profitability in the short term, but they will benefit the company greatly in the long-term.
H&Mâ€™s basic transformation plan isnâ€™t going to win awards for imagination or innovation, but itâ€™s a solid enough set of omni-channel retail 101 ideas. As per the companyâ€™s quarterly statement, there are several key planks, including:
- Physical stores â€“ continued development of new concepts and optimisation of the store portfolio.
- Online stores â€“ improvements such as faster and more flexible delivery options and payments.
- Continued integration of our physical stores and online stores to enhance the customer experience.
- Fast, efficient and flexible product flow
- Make the supply chain even faster, more flexible and more efficient.
- Initiatives within advanced data analytics and AI.
- Continued investments in our tech foundation including robust scalable platforms that enable faster development of various customer apps and new technologies.
- Digital expansion into new markets.
On that last point, recent successes have included opening up an online presence in Mexico, with online franchises in Thailand, Indonesia and Egypt planned for later in the year. In addition, H&M is partnering with third party online marketplace platform providers, including Indiaâ€™s largest ecommerce platform Myntra and Tmall in China.
As for the other elements of the plan, Persson emphasises the need to keep things simple:
As we continue our transformation, we are driving change through a number of focus areas. And these areas are to create the best customer offering for all our brands. This includes the assortment. It includes the store experience, physical stores, online experience as well and to integrate the physical stores with online channels.
We also want to make sure that we have a fast, efficient, and flexible product flow, which among other things, includes investments in the supply chain and building an AI model that is addressing the entire flow from trend detection to quantification to allocation and to price optimization.
We also want to make sure that we secure a stable and scalable infrastructure, our tech foundation. And then we want to add growth as well by expanding through our physical stores, the online stores and through external digital marketplaces.
While there is more emphasis on digital investment, there is still a belief in the offline store, he adds, albeit framed with caution:
I think it’s important to point out that we still believe in physical stores, and we have that opportunity to expand. And there will always be physical stores around and the stores we opened are goodâ€¦We have adjusted. The adjustment is a combination of fewer [new store] openings and also slightly more closures.
Behind the scenes, the firm has completed its shift to a new online platform and logistics system, but these are yet to make an impact, says Persson:
By continuing to integrate our physical and digital channels we are making the shopping experience inspiring, easy and convenient for customers wherever we meet them. This and other extensive investments are driving costs in the short term. For example, our new online platform and our new logistics systems have not yet achieved full efficiency, but for customers have resulted in improvements such as faster and more flexible deliveries and a more seamless shopping experienceâ€¦It varies a bit from market-to-market. It will be a gradual improvement throughout the year. Sometime next year, I think we will be at levels where we want to be, if you take all of those latest changes.
Another area of catch-up for H&M in around RFID tech where the retailer isnâ€™t where it needs to be. Persson says itâ€™s a work-in-progress:
We are increasing the amount of stores with RFID and it’s going ahead of plan. And that’s just the first version. And then, of course, we can use RFID in other areas of the business as well. But that’s in the business development phase. Today, we have 15 markets. So, more markets will be added and more stores will be added and it’s going according to plan.
Thereâ€™s no question that H&M is playing catch-up, but equally there are some cautious reasons to believe that progress is finally being made in some key areas. The company is far from out of the woods yet though. Kate Ormrod, lead retail analyst at London-based data and analytics company GlobalData, sums up the situation thus:
Having been a laggard for so long, H&Mâ€�s investment continues apace as the retailer is still to fully harness the opportunities that lie within online. While H&M focuses on rolling out services such as click & collect and in-store returns to other markets, it must not neglect other must-have features and fulfilment options that would elevate its online offer in the UK, such as a delivery saver scheme. While it now plans fewer store openings, minimising costs, the new strategy puts pressure on H&Mâ€™s existing stores and online operations to deliver.
It’s been a welcome first half of the year for H&M. The challenge now is to keep up the progress in the second half.Â
Image credit – H&M