26 Jun 2020
Posted in Retail
Further online investment required by H&M as Q2 sales halve and profit wiped out by COVID-19
Following today’s release of H&M H1 figures for FY2019/20,
Kate Ormrod, Lead Retail Analyst at GlobalData, a leading data and analytics company, comments:
‘‘H&M’s H1 performance highlights the global escalation of the COVID-19 crisis, with group sales growth of 7.7% in Q1 falling to a 50.1% decline in the second quarter, as country lockdowns and restrictions resulted in c80% of its global store estate closing in April. Profit evaporated in Q2, with the value giant posting a SEK6.2bn operating loss, and with such a focus on trend-led seasonal product, a high level of markdown is also anticipated in Q3, meaning profit recovery will take time.
Only 7% of its global physical network remains temporarily closed, and sales in June so far are down 25% in local currency. While the rebuilding of sales has been better than expected, according to CEO Helena Helmersson, shoppers have not reverted to their pre-COVID shopping behaviours, at least yet. Consumer reluctance to visit physical stores, with the instore experience dented by social distancing measures, and fewer social occasions to encourage spending, are obstacles to overcome in H2 – all with the threat of a second wave hanging overhead. H&M’s value positioning is undoubtedly beneficial, as many shoppers are expected to trade down, but unique product and showcasing value for money will be key to entice purchases post-pandemic.
In H&M’s mature markets, a large store estate was undesirable even before COVID-19, but especially unnecessary given the swift global shift to online in Q2. So, H&M is to further rein in its bricks-and-mortar reach, with c170 permanent closures expected this year, compared to c130 mooted previously, leaving a net decrease of c40 branches. H&M is known for having been late to the party when it comes to embracing online, but following heavy investment in recent years, the value player will have been better able to protect itself during lockdown than some competitors – and, in the UK, likely benefitted from Primark shoppers’ inability to buy online. The online channel accounted for 28% of group sales in H1, compared to 16% in FY2018/19. H&M’s pureplay rivals set the standard when it comes to online experience and fulfilment, leaving H&M with work to do in H2 to elevate its online offer to drive conversion and basket sizes.”