In the world of fashion, where trends change faster than Australia's attitude towards its cricket team, even a small pile of leftover stock is a cardinal sin. Sure, you can have a sale, but what do you do with what's left after that?
This is the question Swedish retailer H&M must now face, as its most recent quarterly report revealed on Tuesday that it has $4.3 billion worth of unsold clothes and accessories. Karl-Johan Persson, the company's CEO, said that this had happened because, “H&M was opening 220 new stores and expanding its e-commerce operations, and so needed to fill the racks” (reported by the New York Times).
“Critics, however, blamed poor inventory management and underwhelming product offerings, prompting once-loyal shoppers to take their wallets elsewhere”
Over the last 20 years H&M have come a long way; from one women's retailer near Stockholm to a multinational company of 4, 700 stores. But this latest news, along with last year's unanticipated quarterly drop in sales-the first in two decades-has raised questions over the company's ability to navigate changing consumer demands.
The globalisation that enabled H&M to grow so rapidly, is now posing a challenge: as online shopping (and the start-up industry) grows, foot-traffic drops. Generational change also plays a role, with many younger customers choosing to avoid legacy brands, opting for smaller, more underground labels: for whom the barrier to entry (think: building a website, reaching audiences on social media etc.) has been significantly reduced.
Upstart clothing-brands like Showpo (a $30 million dollar empire built off of cheap frocks) have taken advantage of this. In response H&M must explore its options-because the strategy of burning products it cannot sell to create energy is hardly efficient. It could look to Billabong who, upon encountering a massive decline in sales (once its target audience had grown up, back in the early 2000's), created RVCA, a 'brand within a brand', which is popular with younger customers-many of whom have no idea their snapbacks were made by the same company who 'fashioned' their dad's daggy t-shirts and sandals.
Another reason for H&M's decline in profit could be this: although they paint themselves socially progressive, customers have criticised the company for paying lip-service to the feminist ideals it uses to promote its products (see: Global Hobo's, “Don't Fall For The New H&M Campaign”).
At the moment though, as reported by Business Insider, H&M are planning to deal with the stockpile by launching a unique off-price store: instead of offering discounted designer products (like most off-price retailers), H&M will be offering its own products at a discount.