H&M profit drops due to online investment

H&M profit dropped in the year to November 30, the Swedish fast-fashion retailer blaming investment in its online business for the decline.

The world’s second largest clothing retailer embarked on a transformation program last year, investing heavily in logistics and digital technology aiming to improve the shopping experience and product range. This included an upgrade in its mobile app, faster deliveries and the rollout of click-and-collect.

The company is also working on a new H&M concept store.

In the last three months of its financial year, the company spent around US$48.5 million on logistics and technology, including resolving problems it flagged earlier last year.

H&M CEO Karl-Johan Persson said the upgrade in the company’s logistics systems inevitably resulted in increased costs but will lead to a range of improvements for customers.

“Against a backdrop of rapid changes in the fashion industry, in 2018 we accelerated our transformation to future proof our business, ending a challenging year for the H&M Group and the sector with strong signals that we are on track,” he said.

Persson said it may have been a challenging year for H&M and the industry but after a difficult first half, there were signs the company’s transformation efforts were beginning to take effect.

H&M posted a 5 per cent increase in full-year revenue to $22.7 billion, while in local currencies, net sales rose by 3 per cent. Profit fell by 21.8 per cent to $1.36 billion from the same period last year.

Online sales rose 22 per cent to SEK 30 billion ($3.2 billion) and now comprise 14.5 per cent of the company’s total revenue.

“With a stronger customer offering and the ongoing improvements in buying and logistics, we expect this trend to continue,” Persson said.

“While this performance is still some way off the targets that we set at the beginning of 2018, these positive signals confirm we’re making progress across all our strategic focus areas: to create the best customer offering; a fast, efficient and flexible product flow; a stable scalable tech foundation; and adding new growth through store and online expansion.”

According to Persson, the company opened three new fulfilment centres in the fourth quarter with a total of around 230,000sqm so it can offer customers faster deliveries and a wider assortment while reducing the capacity constraints that slowed them down in some markets in 2018.

“We have also completed our online transition with investments in 2018, enabling us to successfully migrate online in Germany to the new platform earlier in January 2019,” he said. “With this, all H&M online markets are now on the new platform.”

Persson said the difficulties with the logistics upgrade in some of their markets earlier in 2018 led to additional costs in the fourth quarter.

“Applying lessons learned, we have not increased investments to secure upcoming transitions.”

He added that while these initiatives have a short-term impact on margin, they will lead to continued improvements for their customers, driving increased profitability in the long term.

“With the transformation now underway, capital expenditure will reduce this year compared to last and we will continue to shift the balance of our investments towards digital.

“Changing consumer behaviour and technological innovation will continue to transform how and when people shop, we are building a business with the flexibility to respond to this constant evolution.”

* This story first appeared on our sister site Inside Retail Australia.

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