Clothing chain H&M is struggling. The Swedish retailer, for years a fast-fashion darling, says it’s having trouble persuading customers to buy its clothes despite a series of widespread markdowns.
It has $4 billion in extra merchandise — including months-old Halloween costumes and Christmas sweaters.
Profits are down to their lowest level in 16 years, and inventory is way up, H&M parent company Hennes & Mauritz said Tuesday. Shares of the retailer’s stock fell about 6.8 percent Tuesday, to their lowest level since 2005.
A confluence of factors have led to H&M’s troubles, analysts say. Here are a few chief reasons:
“Millennials are looking for quality over quantity, which means they no longer want throwaway products,” says Milton Pedraza, chief executive of the Luxury Institute, a New York-based market research firm. “They care less about fashion and more about classic and quality, neither of which H&M has been able to deliver.”
Excess inventory has plagued a number of traditional retailers in recent years, as customers increasingly shop online and look to start-ups for more unique clothing. Several chains, including Macy’s, Kohl’s and Nordstrom, pared back on holiday inventory last year, hoping to avoid having to offer deep discounts on leftover merchandise. The plan seemed to work: Retailers posted their most successful holiday performance in years, and many said they did not have to resort to huge markdowns.
Companies like Zara, Topshop, Uniqlo and Asos — all of which customers tend to associate with higher-quality clothing and better websites — are contributing to H&M’s struggle, according to Pedraza.
The recent backlash over an H&M ad showing a black child wearing a “coolest monkey in the jungle” sweatshirt could also have hurt sales, analysts said. There were widespread calls for customer boycotts after the January incident, and musicians The Weeknd and G-Eazy, both of whom had partnerships with the retailer, announced they would cut ties with the company.
“Whether an oblivious oversight or not, it’s truly sad and disturbing that in 2018, something so racially and culturally insensitive could pass by the eyes of so many (stylist, photographer, creative and marketing teams) and be deemed acceptable,” G-Eazy wrote on Instagram. “I can’t allow for my name and brand to be associated with a company that could let this happen.”
H&M has since apologized for the ad, but some in the industry say the company could feel far-reaching effects.
“There was a huge backlash, particularly in places like South Africa, that could’ve left some customers saying: ‘You know what? I wasn’t that loyal to H&M anyway. Maybe I’ll shop somewhere else,’ ” said Tasha Lewis, a professor of fashion design management at Cornell University.
In the most recent quarter, H&M said inventory rose 7 percent to a record $4 billion. On Tuesday, the company’s website was promoting “further markdowns up to 70 percent off.” Many items were clearly months old: Halloween-themed T-shirts were selling for $3.99, while infants’ Santa outfits were discounted to $4.99.
Company executives, meanwhile, say they’re planning further discounts in the second quarter, as they look to turn around H&M’s business. The company is also preparing to introduce an “off-price marketplace,” called Afound, that will sell discounted items by H&M, as well as other brands.