Markdowns matter for H&M

25 September 2009

STOCKHOLM: Consumers have become "more attracted to markdowns" during the downturn, particularly in Europe, and this trend is likely to continue as competition between retailers intensifies, H&M, the clothing chain, has said.

Over the last quarter, the company's profits actually rose by 4.1%, to $504m (€343m; £308m), while its sales increased by 13%, although like-for-like totals were down by 11% on an annual basis in August.

"Weak sales were mainly due to continued recession with restrained consumption, tough price competition and unusually warm weather in many parts of Europe in the end of the quarter," the Swedish firm reported in a statement.

"During the recession … customers have become more attracted to markdowns. H&M's summer sale sold out quickly, resulting in fewer markdown items left for H&M in August compared to the market in general," it added.

More specifically, while results were "satisfactory" in countries such as Sweden, Norway and Germany, overall conditions were much less impressive in Spain, the US and France.

By contrast, a number of markets where H&M is seeking to develop its presence, such as China, Japan and Russia, proved comparatively resilient.

Soren Lontoft Hansen, an analyst at Sydbank, said "H&M has had a very tough quarter once again, in a market where the consumer is holding back spending and is still seeking discounts."

Europe's second-biggest clothing retailer now plans to open 240 stores this year, including outlets in St Petersburg, Florida and Tokyo in the next quarter, as well as developing an eCommerce portal in the UK.

Data sourced from Financial Times/Reuters; additional content by WARC staff