STOCKHOLM: H&M, the fashion retailer, has warned of further price cuts to shift unsold stock in response to a 61% drop in Q1 operating profits, prompting the question as to whether the problem lies with the fast-fashion model or the brand itself.
According to Reuters, H&M says it will impose further price reductions following a 7% increase in inventory as the company has struggled to adapt to digitalisation fast enough to match the market.
In February, WARC reported that the company’s profits had dropped despite overall sales growth over the year, due to weak demand in its bigger stores.
On Tuesday, CEO Karl-Johan Persson argued that “2018 is a transitional year for the H&M group, as we accelerate our transformation so that we can take advantage of the opportunities generated by rapid digitalisation”.
Indeed, some macro issues have hit fast fashion in general. Earlier this month, Spain’s Inditex, the owner of Zara, felt the pressure of a stronger euro on its profits.
Both companies have also suffered from Europe’s cold weather at the beginning of 2018, an important consideration when business relies on physical sales.
However, Inditex’s results kept investors happy, with the acknowledgement that its vulnerability to currency pressure was a result of its shorter supply chain, which sources from closer to the continent than other firms, thus allowing it to respond to trends more quickly.
But H&M is uniquely vulnerable to shifting shopping patterns, said the Financial Times, because of its model’s reliance on opening new stores. Meanwhile, the relative strength of Zara and Primark pose a continued threat to its profits.
Fast fashion competes on two levels: price and novelty. These require scale and speed to make the machine work well when the model has a physical aspect.
However, once you introduce competition such as the Los Angeles-based Fashion Nova, with the effective marketing virality of rapper Cardi B’s Instagram account and rapid, week-long production cycles, the big brands are vulnerable.
Internet-style virality is key to this shift. As the Chicago Tribune wrote of the brand: “To paying customers, especially hard-to-fit ones, Fashion Nova symbolises a revolution in terms of access to trendy, affordable clothes.”
One YouTuber commented for the same piece: “These days, people just love trends and they want things fast and they want to be noticed a lot more than in the past. Fashion Nova is dropping new clothes, like, every week.”
Sourced from Reuters, Financial Times, Chicago Tribune; additional content by WARC staff