STOCKHOLM: Following the announcement of store closures from the world’s number two fashion group, H&M’s “very poor” full year results illuminate the problems that arise from delaying digital investment.

On Wednesday, the company posted disappointing results after the Swedish retailer’s post-tax profits fell by 13%, despite overall sales growth in 2017.

CEO Karl-Johan Persson in a statement, noted, “industry changes are challenging everyone and this will continue in 2018.” The group’s performance, he added, was “clearly below expectations.”

He added that the company would be adapting to these challenges. "At the heart of the transformation is digitalization and it is driving the need to transform and re-think faster and faster."

Notably, these changes are tipping the balance of sales away from the physical retail space. “Our online sales and our newer brands performed well but the weakness was in H&M’s physical stores where the changes in customer behaviour are being felt most strongly and footfall has reduced with more sales online.”

Part of the plan to return to profit growth is the company’s expansion to digital, which it has talked about for almost a year. At the time, analysts worried that H&M’s low-cost model could remain profitable in light of the expensive services that online shoppers now demand.

In addition, H&M will open far fewer stores this year, despite the launch of its new store, Afound, which will sell budget products from other brands as well as its own low-cost productions.

Investment this year will instead move towards the efficiency of the company’s supply chain – often a strength, as vertically integrated brands have often shown. Meanwhile, an investment in a more sophisticated analytics and intelligence platform seems overdue.

In terms of raw e-commerce, the company will accelerate digital expansion in emerging territories. “We will be broadening our assortments, rolling out digital to new markets and linking to new platforms, like Tmall for mainland China”, the statement added.

But the crux for H&M as a whole is in balancing the changing role of physical retail, as the performance of stores needs to be evaluated in a different way. H&M is moving toward this as it aims to “optimise and refine” the physical portfolio.

Sourced from Financial Times, H&M; additional content by WARC staff