OPER/146
IBS Center for Management Research
Hennes & Mauritz (H&M): High Cost of Fast Fashion
This case was written by K B S Kumar and Indu Perepu, IBS Hyderabad. It was compiled from published sources, and is
intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management
situation.
2020, IBS Center for Management Research. All rights reserved.
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OPER/146
Hennes & Mauritz (H&M): High Cost of Fast Fashion
“The chain is becoming irrelevant because warp-speed, low-priced clothing is
now ubiquitous and sales have moved online. H&M, the founder of fast fashion, is
now too slow.”1
– Elizabeth Cline, Fast Fashion Author, and Expert
In April 2018, the world’s second-largest fashion company, Sweden’s Hennes & Mauritz (H&M),
reported that it had about US$ 4.3 billion (about SEK 33.7 billion) of unsold goods for the year
ending November 31, 2017. The company announced that sales had also risen by just 4% compared
to the previous year. H&M’s CEO Karl-Johan Persson (Persson) said, “Sales in many of our physical
H&M stores were weak, particularly in mature markets where customers’ new shopping behavior
can be clearly seen in the form of declining traffic to stores and increased online shopping.”2 The
company had been facing problems for several quarters. Its stock had dropped by 43.6% between
April 2017 and February 2018. (Refer to Exhibit I for Stock price Chart)
One of the most popular fast fashion retailers, H&M’s sales grew rapidly from the late 1990s to the
mid 2000s. It expanded its presence to countries across the world and had 4700 stores globally as
of November 2017.
But the company started facing problems in 2016, as it lost out to more formidable competitors
like Zara, and online stores like ASOS, which had made their supply chains agile and reduced their
design-to-distribution supply chains to as little as ten days to two weeks.
H&M, on the other hand, had 80% of its clothes made in Asian countries, and so was not able to
meet customers’ expectations. It witnessed its biggest sales drop in the fourth quarter of 2017. The
trend continued and reducing sales led to inventory piling up. At the same time, costs registered an
increase, affecting the profit. Due to years of complacency toward changing trends in the apparel
supply chain, H&M realized its appeal was deteriorating fast. This needed to be addressed
immediately, especially as competitors were progressing rapidly with better quality, in vogue
products, and nimbler supply chains.
Analysts said that the H&M’s slow growth in sales and mounting inventory pointed to the fact that
the supply chain of the fast fashion retailer was unable to meet the changing demands. Persson
needed to create a faster, more flexible, nimble, and agile supply chain. He said, “The efficiency of
our supply chain has always been a strength but it must mirror our customers’ fast-changing
needs. We are investing further to get even faster, more flexible and more responsive.”3
THE FAST FASHION SUPPLY CHAIN
H&M was founded in 1947 by Erling Persson, a salesman from Västerås, Sweden. It started by
selling stylish women’s clothes at reasonable prices. The store called Hennes, attracted customers,
and grew in size and presence. By the end of the 1960s, it had expanded to Norway and Denmark.
In 1968, Persson acquired Mauritz Widforss, a store chain that sold men’s clothes. Subsequently,
the stores were rechristened Hennes & Mauritz. In 1974, the company went public. In the 1980s,
the founder’s son introduced a few changes to give the company an image makeover. The changes
included bringing in new designs and improving quality. The company expanded rapidly and by
2006, it had a presence in 24 countries across the world.
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Hennes & Mauritz (H&M): High Cost of Fast Fashion
Over the years H&M pioneered the concept of fast fashion, where a new garment could be
designed, made, and distributed within a span of 21 days. In the process, it developed a supply
chain that functioned with clockwork precision.
The company’s design department, which planned all its collections and designs, was located in
Sweden. More than 100 in-house designers were supported by buyers and pattern designers. The
ideas were generated from the fashion industry, street fashion, trends among college students,
exhibitions, flea markets, etc., from across the world. Designers received periodic feedback from
store managers across the world to stay connected with the changing fashion trends.
H&M used the services of fashion trend forecast companies like Worth Global Styles Network to
understand trends. It also used analysis and augmented reality technologies for the purpose. Every
year, H&M brought out two main collections – Spring and Autumn. There were sub-collections
within these collections. H&M also collaborated with famous designers like Karl Lagerfeld, Stella
McCartney, etc. to bring out exclusive collections.
The basic range of H&M consisted of a mix of modern basic garments, clothes reflecting the
fashion trends, and high fashion wear. The final composition was decided by combining the
previous season’s fashion with the trends in the next season. Some of the garments of high fashion
were produced in limited quantities and were sold only through stores in big cities. The collections
were carefully curated to reflect the preferences of the customers.
In the initial days, all the garments were produced in Sweden, and later in the neighboring
Scandinavian countries. Slowly, based on its expansion, production was also expanded to countries
like Italy and Portugal. In the late 1970s, it ventured into the Far East countries, and later on to
other countries in Asia and Africa.
H&M did not own any production facilities or factories. It relied on independent suppliers.
However, it had production offices in several countries which were responsible for placing the
order with the right supplier and for ensuring that production was carried out at the right price and
quality and was delivered on time. The suppliers also secured fabric as per the company’s
specifications. The production offices coordinated the activities of the headquarters and the
manufacturers. The designs were sent to the production offices and they selected the manufacturers
who would make the required garments.
The suppliers were decided based on the urgency and the time the company had before the
garments had to hit the stores. Orders for garments that needed to be supplied quickly were placed
with suppliers in Europe. In case of a huge demand from a particular country, the orders were
placed with suppliers closest to that market. The basic items, with projected high demand in the
next season, were ordered six months in advance and their production was scheduled accordingly.
Thus, H&M operated through two supply chains in order to optimize time and cost. The first chain
took care of the cost component and manufacturing was done mainly in Asian countries. The
second one was used for fashion-sensitive garments and was based in Europe. On the whole, there
were around 900 suppliers mainly in Europe and Asia. While 80% of the clothes were
manufactured in advance, 20% were based on the trends.
The finished products were shipped to the company’s warehouse in Hamburg, Germany, which
served as a transit terminal. Those from Asia were sent in ships and from the European countries
through rail and road. Most of the garments passed through the Hamburg terminal, and all the
suppliers from across the world sent their garments there. In all the countries where H&M
operated, it had distribution centers and goods were sent from the transit terminal to the
distribution center. At these centers they were sorted based on the stores to which they were being
sent, checked for quality, and pressed. The merchandise was delivered to stores in daily shipments.
Some of the garments were stored in a separate area in the warehouse called the call-off
warehouse, and these were used to replenish the garments as per the trends.
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Hennes & Mauritz (H&M): High Cost of Fast Fashion
Sometimes, this model was tweaked to accommodate shifts in demand. If there was a large
demand from a particular store, the garments were directly sent from the transit terminal to the
store. If particular garments were in demand only in one country, the garments were sent directly
from the suppliers to the distribution center in that country. When H&M entered a new country,
the existing distribution facilities in the neighboring countries were used during the initial days, till
the volume in the new markets reached economies of scale.
Since the early 2000s, fast fashion retailers had witnessed a boom in their business. They created
rapid translations of runway fashions in a very short span of time and sold them at affordable
prices. (Refer to Exhibit II for more about fast fashion)
A pioneer of fast fashion, H&M disrupted traditional retail by betting on low price and freshness
of designs. The idea behind the model was that consumers valued new products rather than
seasonal sales. One of the factors for H&M’s success was its quick turnaround time in styles and
designs – around 3 weeks.
THE PERILS OF FAST FASHION
As H&M relied heavily on production in Asia, its supply chain lead time was much longer than
that of competitors like Zara. This longer lead time actually helped H&M to maintain a lower price
point compared to its competitors. For example, making a T-shirt in Bangladesh cost around US$
3.3, with the materials accounting for US$ 3 and labor accounting US$ 0.22. Producing a T-shirt in
European countries came at cost of about US$ 13, with labor accounting for US$ 7.5 and material
for US$3. At the same time, production costs in Eastern European countries like Poland and
Romania, etc, were a little lower than in Western Europe.
But the inherent disadvantage of producing in Asia was the time lag, especially when fast changing
trends had to be brought in. In the case of H&M, it kept its supply chain unchanged for over two
decades, while the other retailers made rapid changes. In order to control costs, H&M continued to
produce most of its products in Asian countries, due to which the supply chain time remained
longer compared to its peers, which moved swiftly.
Fast product assortments had some inherent risks. For example, if, during a particular product cycle,
the designs did not find favor with the consumers, it led to a huge pile up of inventory. While other
companies quickly marked down such garments, H&M delayed the process, leading to a buildup of
inventory. “Having a bad product cycle cannot be a problem. Retailers need to have the ability to
appropriately handle a bad product cycle,” 4 said Adheer Bahulkar (Bahulkar), partner and lead for
specialties retail at global strategy and management consultancy A.T. Kearney.
Over the years, the company’s product offerings became dull and unfashionable. Analysts pointed
out that Unlike Zara, which designed more than 60% of its clothing in season, H&M designed only
20% of the clothing according to the season.
At the same time, the prices of H&M’s clothes were not lower than those of its competitors; in
fact, they had registered an increase. For example, between 2014 and 2017, the average price point
increased from US$ 23.90 to US$ 27.04. The price of jeans increased by 15% and that of T-shirts
by 25% whiles the price of Zara’s jeans dropped by 7.5% and that of T-shirts by 21%.
This resulted in several of H&M’s loyal customers shifting their preference to other retailers.
Moreover, H&M’s positioning was unclear, as it was neither a budget fashion retailer nor a full-
fledged fast fashion retailer. Analysts said H&M did not have any USP. Its quality was not the best,
its price was not the lowest, nor were its products the most trendy and fashionable ones. It faced
competitors in every aspect. Zara was known for its trendy clothes and fashionable stores; online
stores like ASOS and Bohoo were ahead of H&M in terms of price and speed; Britain-based Primark
also proved to be formidable competitor, especially in the budget range of fashionable clothes. These
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Hennes & Mauritz (H&M): High Cost of Fast Fashion
retailers came out more often with smaller segments, unlike H&M which produced in larger batches.
In fact, these retailers had a supply chain time of one to two weeks, which enabled them to work in
tandem with the trends. Most of these retailers turned over more styles rapidly, and having
production locations in proximity helped them supply items in latest trends rapidly.
LIMITED PRESENCE ONLINE
Though H&M started selling online way back in 1998, it did not make much headway. Nor did it
invest much in taking online shopping ahead. According to RBC analyst Richard Chamberlain,
“H&M was fast into online in the late 1990s but has been stuck with legacy infrastructure in some
established markets. It has been working on adapting its IT infrastructure to support the business,
but this has taken time due to some teething problems.”5 Customers started showing a preference
for shopping online due to the wide choice available and the lower prices offered. Anne Critchlow,
a fashion retail analyst with Société Générale, said that apart from brick and mortar stores, H&M
faced challenges from online retailers like Amazon in the US, which sold more than 800,000
clothing products from 2800 brands and 80 private labels.
Due to the rapid changes in technology and transformation, the advantages that H&M had enjoyed
gradually fell away. The first was the cost advantage that it had derived by manufacturing in Asia.
Due to automation, production was no longer a labor intensive activity, and the production costs
had gone down the world over. In the process, the advantage H&M had in terms of offshoring
became less significant. Another advantage that H&M had had compared to its peers was a huge
pool of designers, and buyers, who predicted the correct trends. With the rapid strides in predictive
analytics and business intelligence software, the trends could be predicted easily. H&M had a huge
advantage in terms of its global network of stores and growing reach. But with shoppers
increasingly opting to buy online, there was no special gain that H&M could derive from this.
Rather, more of a store presence meant higher fixed costs and expenses. For several years, H&M
had relied on opening more and more stores to sell its merchandise, but the growing number of
stores and its increasing size only compounded the scale of its problems.
In an era where there was a growing preference for online retail, brick and mortar stores were
required to keep the sales and inventories closely matched. Even a small stock of unsold clothes
could prove adverse. At the same time, H&M struggled to bring the latest designs to the stores on
time. While it experienced sluggish sales, it continued placing orders with the suppliers, which
further added to the unsold inventory. Shoppers complained that the stores were in a state of mess,
with clothes strewn all around.
SALES DECLINE
All these factors were affecting the company, and this became evident in 2017, when it witnessed
its first sales decline in two decades. Though the number of its stores had increased, quarterly sales
remained unchanged. For the year ending November 2017, H&M’s group sales rose to SEK 231.8
billion while profit was SEK 20.8 million as against SEK 24 million the previous year. In March
2018, the company announced that its operating profit had fallen by 62% for three months. (Refer
to Exhibit III for the financials of the company)
The earnings fell and unsold inventory swelled to almost one fifth of the total sales. To sell the
merchandise, H&M started selling them at markdowns, which in turn affected its profits and sales.
The unsold inventory mainly consisted of spring and summer items, whose sales did not pick up
due to unusually long winter. Though H&M expected the unsold inventory to clear in the third and
quarter of 2017, it continued to dog it even in the first quarter of 2018. “H&M’s issues will take a
long time to fix,” wrote Michelle Wilson, an analyst at Berenberg. “The inventory problem has now
rolled on for the seventh quarter.”6
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Hennes & Mauritz (H&M): High Cost of Fast Fashion
For the time being, H&M concentrated on selling clothes at markdown prices, in the belief that
these cuts would appeal to shoppers who were looking for discounts and bargains. As most of the
marked down clothes were from the prior season, analysts wondered whether customers would be
inclined toward buying out of fashion merchandise just because of lower prices. “If I didn’t buy
something at $10, it’s hard to imagine I will buy it at $7 or $5,” said Bahulkar. “However, just
because one consumer did not buy it at one price point, in one store, does not mean another will
not. A product may not be bad, it may just be sitting in a bad location,” he said.7
Analysts wondered how H&M was going to clear the inventory without damaging its full price
sales. According to analysts from Credit Suisse, “The company seems to have no obvious strategy
for escaping the vicious cycle of poor sales, higher markdown, and excess inventory.”8 They said
that constant promotions would not be able to drive sales; they could, in fact, tarnish the brand
image. Analysts said H&M still had a long road to travel before it could clear the unsold
merchandise. “There are several quarters, at least, of high markdowns to come,” 9 said Geoff
Ruddell, an analyst at Morgan Stanley.
THE REVAMP
In April 2017, H&M announced an overhaul of its supply chain after it reported a 3% fall in the
first quarter net profit, while rival Zara recorded a 14% rise in net profit for the fourth quarter.
Persson said, “To meet the rapid change in fashion retail, we need to be even faster and more
flexible in our work processes, for example as regards to buying and allocation of our assortment.
We are therefore investing significantly in our supply chain, such as in new logistics solutions with
greater levels of automation, but also in optimising our lead times. [It] is about moving to Europe
as well ... to get faster deliveries to Europe.” 10
The company also invested in integrating the stores and online sales. Using technology, H&M
planned to automate the warehouses and use RFID tagging in its clothes to assess the shortage or
oversupply of clothes. However, the new logistics system hit some snags due to which shipments
to the US and other markets were delayed. The improvement in the supply chain that was meant to
hasten the distribution led to more problems, due to which the merchandise could not reach the
stores on time.
In 2018, H&M invested money on addressing these glitches in the supply chain and in new
technology. It also introduced several more changes in its supply chain right from the way the
clothes were designed to the way the stores were managed. Instead of just depending on trend
spotters, H&M decided to use algorithms, store receipts, point of sale data, returned goods, and
loyalty program data to align the supply and demand better. Due to this, the assortment of
merchandise in several stores went in for a change – more trendy clothes rather than basics found
their way to the stores.
H&M used the services of 200 data scientists, analysts, and engineers to analyze the data using
analytics, to understand the purchasing pattern for each of the items in the store. The data was
collected from those visiting the stores as well as the website. On the whole, it was able to collect
data pertaining to 5 billion visits. Such data was also used to price items in different markets.
H&M planned to spend more on integrating stores and online sales and was also betting on
digitization. In 2017, it planned to invest €600 million on internet. Persson said, “The fashion
industry is changing fast. At the heart of the transformation is digitalization, and it is driving the
need to transform and rethink faster and faster.”11
H&M planned to move some of the production closer to the end markets. Persson said, “The
company will also seek more flexibility with suppliers, so it needs to lower inventories and boost
spending to make the supply chain more flexible.” 12
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Hennes & Mauritz (H&M): High Cost of Fast Fashion
H&M was also looking at reaching a broader consumer base, beyond the budget shoppers. In this
direction it announced the launch of a new chain of stores called ARKET, which stocked home
products in a high price segment, and housed cafés.
To sell the clothes that remained unsold, H&M also planned to start a new line of stores called
Afound, along with online stores. The stores would sell discounted products from H&M and other
brands too. Analysts said that though such stores were operated by several companies, they were
necessary for H&M to remove the discounted merchandise from its stores. They suggested that
some of the underperforming H&M stores could be converted into Afound locations.
H&M also planned to automate the warehouses further. In 2018, it planned to introduce three fully
automated logistic centers that would be operated in an efficient manner to achieve faster lead
times. It was estimated that this would help the company improve product availability and reduce
stock levels.
H&M was looking to invest in advanced analytics and artificial intelligence in several areas
including assortment planning, sales, and supply chain, with a specific focus on trend detection,
quantification, personalization, price management, and allocation. H&M also planned to make
1800 stores RFID enabled in 2019 and also to start omnichannel programs.
Analysts said H&M needed to focus on a few core areas. “I think it’s more important that H&M
keep tabs on their shopper and be able to deliver strong assortments via shopper data and
analysis,” said Kantar Retail consultant Tiffany Hogan.13 In this direction, H&M announced a
transformation in January 2018 that had three action areas. (Refer to Exhibit IV for more about
H&M’s transformation).
THE ROAD AHEAD
The new logistics system further burdened the company, which witnessed a fall of 21% in the net
profit to SKR 4.6 billion between March and May 2018. (Refer to Exhibit V for quarter-wise
financials). At the same time, its online presence was not as effective as that of its competitors.
The online visits to its website grew by only 22% between 2014 and 2017, while that of Zara
increased by 71% and that of Uniqlo by 470%.
Even after H&M revamped its website and started selling, customers were unhappy with its
service. The revamped online system also experienced glitches and customers using the system
faced problems. A customer who ordered baby clothes from H&M and had to wait for a month for
them to be delivered, said the baby had outgrown the clothes in the time that it took for them to
arrive. Other customers said that by the time the products arrived, they would probably have gone
out of fashion in this era of fast fashion.
H&M’s omnichannel efforts were said to be too little, too late. Analysts wondered if they would be
enough to stop the fall in sales and address the issue of dwindling profits. They said the success of
such initiatives would depend more on how well H&M could manage its supply chain and inventory.
The company’s downward spiral continued into the next year. In the third quarter of 2018, year-on-year
inventories rose by 13%. “The inventory level is still too high and will lead to increased markdowns in
relation to sales in the third quarter, compared with the same period last year,” said Nils Vinge, the
retailer’s head of investor relations. (Refer to Exhibit VI for the details of unsold inventory)
Moving production closer to end markets was expected to affect H&M’s profitability, and strain its
already stretched margins further. Though the company had bet big on automation, observers
pointed out that as it did not own any production facilities, the automation would be limited to
logistics and inventory management. They said that rather than going in for innovations that were
suitable for it, H&M was simply following other companies as far as supply chain and technology
were concerned. Tiffany Hogan said, “H&M needs to make sure it’s innovating ahead of the curve,
not just to catch up.”14
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Hennes & Mauritz (H&M): High Cost of Fast Fashion
H&M was also looking at customizing each store, instead of stocking all the stores across the
world with similar merchandise. Analysts were not convinced that H&M’s use of tailoring
merchandise to the store level was effective as the concept had not been tested in the retail industry
earlier. But H&M appeared to have benefitted from such an approach. The case in point was a store
in one of the swanky neighborhoods in Stockholm, which used to stock basic clothes used by men,
women, and children, as managers believed that being a residential neighborhood store, there would
be a demand for such products. A minute examination of the data made the company realize that
most of the shoppers in the store were women who shopped for fashion focused and high priced
items. The store then started stocking high priced handbags, scarves, and other such items.
Analysts also expected the company to emerge stronger after it had dealt with its unsold
merchandise. “We see this as kind of, very much, an opportunity for H&M to build some core
muscle and core possibility,” said Bahulkar.
Competition was also growing for H&M. Apart from the other fast fashion retailers, the company
also faced competition from traditional retailers like American Eagle, Abercrombie & Fitch, and
Old Navy, which had started stocking in-demand merchandise.
A new trend was emerging in the clothing retail through brands like Everlane and Cuyana which
focused on designing seasonless clothes that lasted for several years. They encouraged consumers
to buy fewer clothes that were of high quality and were long-lasting. These brands were registering
high demand from conscious shoppers, who were less interested in cheap clothing that had to be
quickly disposed of.
The dilemma remained for H&M. If it wanted to compete on price, it needed to retain the
production in Asia. However, then it would not be in a position to compete with Zara. Plus, H&M
would not be able to cater to the preference of fashion-conscious shoppers. If the production was
shifted to Europe, the costs would go up. In the meantime, the inventory was continuing to pile up,
posing a major challenge for the company. As Persson said, “The target of reducing inventory over
time remains, but in order to get there, we need to get back to better full-price revenue growth.”
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Hennes & Mauritz (H&M): High Cost of Fast Fashion
Exhibit I:
H&M – Stock Price Chart
Source: Bloomberg
Exhibit II:
Global Fast Fashion
After a lull post the recession in 2008, the global fast fashion industry picked up in 2015,
especially in the US. Shoppers bought 68 garments and 8 pairs of shoes on an average, in a year,
with the average price hovering around US$ 19. Fast fashion encouraged a trend where clothes
were worn a few times and were then disposed of. The fashion changed so quickly that it lasted
barely a few weeks. Almost two thirds of the all consumers preferred to shop for fast fashion,
and at off-price outlets.
Thus, the opportunity to sell the products at their full price was limited to just a few weeks and
in no time, these clothes would find their way to bargain stores. Instead of seasonal products,
retailers were found to be frequently launching new products, styles, and categories. So, the
critical success factor for fast fashion retailers was the ability to move inventory quickly through
the supply chain, as it enabled the companies to get more full-price sales.
With rapid fashion changes, experts said that the supply chain of these companies needed to be
as agile and fast as the supply chain of avocados. The retailers had only a small window during
which they needed to design, produce, and release the garment.
Zara was considered to be a pioneer in fast fashion and in having shorter lead times. But online
retailers like ASOS and Bohoo were able to achieve shorter lead times. ASOS stocked about
60,000 clothes at any given point of time and constantly updated the inventory with new
products. To face the competition, Zara speeded up its production cycles and also laid growing
emphasis on online retail.
While fast fashion retailers were growing at a comfortable pace, other clothing retailers like
Macy’s and J C Penney registered a falling footfall, which forced them to close several of their
stores. They were also facing huge competition from online retailers. Popular retailers came out
with their own off-price outlets like T J Maxx, Ross, and Marshalls.
Buying and disposing of clothes had an adverse impact on the environment, with most of them
ending up in landfills. With growing consumption of clothing, the greenhouse gas emissions
from global textile production were higher than emissions from all international flights.
Contd…
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Hennes & Mauritz (H&M): High Cost of Fast Fashion
Contd…
In a frenzy to provide cheaper and faster fashion, the manufacturing usually took place in
developing countries like India, China, and Bangladesh. It was reported that workers in this
sector worked in abysmal conditions. Such conditions led to a building collapse and a fire
accident in Bangladesh, where thousands of workers lost their lives. Though international
brands whose clothes were made in those factories, took steps toward the betterment of
conditions, not much progress was made.
Compiled from various sources
Exhibit III
H&M – Financials
Financial Year 2017 2016 2015 2014 2013
Sales including VAT SEK m 231,771 222,865 209,921 176,620 150,090
Sales excluding VATm 200,004 192,267 180,861 151,419 128,562
Operating profit SEK m 20,569 23,823 26,942 25,583 22,090
Operating margin% 10 12 15 17 17
Depreciation and amortisation lbr the year 8,488 7,605 6,399 5,045 4,191
SEK m
Profit after financial items, SEK m 20,809 24,039 27,242 25,895 22,448
Profit after tax SEK m 16,184 18,636 20,898 19,976 17,093
Cash and cash equivalents and short-term 9,718 9,446 12,950 16,693 17,224
investments, SEK m
Stock-in-trade, SEK m 33,712 31,732 24,833 19,403 16,695
Equity, SEK m 59,713 61,236 58,049 51,556 45,248
Total Number of Stores 4,739 4,351 3,924 3,511 3,132
Source: Annual Report, H&M
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Hennes & Mauritz (H&M): High Cost of Fast Fashion
Exhibit IV:
H&M Transformation
Be Restless Around the Core
We must always have the best across product assortment and mix, look, value for money,
and sustainability. The best customer offering always wins.
Our physical stores must offer a more inspiring and convenient customer experience, and be
more customized to local needs.
The digital store is a process that should never settle. The offering needs to be constantly
improved and broadened to ensure it maximizes engagement and sales.
We are integrating our physical and digital stores to offer our customers a great shopping
experience with services ranging from Click and Collect to Scan and Buy and online returns
in store.
Invest in the Enablers – New Technology and Ways of Working
The efficiency of our supply chain has always been a strength but it must mirror our
customers’ fast-changing needs. We are investing further to get even faster, more flexible,
and more responsive.
We will invest even more in analytics and intelligence. We see huge potential across the
board from assortment planning to supply chain and sales.
We will continue to invest in our tech foundation. This includes: building scalable, robust
platforms; faster development of consumer-facing apps; and broadening our use of
technologies like Cloud, RFID, and 3D.
Drive Growth – both Traditional and New
The H&M group is developing new brands for new needs and new segments – we now have
eight brands that are all scalable – and we will soon launch our ninth brand, Afound.
Our expansion across digital will accelerate. We will be broadening our assortments, rolling
out digital to new markets and linking to new platforms, like Tmall for mainland China.
We will continue to open new stores – there is still significant growth capacity in physical
stores in many regions and countries.
We will constantly optimize and refine our physical store portfolio. There is still potential
for strong growth in some regions whereas in others we can get a better balance by reducing
store space.
We constantly work on new ideas and innovations that will drive us forward – and there are
many in our pipeline for 2018 and the years to come.
Source: https://about.hm.com/
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Hennes & Mauritz (H&M): High Cost of Fast Fashion
Exhibit V:
H&M – Quarterly Financials
Q3 Q3 Nine Months Nine Months
2018 2017 2018 2017
SEK m 55,821 51,229 153,986 149,597
Net Sales 28,091 26,350 80,295 80,161
Gross Margin, % 50.3 51.4 52.1 53.6
Operating Profit 3,976 4,939 11,191 15,748
Operating Margin, % 7.1 9.6 7.3 10.5
Net Financial Items 36 77 96 188
Profit after Financial Items 4,102 5,016 11,287 15,936
Tax -913 -1,179 -2,178 -3,745
Profit for the Period 3,099 3,837 9,109 12.191
Source: Annual Report, H&M
Exhibit VI:
H&M – Inventory
Inventory Backlog
H&M’s Stock-in-Trade Position
Source:Bloomberg
11
Hennes & Mauritz (H&M): High Cost of Fast Fashion
End Notes:
1
“H&M's Woes mean Fast Fashion is Getting Worse, not Better,” www.latimes.com, April 05, 2018.
2
Tonya Garcia, H&M gets Hit with the ‘Amazon Effect’, www.marketwatch.com, April 08, 2018.
3
“H&M plans supply chain efficiency boost,” www.logisticsmanager.com, February 06, 2018.
4
Felecia Stratton, “H&M Tries on Supply Chain Improvements,” www.inboundlogistics.com, February 28,
2018.
5
Mary Hanbury, H&M is caught in a 'Vicious Cycle' of Discounting, and now it's found itself with a
Mountain of Unsold Clothes – Here's how it got There, www.businessinsider.in, Apr 3, 2018.
6
Niklas Magnusson, Hanna Hoikkala, H&M’s Inventory Problem Forces It to Cut Prices Even More,
www.bloomberg.com, June 28, 2018.
7
Edwin Lopez, H&M's Turnaround Runs through its Supply Chain, www.supplychaindive.com April 3, 2018.
8
Mary Hanbury, H&M is caught in a 'Vicious Cycle' of Discounting, and now it's found itself with a
Mountain of Unsold Clothes – Here's how it got There, www.businessinsider.in, Apr 3, 2018.
9
Niklas Magnusson, Hanna Hoikkala, H&M’s Inventory Problem Forces It to Cut Prices Even More,
www.bloomberg.com, June 28, 2018.
10
Su-San Sit, “H&M overhauls supply chain to compete with Zara,” www.cips.org, April 03, 2017.
11
Katie Martin, “H&M Admits ‘Mistakes’ in Handling Shift to Online Shopping,” www.ft.com, January
31, 2018.
12
Anna Ringstrom, H&M Invests in Supply Chain as Fashion Rivalry Intensifies, https://www.reuters.com,
March 29, 2017.
13
Ibid.
14
Anna Ringstrom, “H&M Invests in Supply Chain as ‘Fast Fashion’ Rivalry Intensifies,”
www.businesslive.co.za, March 30, 2017.
12
