As the fast fashion race heats up, H&M has more than just Shein to worry about. With contenders like Zara vying for the spotlight and snatching up market share, H&M is now forced to reevaluate its strategy.
According to the Swedish fashion retailer, it experienced a drop in sales in the last quarter as it faced tough competition from Zara’s parent company, Inditex, which recently announced an increase in sales.
H&M’s sales fell 4%, the largest decline since the third quarter of the previous year.
On the flip side, Inditex reported 15% growth in local-currency sales for the nine months leading up to October, followed by an additional 14% boost in the subsequent six weeks, as of Dec 13.
Despite the decline in sales, H&M’s performance showed improvement compared to the anticipated 10% fall in September. The earlier decrease was attributed to warm weather affecting autumn/winter collection sales across the industry. Retailers that cited the same issue were Kohl’s, which looked to Sephora to boost sales, and Designer Brands, the parent company of DSW.
As the world’s second largest publicly traded fashion retailer, trailing behind Inditex, H&M has been focusing on sewing up a higher profit margin rather than flaunting sheer sales volume. The company’s goal? A 10% operating margin by 2024, achieved by showcasing pricier pieces and cutting back on discounts.
Despite H&M’s sales strategy, its shares have performed well this year, surpassing Inditex with a 56% increase. Investors seem optimistic about H&M’s potential for recovery, especially after inflation impacted its profitability. Compared to Zara, H&M was slower in raising its prices.
Last week, PYMNTS reported that H&M is trying new tactics to attract more shoppers who aspire to a certain style, and also to stand out from the fast-fashion giant Shein.
Because Shein is growing quickly and making a big impact, H&M wants to increase its profits and secure its place in the industry. To do this, H&M is focusing more on attracting shoppers who are looking for higher-end products.
Yet, according to H&M’s statement, the company insists it hasn’t altered its approach of providing customers with “the best combination of fashion, quality, and sustainability, at the best price.”
The report highlights Shein’s ascent as the global leader in fast fashion, claiming about 18% market share. This success is credited to Shein’s budget-friendly items, such as $8 dresses, $5 T-shirts, and $2 jewelry. Interestingly, Shein’s app has garnered more popularity among European users, surpassing its user base in the United States.
Furthermore, according to the report, H&M is adjusting its approach in response to Shein’s rapid growth. The retailer is strategically targeting upmarket shoppers, aiming to distinguish itself from Shein’s focus on budget-conscious consumers. H&M plans to elevate its brand and enhance the fashion appeal of its offerings to set itself apart.
A clear illustration of this effort is H&M’s recent collaboration with the brand of the late fashion designer Paco Rabanne during Paris Fashion Week. By teaming up with such designers and celebrities, H&M seeks to attract aspirational shoppers.
H&M also launched its premium brand, Cos and revealed in September that it would begin selling secondhand clothing from its flagship London store.
While Shein poses a challenge to H&M, the impact of Zara is seen as less direct, according to the report. Zara’s customer base, primarily composed of white-collar workers, differs from Shein’s target audience.
Read more: H&M Steers Upmarket to Pull Away From Shein
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