Such is the prominence on the European high street of fashion retailer H&M – and the buzz its arrival into the US caused – that it’s perhaps a surprise to hear CEO Karl-Johan Persson state that when it comes to short term performance:
Lately we haven’t done this well enough.
What that means in real terms is an acceleration of the firm’s long term transformation strategy, which in turn means more digital investment. Persson states:
Most of fashion retail is changing rapidly. At the heart of this development is digitalization and it is driving the need to transform and to rethink faster and faster.
The competitive landscape is being redrawn and is looking different today and very different than just 10 years back. There are examples. I mean, the new big players like Amazon and Alibaba, new business models are emerging, and in an ever-connected world, a lot of niche players or in e-commerce players that are able to reach customers in a way that they would not have been able to say 10 years back.
None of this is particularly – or indeed, remotely – original analysis from a B2C retailer in 2018. The only real surprise is that it appears to have taken H&M, with a heavy youth customer demographic, to catch on to these realities. But Persson indicates that the knock-on impact on customers is now on the strategic priorities agenda:
Customer behavior is changing fast also. With the digitization, more and more shopping is moving online, mobile shopping has grown a lot in recent years and this results also in reduced traffic to a lot of physical stores around the world. And the mobile ‘hello’ has also become central for customers to read, research, explore the shop for fashion, as well as for sharing content and inspiration with friends.
This increased transparency is, of course, a good thing for customers and it boosts their expectations, and therefore, customers are also expecting much more from us all in everything from the assortment, the design, value for money, personalization, newness of products, sustainability, and convenience.
So it’s a different competitive landscape change consumer behavior and all companies are one way or another affected by this and all companies are in different phases of adapting and many are having a tough time and in that process, price pressure is growing as well. While the shift brings a lot of challenges, we also see a great deal of opportunities ahead, and we believe that we’re well-positioned to seize these opportunities.
What that means
OK, so that’s the upbeat note to strike, again not a revolutionary pitch for any bricks-and-mortar vendor to make. But what’s going to happen in practical terms to address the issues that Persson identifies? Work has begun, he explains:
We’re developing the digital stores to make shopping easier and more aspiring. This includes improving things like navigation and making it easier for customers to explore our assortments, offering the best repayment options, and fast and convenient delivery options. In parallel, we are also integrating our physical and digital stores to offer our customers, a great, seamless shopping experience with services ranging from Click-and-Collect, online returns in stores, Scan-and-Buy opportunities, mobile payments and also better deliveries.
Supporting this is an increased commitment to spend on underlying technology to create a platform for transformation:
The second area is to invest in enablers, so new technologies and new ways of working, to improve the customer offerings. The first area there is to improve our supply chain and we are investing a lot to become even faster, more flexible, and more responsive, all the way from product development and design through logistics and sales.
Connected to this, we will also invest even more in AI, in advanced analytics. We see big potential here across the board from assortment planning to supply chain and sales. We will also continue to prioritize investments in our tech foundation and this includes rolling out our scalable and robust platforms, but we also need to invest lot in having faster development of consumer phasing apps and also broadening our use of technologies like cloud, RFID, and 3D.
Online improvements are also seen as driver for international expansion, says Persson:
We are expanding in both new and traditional ways. We are expanding our online presence. In 2017, we added another eight online markets, nine including Kuwait via franchise. Today, the H&M brand has e-commerce in 44 markets. In 2018, India will become a new online market for H&M, as well as Saudi Arabia, the United Arab Emirates via franchise. Looking ahead, we will expand online to all markets where we have stores and more markets added to that.
China is also on the radar for 2018, this time though partnership with existing marketplace players. Persson says:
In March 2018, both H&M and H&M Home will launch on Tmall in mainland China. Tmall is the world’s largest e-commerce platform, where we already offer our brand Monki. Monki has showed very good performance in China and Tmall which is owned by the Alibaba Group will be an important compliment to our existing physical and digital stores in China. We are also in for advanced talks with Alibaba to extend our collaboration to include the other brands of the H&M brand on Tmall.
H&M hit the US in 2000 with a New York store. Today it has 536 physical stores in the US.That’s now a problem – or as Persson puts it when looking at the firm’s recent poor financial performance:
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.
I popped into an H&M store over this past weekend. And I popped back out again very quickly. Now, I’m not really the core target audience here, but H&M used to be a handy option for basic staples, like socks. But what greeted me in the store was chaos.
The layout and presentation was appalling. There were no staff to be found to assist customers, other than the cashiers – and to talk to them you had to line up with everyone who was actually making a purchase. I ended up moving on to Marks & Spencer.
While the digital investment is savvy, if very late in the day, a priorty for Persson should be upgrading a reduced inventory of physical stores. The fact that H&M is pitching RFID as an innovation for its stores in 2018 is laughable and indicative of the mess the firm is in.
Image credit - H&M