Swedish fashion retailer H&M is under pressure to demonstrate to investors that it can turn its fortunes around and fend off strong competition from fast-fashion rivals such as Zara, whose sales are increasing, and China-founded SHEIN, which is poised to go public in 2024.
H&M, which sold more than US $ 22 billion in apparel and accessories in fiscal year 2023, plans to achieve an operating profit of 10 per cent by the end of 2024.
H&M’s operating margin increased to 5.9 per cent at the end of the third quarter, up from 3.9 per cent the previous year, but the issue this year will be maintaining margins as several apparel stores have foreshadowed price cutbacks.
H&M may change its pricing approach this year to meet its margin target, according to Andreas Lundberg, an analyst at SEB in Stockholm. “Price mix will be more important,” he stated.
Budget fashion retailer Primark also sees its adjusted operating profit margin recovering to more than 10 per cent this year as sourcing costs fall, enabling it to absorb the higher shipping rates driven by disruptions in the Red Sea.
“H&M has managed to decrease this number significantly and the trend continues downwards, meaning they are shortening time from design to production to shipping,” said Adil Shah, portfolio manager at Storebrand in Oslo, which holds H&M shares.
H&M’s stock-in-trade as a proportion of rolling 12-month sales fell to 17.1 per cent at the end of the third quarter, from 21.6 per cent the 2023.
Mass-market fashion retailers may “wait to see who will move first” before initiating price cuts, according to Alex Romanenko, head of retail at pricing consulting Pearson Ham Group. Bank of America researchers predict that garment prices in Europe would decline by 2 per cent in 2024, after rising by 4.5 per cent last year.
