Fast-fashion chain plans operational changes following disappointing quarter

Excess inventory and markdowns took their toll on H&M’s first fiscal quarter.



For the period spanning December 1, 2016 - February 28, 2017, H&M’s first-quarter pretax profit fell 3.6% to 3.21 billion kronor ($362 million), compared with an average estimate of 3.03 billion kronor. H&M blamed the decline on lower than expected sales growth, as well as higher mark-downs.



While H&M’s group sales increased 7%, this “was below our plan,” said Karl-Johan Persson, the company’s CEO.



“For fashion retail in general, market conditions were very tough in many of our large markets in central and southern Europe and in the U.S., and this was reflected in our sales,” he said. “In other markets, such as Sweden and the other Scandinavian countries, eastern Europe, Turkey, Russia, China and Japan, our sales developed well and we continued to take market share.”



To meet the rapid change happening in the fashion retail segment, the chain is re-evaluating operations as a means “to be even faster and more flexible in our work processes, for example as regards buying and allocation of our assortment,” Persson explained.



For example, the chain’s inventory levels were estimated by analysts to be up 30% year-over-year, according to Bloomberg.



Looking ahead, the company will be investing in supply chain operations, “such as in new logistics solutions with greater levels of automation, but also in optimizing our lead times,” Persson said. “In the changes we are making, advanced analytics will provide important support for decision making.”



The company also anticipates launching a new brand, called Arket, in early fall — its first new brand in three years. Arket, which will initially open in London and online in 18 European markets, will feature merchandise men, women and children, and a smaller, curated assortment of home goods. Later, Arket will be introduced in Brussels, Copenhagen and Munich, Persson said.