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H&M’s China performance: A sneak pick for others amid post COVID-19 impacts

Recently H&M published weekly sales figures for its China division, showing the path for other fashion brands with insight on how sales will be in particularly worst-hit COVID-19 markets over the next few months.

Figure: H&M extensive 518 stores in China means that the Coronavirus impact was cushioned, protecting its performance from being even worse.

The main highlights are how retailers can consider their store reopening schedule after quarantine and isolation measures, and post-peak-pandemic consumer demand will be adequate to support the cost of operating all stores or if reopening should be phased more gradually.

H&M extensive 518 stores in China means that the Coronavirus impact was cushioned, protecting its performance from being even worse (sales sunk 84% in February), in other markets where nationwide store closures have been implemented in abidance of governmental measures, fashion retailer sales declines are likely to be even steeper.

Moreover, retailers/brands with weaker online platforms, or indeed those with no transactional presence, should expect near to 100% drops during quarantine periods – these could extend over three weeks or more, with Italy currently on course for a five to six-week isolation period.

Retailers must start planning a recovery strategy globally to operate in, taking into account consumer sentiment and confidence, the country’s financial stability, consumer propensity to spend on fashion, online penetration and the time in the season and promotional calendar – all of these factors will impact how and when physical stores should reopen.

H&M’s results in China, sales were down 79% in week 10 despite 89% of its stores in the country being open, raising the question whether this is a financially viable strategy in other effected markets due to the burden on operating costs. Understandably retailers will be keen to reopen stores to clear seasonal stock and recover lost revenue, but the impact to profitability by opening these stores too early could be severe.

In markets where governments are offering support to retailers (such as in the UK where the government has suspended business rates, removed landlords’ rights to take back shops for non-payment of rent, and provided income support to consumers who have been furloughed for set periods), it may be in the retailer’s interest to keep staff out of work until consumers start to spend on non-essentials and sales pick-up.

Flagship and tier-one stores will be a priority to reopen soon, but retailers must ponder what their neighbors are doing in each location as trading from under-occupied high streets or shopping centers will impede traffic and draw out the recovery period.

In China nearly all retailers have now reopened stores, but consumer propensity to spend is significantly higher than in mature retail markets such as the US and much of western Europe so we expect store reopening schedules and the recovery process to be longer than what we have witnessed in China.

H&M’s performance in China depicts a severe reality for what is to come across much of the world’s major retail markets, with the US, Spain, Italy, Germany, France, the UK and Turkey now having the highest number of confirmed coronavirus cases (excluding China) leading to significant slumps in consumer spend on fashion.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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