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H&M’s plan to close 250 stores worldwide signals fashion’s digital future

H&M confirms plans to shut 250 stores in 2021, nearly 5 percent of its total 5,000 global locations to invest more rigorously in digital operations. About one-quarter of its 5000 stores globally will have the chance to renegotiate or end leases next year which will allow the Swedish retail giant to shut down some stores in the process.

Figure 1: H&M plans to close 250 stores worldwide in the next year.

Why such closures?

The pandemic’s hostile impact has changed consumer behavior in various ways. Increasing their propensity to choose online stores rather than the brick and mortars is one of them. This trend has accelerated H&M’s transformation to invest in digital and optimize its store portfolio to maintain the rapid changes in consumer behavior that have resulted from the pandemic.

This fast-fashion giant credits its omnichannel model for gradually increasing value creation. Along with optimizing their brick and mortar base, their model focuses on driving ‘strong and profitable online growth’.

Their store closures are a part of their transformation blueprint to investing more in digital in the wake of the pandemic.

“More and more customers started shopping online during the pandemic, and they are making it clear that they value a convenient and inspiring experience in which stores and online interact, and strengthen each other.”

Helena Helmersson, the CEO of H&M

For H&M’s second quarter to the end of May, the firm turned in a loss of 6.5 billion Swedish Krona ($727 million) on sales down a hefty 50% year-on-year to 28.66 billion Swedish Krona (($3208 million). The only hope of light came from a 36% year-on-year growth rate for e-commerce though from a low starting point.

But it is enough to lead to the by-now traditional crisis response from management as CEO Helena Helmersson says, “During the pandemic, it has become clear how important the interaction is between digital and physical channels to meet customers’ needs. When the majority of our stores were temporarily closed, we focused on redirecting product flow to our digital channels, which have remained open all the time in nearly all our online markets. Online sales increased strongly during that period and have continued to develop very well since we began re-opening the stores.”

Covid-19’s strike on H&M’s sales:

Figure 2: Currently, the pandemic has caused 166 stores to stay closed which is three percent of H&M’s total global estate. 

Currently, the pandemic has caused 166 stores to stay closed which is three percent of H&M’s total global estate. At present, a large number of other H&M stores still have local restrictions and limited opening hours.

H&M reported sales during the nine months were “significantly negatively affected by the Covid-19 situation, particularly in the second quarter when stores were temporarily closed in most markets”.

The statistical report says that net sales for the period fell to 134.48 billion Swedish Krona ($15 billion) compared to 171 billion Swedish Krona ($19 billion) a year ago, after 80 percent of H&M’s stores worldwide were affected by lockdown restrictions at the height of the pandemic during Q2.

CEO’s words on their revival:

Helena Helmersson, the CEO of H&M said, “As a result of much-appreciated collections together with rapid and decisive actions, our recovery is going better than expected.

Helmersson further clarified their strategy of returning to profit and said, “We have strong, profitable online growth, and more and more stores have been able to open again. With more full-price sales than expected and strict cost control, we returned to profit already in the third quarter. Although the challenges are far from over, we assess that the worst is behind us and we are well placed to come out of the crisis stronger.”

Figure 3: Helena Helmersson, the CEO of H&M.

“More and more customers started shopping online during the pandemic, and they are making it clear that they value a convenient and inspiring experience in which stores and online interact, and strengthen each other,” Helmersson added to amplify the importance of stores and online interaction for customer satisfaction.

She said, “The substantial investments made in recent years have been very important for our recovery, and we are now accelerating our transformation work further to meet customers’ expectations.”

“We are increasing digital investments, accelerating store consolidation and making the channels further integrated,” She added.

What’s the future?

Helena Helmersson is seeing a trend in the customers’ behavior, she said, “Many of our customers that have been store customers are now multi-channel customers, which, of course, is encouraging… the digital channels are going well. So going forward, of course, it’s all about [how] to meet the customer wherever they choose to go.”

About the future of store’s Helmersson said, “It’s very much about the flexibility – where we do believe that digitalization is being accelerated and more customers will choose to meet us in those channels? What’s important when talking about online and physical stores is, of course, the integration between channels and this is where we focus our attention and accelerate the transformation then going forward.”

“To meet this future, we will continue adapting the organization and improve our ways of working to become more flexible, fast and efficient. As we are accelerating our digital development, we continue optimizing the store portfolio and integrating the channels,” she added.

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