H&M’s Supply Chain Problems Could Translate To Discounts For Shoppers

As we’ve been reporting for some time now, it’s hard out there for retailers trying to compete for customers. H&M has had a particularly tough time competing in “fast fashion,” what with its late entry into e-commerce and stiff competition from brands like Zara. But what’s bad for H&M could be good for shoppers looking for hefty discounts.

The problem for H&M is that it has a lot of inventory it’s trying to offload, partly due to its relatively slow supply chain: In January, the company said its net income sank by 11%, largely due to increased markdowns.

To that end, one analyst notes a 30% increase in inventory in March compared to a year earlier, warning that the company is at risk for increased markdowns that could hurt the company’s bottom line if it can’t sell off that extra product, reports Reuters

For example, right now H&M is hosting a “mid-season sale” with discounts of up to 80% off, while rival Zara’s seasonal sale is only discounting items up to 50%. That would seem to indicate that H&M is trying pretty hard to clear out stock.

Now, the company is hoping to keep up with its rival Zara by making investments in improving its supply chain so it won’t have to go to such markdown extremes.

Because while H&M is a veteran in the fast-fashion business and has been around longer than Zara, it’s been lagging behind recently — as in it’s literally slower when it comes to getting new styles into stores, and that’s hurting its sales.

In comparison, brands like Zara — along with Japanese casual designer Uniqlo and online-only retailer ASOS — have faster supply chains in place, and as such, they can more quickly supply their stores with popular items.

In contrast, H&M’s supply chain lead times are about double those of Zara’s parent company, notes Reuters, citing a report from Goldman Sachs this month recommending investors sell their shares of H&M.

“To meet the rapid change that is going on in fashion retail we need to be even faster and more flexible in our work processes, for example as regards buying and allocation of our assortment,” the company said in an investor report today, noting that it’s “investing significantly in our supply chain” with new logistical solutions and more automation.

If H&M can’t fix its supply chain issues, there will only be more discounts to come — which is good for shoppers, but again, not so great for H&M.

There could be other changes afoot for shoppers at H&M as the chain tries to compete: In an investor report today, the company mentioned “optimizing” its portfolio of stores, which likely means closing some, though it’s unclear where on the globe that will happen. This is in line with the company’s news in January that it would slow down on opening new retail locations and shift its focus online. To that end, the company says online sales have been improving.

H&M is also trying to refresh the look of the stores it does have to attract customers with a “a new and upgraded version of our H&M stores with a new visual look.”

by Mary Beth Quirk via Consumerist