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H&M’s sales recovery derailed by coronavirus

Solid results from restructure have been dented, but fast-fashion label sees potential online.

A recovery in fast-fashion retailer H&M’s sales and profit has been muted by the impact of the coronavirus pandemic on stores across Asia. 

First-quarter data for the company showed global sales growth of almost 8 per cent, despite sales in China, the company’s second-largest market, plunging 24 per cent in local currency. 

Demand collapsed in February when more than two thirds of the chain’s stores in China were closed, driving sales down 84 per cent. 

Kate Ormrod, lead retail analyst at GlobalData, said that while a slow recovery in the Chinese market offered hope for the brand as stores began to reopen, the spread of coronavirus through other markets including Hong Kong, Japan, Macau, Singapore and Taiwan saw March sales slump by 46 per cent, contrasting with a 7-per-cent rise in the same month a year ago. 

Online has provided some respite with H&M’s e-commerce sales lifting 17 per cent during the first month of the second quarter, and 47 out of 51 online sites it sells through still operating. 

With three quarters of its stores worldwide now shuttered, including all shops in Australia and the US, H&M is looking at ways to boost turnover online. 

“We do think that the crisis in general will lead to a fast shift towards digital,” new CEO Helena Helmersson told the Financial Times. “We need to be ready for that and accelerate some parts of our work.” 

Despite a plan to see operating overheads reduced by up to 25 per cent, H&M’s sales during the second quarter are projected to fall far enough to result in a loss. 

‘‘Present in 74 markets, H&M’s global operation makes the challenge of dealing with Covid-19 all the more harder, ensuring the pandemic is a true baptism of fire for Helmersson,” said Ormrod.

Evidence of the impact of restructuring undertaken during the last year, H&M achieved a net increase in operating margin of 2.9 percentage points to 4.9 per cent during the first quarter, despite the impact of the coronavirus. 

“H&M has reaped the rewards of its extensive transformation plan – which we expect to help protect the retailer in the long run and ensure it can better cater to a post-coronavirus consumer,” observed Ormrod.

Meanwhile, the Swedish-headquartered company has suspended new orders but undertaken to pay for stock already fulfilled or in production.

“Protecting the business is a priority but just as it continues to lead the way on sustainability H&M has an opportunity to set itself apart from other fast-fashion retailers by setting the standard when it comes to treating stakeholders ethically amid the crisis,” said Ormrod

“Producing PPE equipment and making donations is commendable, but all eyes are on how H&M treats its thousands of workers, with reduced working hours and temporary lay-offs already enacted and redundancies remaining on the table.”

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