Swedish fashion retailer H&M is under pressure to show investors that it can turn things around and withstand fierce competition from fast-fashion competitors like China-founded SHEIN, which is about to go public in 2024, and Zara, whose sales are rising.
H&M aims to attain an operating profit of 10% by the end of 2024. In fiscal year 2023, the company sold over US$ 22 billion worth of garments and accessories.
H&M’s operating margin rose from 3.9% to 5.9% at the end of the third quarter of last year. However, preserving margins will be difficult this year because certain clothing retailers have hinted at price reductions.
To reach its margin objective, H&M may alter its pricing strategy this year, according to Andreas Lundberg, an analyst at SEB in Stockholm. He said, “Price mix will be more important.”
Primark, a low-cost clothing store, has seen a recovery in its adjusted operating profit margin this year, rising to above 10% as sourcing costs decline. This has allowed the firm to withstand the increased shipping rates resulting from the Red Sea delays.
Adil Shah, portfolio manager at Store brand in Oslo, which owns H&M shares, stated, “H&M has managed to decrease this number significantly and the trend continues downward, meaning they are shortening the time from design to production to shipping.”
By the conclusion of the third quarter, H&M’s stock-in-trade as a percentage of rolling 12-month sales had dropped from 21.6% in 2023 to 17.1%.
Before implementing price reductions, mass-market fashion retailers should “wait to see who will move first,” according to Alex Romanenko, head of retail at pricing consulting Pearson Ham Group. According to research from Bank of America, clothing costs in Europe are expected to drop by 2% in 2024 following a 4.5% increase in the previous year.
