H&M forecasts return to growth for store sales next year

Hennes and Mauritz forecast that sales at its brick-and-mortar stores will return to growth next year as it tries to lure consumers back to shopping centres and capture a bigger share of surging e-commerce.

Sales in comparable stores will continue to fall this year, the Swedish apparel retailer said Wednesday in a statement, but online sales should rise at least 25 per cent.

The retailer is holding its first capital markets day in Stockholm, laying out its strategy for adapting to the industry's digital shift as Inditex SA's Zara and other rivals leave it behind. Responding to criticism that it's lacked transparency, H&M for the first time is breaking out the sales contribution of e-commerce and non-H&M brands.

The purveyor of fast fashion is being squeezed from all directions. The convenience of online-only retailers such as Zalando and Asos is keeping customers away from H&M’s network of more than 4,000 stores. Meanwhile, ultra-cheap Primark is attracting some of H&M’s core cost-conscious customers, and Zara has an advantage in following the whims of fashion as it’s able to move the latest designs to the rack within two weeks.

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The stock rose 1.1 per cent as of 9.08am local time. H&M shares have fallen about 42 per cent in the last 12 months, compared with a 17 per cent drop for Inditex.

The Swedish company said it sees “good opportunities for a somewhat better result” this year, with weakness at its physical stores moderating. By 2022, it expects sales from e-commerce and non-H&M formats to nearly triple from last year’s level. Other labels, which include COS, Weekday and newly launched Arket, currently account for less than a tenth of sales.

Management is reacting to a record sales decline in the fourth quarter with its largest store-closure program in at least two decades and the creation of another new format, Afound, to sell marked-down clothing. The company is also refurbishing physical stores while directing investments toward e-commerce and faster supply-chain technology. H&M devoted almost half of its investment spending in 2017 on its digital offering.

Earlier this week, H&M abandoned a proposal to help allow shareholders, including the Persson family, to reinvest in the company rather than receive dividends. The manoeuvre proved too difficult to implement. - Bloomberg