H&M faces up to growing problem of unsold stock

By

Marion Deslandes

Published
Mar 30, 2018

Following the publication of the Swedish company's first-quarter results, the subject of H&M's stock has been picked up on by a number of mainstream media outlets in the past few days, including the New York Times, La Repubblica and France 2. Indeed, the apparel group's falling sales have come hand in hand with a significant rise in unsold merchandise: H&M reported an accumulation of 3.4 billion euros of clothing stock on February 28, 2018, a 7% increase compared to the same date in the previous year (+8% in local currencies). 

The company's CEO Karl-Johan Persson has announced that due to stock levels being higher than forecast, there will be an increase in markdowns in the second quarter of 2018. Inventory currently accounts for 17.6% of H&M's sales and up to 32.3% of total assets. Persson also explained that the growing volume of stock was related to the need to fill the racks of 220 new stores. 

The group was previously faced with accusations about its handling of unsold stock last October, when Danish journalists reported that H&M had incinerated some 15 tonnes of perfectly wearable clothes. In its defence, H&M's management argued that all the merchandise in question featured faults, presenting evidence that supported its claim. 

As sales fall and the retailer plans to close more H&M stores than previously predicted (while continuing to open locations in new markets) the fast fashion pioneer must now find a way to sell its accumulated inventory. Along with in-store promotional activities, the rise of e-commerce offers a potential solution: H&M's online sales grew 20% in Q1 2018, compared to the same period in the previous year. 

At the crossroads between promotional and digital strategies, the company recently announced the upcoming launch of a discount online marketplace, Afound, where it will be offering products at a 70% markdown, from a range of brands including, conveniently, H&M. 

It's worth remembering that the H&M group, which owns H&M, & Other Stories, Cos and Monki (among others), and is currently launching new brands Arket and Nyden, reported a 44% decrease in its net income in the first quarter of 2018, suffering from a drop in sales (-1.7%) and a series of markdowns. As the group looks to revitalize its operations, it would appear to be counting on its "new business" division which includes all brands in its portfolio other than H&M and saw a 15% increase in turnover in the first quarter.