Cambodia’s textile sector to see good times with H&M’s renewed performance

Benjamin

It was a boost for H&M, which reported weak earnings in the past three years. Retail experts were unanimous in their opinion.

There was an interesting post about Sweden-based Hennes & Mauritz AB or H&M for short, in Dutch newspaper AD recently which read: “With its rapidly changing collections and well-known designers, H&M set the fashion scene for decades, but in recent years it has lost its lustre (when) sales declined, collections changed less quickly and racks were filled with discounted items. However, the Swedish fashion giant seems to be picking up. The worst thing you can do is panic.”

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At the fashion chain headquarters, relief was felt with more summer clothing sold in recent months and fewer “old” collections remaining on the shelves. It was reflected in the figures: a higher turnover (plus 12 percent) which is more than what market analysts predicted. Although profit fell, it was slight. Investors rejoiced, driving up H&M share price by 10 percent.

It was a boost for H&M, which reported weak earnings in the past three years. Retail experts were unanimous in their opinion. They claimed that without a solid online strategy, H&M had put itself behind. The Swedes were too focused on physical stores when the fastest growth could be found online.

The fierce competition from chains such as Zara, Primark and Zalando online stores neither made things better nor did the growing mountain of unsold stock. Retail expert Paul Moers said H&M had entered a vicious circle. The fashion giant must have cheap, rapidly changing collections with well-known designers, but it gradually became “less innovative and exciting”.

At the same time, Moers said it was difficult to remain innovative and exciting. “Take Primark. When it opened its first branch in the Netherlands, everyone thought the store was spectacular. But you get used to it and the spectacular thing is (gone). That applies to H&M. You cannot always be successful,” he added.

All time low

The fashion giant reached a low point last year, when its profit dipped to its lowest in 16 years to 118 million euros. That must have been the moment the alarm bells rang in the boardroom. The top announced a new strategy: a better balance between physical stores and online, more investments in digital technology, sharper choices in terms of assortment, being more economical with discount promotions and the curtailment of free (return) shipments.

It is a bit early to attach hard conclusions to the latest figures, “after all, it’s only a quarter” but it is a sign, says retail expert Kitty Koelemeijer, professor of marketing & retail at Nyenrode Business University. “It looks like they have found their way up,” she said cautiously.

Discount promotions

According to her, one explanation is that the Swedes are tackling logistics in a “smarter and more efficient” way, which means that the purchasing policy may be more attuned to the needs of the customer, so that less clothing remains in the stores. According to her, another explanation is that the company has lost less money on discount promotions and has managed to retain customers at the same time.

“H&M joined the fierce competition by offering more, and higher discounts on items of clothing,” the professor said. She added that perhaps the group has attached too much value to those discounts. “That the sales figures have risen shows in any case that more has been sold without a discount. That could mean that H&M has a whole group of regular customers who buy anyway, whether they get a discount or not.”

In particular, the choice to invest more in online is “wise and crucial”

Moers believes that with this new strategy, H&M has “certainly” found the way up. In particular, the choice to increase investment in online stores is “wise and crucial”. The decision announced recently not to open 175 new branches but 130 sits well with the strategy. The idea is to invest the money, which they would save for online expansion, in the second half of this year to Thailand, Indonesia and Egypt.

It shows that the Swedes understand the importance of a good mix between online and physical stores. With around 5,000 stores, H&M is one of the largest fashion chains worldwide.

The Swedish brand knows where it can be prominent, and what it is good at. “The worst thing you can do if it goes less (prominent) is to panic. At those moments you often see (the) management making crazy decisions and investing in things that do not fit in with their profile at all,” Moers said.

Seeing these changes mean that it is only time before this good news from H&M translates to good times for the Cambodian textile industry.

Benjamin is a business consultant based in China

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