H&M’s failure to adapt to the digital age is beginning to show, as its dismal results for the year ending November 2017, announced last week, highlighted.
Once the darling in the fast fashion world, the company at large just posted its biggest profit drop in six years – down 14% in the year ending November 2017, to 20.6 billion SEK ($2.6 billion).
While the group is made up of eight (soon to be nine) brands, including COS, & Other Stories, Monki and more, the H&M brand itself still contributes circa 90% of revenues. Getting this original part of the business right, then, is crucial for the long-term health of the company.
“The fashion industry is changing fast. At the heart of the transformation is digitalisation and it is driving the need to transform and rethink faster and faster,” said CEO Karl-Johan Persson in an investor call earlier this year.
Although the brand has attempted to catch-up with its competition by shifting to online (it now offers e-commerce in 43 out of its 69 markets), deep-rooted supply chain issues have made integration with its offline stores difficult. Last year Goldman Sachs reported that H&M had lead times twice as long as its biggest competitor, Inditex, which owns Zara. It’s also facing ever-stiffer competition from the likes of ASOS, Boohoo.com, Zalando and more.
Add to that the fact it has just announced that while it is opening 390 new stores this year, it is closing 170, resulting in 220 net new; a dramatic fall from it’s previous standing. All of that left the company’s stock price at its lowest in a decade earlier this month.
In a bid to update and reassure investors on its strategy for recovery, the company hosted its first Capital Markets Day in Stockholm yesterday. Speaking to the audience, Persson explained both the company’s failings and its understanding of the changing retail and consumer landscape.
“We know the industry is undergoing a huge shift – the catalyst for this transformation is technology. It’s not just one technology, but a set that includes artificial intelligence (AI), augmented reality (AR), robotics and more,” he said. “There are changing consumer behaviours as a result – they are expecting more and more. They expect a more tailored offering in how we set up our stores, in how we communicate with [them]. They want a hassle free shopping experience, and the ability to shop anywhere and anytime. And they want even better designs at higher quality and better prices.”
He added: “We know what our mistakes are, and how to improve them.” At the heart of this – in addition to fixing issues around the assortment and excess inventory – is a bid to make the shopping experience both online and offline, more inspiring, relevant and convenient.
A big focus at the core of H&M’s announced plans is a focus on reducing friction. Leading this charge is investment in three new automation warehouses that will mean next-day delivery for 90% of the European population over the next 12 months.
Delivery anytime, anywhere is an important demand from always-on customers, Daniel Claesson, head of business development at H&M, explained. The company next aims to launch same-day delivery to key cities in Europe next year.
It has also recently introduced free shipping and returns to its loyalty customers, or Club Members. On top of that, from a convenience perspective, comes a new option to choose specific timeslots for when deliveries will arrive, as well as to opt to return in store.
The company is also upgrading its payments capability, thinking about local preferences to make it easier to pay both in-store and online relevant to the market. One example is how it recently introduced a ‘Buy now, pay later’ option online in eight markets, with plans to roll it out further to new territories, as well as in-store, ahead.
As part of its focus on improving efficiencies in its supply chain, H&M is particularly driving visibility and thus accuracy around stock. By next year, it expects 80% of its stores to be powered by RFID. In addition, it’s in the process of upgrading eight of its most mature online markets to a new platform that will enable better integration. All of its online markets will be on the new platform a year from now.
Off the back of that, it’s able to offer all manner of new discovery and easy-shopping options for customers. Find a Store, for instance, shows them whether an online item is in stock at a physical store nearby. Scan and Buy, meanwhile, allows the customer to scan an in-store label and find out its availability beyond that store – both online and offline.
The team already offers personalized recommendations in the online store, and will now be bringing that into the physical store too, also thanks to RFID. “In-store mode” in its app enables shoppers to explore product suited to them and their preferences in that particular store, in real-time. The brand has also launched visual search, enabling users to search via images in its app.
In addition, the store experience itself is due to get an overhaul in a bid to enable more emotional connections with consumers, Claesson said. The team is already testing the idea of a flagship of the future, with numerous “add-on services”, as a result. It intends to further learn from these in 2018 and then scale the project up in 2019. The details of what this looks like were not yet revealed.
Relevancy and personalization
“Five billion visits and 800 million transactions – that is an asset in a data-driven world,” Claesson remarked in relation to the company’s focus on advanced analytics and AI.
That capability will bring value to everything from product development, to all levels of the supply chain and to the customer experience, he explained. One of the key failures for the brand in 2017 surrounded issues in the assortment and its allocation – through data, or its quantification allocation process, the team will place more relevant product in each and every store. This is in pilot stage in two stores already.
Brands need to be local and personalized, Claesson highlighted. For brick-and-mortar, this means curated assortments relevant to each location, responding to granular customer needs. “Personalization is about turning our store, into your store,” he said. Advanced analytics is what makes a true one-to-one experience possible, he added.
The brand is also making strides with its digital communications – last year it tested personalized emails, targeted offers and push notifications. “[Eventually], the customer experience will be personalized in everything, from presentation to checkout and delivery options,” Claesson said.