H&M recently released the second quarter of the fiscal year 2024 report shows that although the company's sales and profits increased, the performance still did not meet market expectations.
Fast fashion brands are having a hard time, and they are fighting a "price war". China Business Daily reporter recently visited and saw that ZARA and H&M opened the end-of-season discount mode. H&M said it plans to offer more discounts in the second half of the year to boost sales. Is it possible for fast fashion brands to rely on discounts to stay afloat?
underperformance
Recently, the Swedish fast fashion giant H&M Group released the key performance data for the second quarter and first half of the fiscal year 2024 ended May 31, showing that net sales in the second quarter increased by 3.5% year-on-year to 59.605 billion Swedish kronor, and operating profit was 7.1 billion Swedish Kronor, up from 4.74 billion Swedish Kronor in the same period last year. But it was below the average forecast of 7.37 billion kronor in an LSEG analyst poll. In the first half of the fiscal year 2024, net sales increased by 0.7% year-on-year to SEK 113.274 billion.
Daniel Erver, CEO of H&M Group, said: "We delivered our best performance in many years in the second quarter, once again demonstrating the strength and solid financial position of the H&M Group, with strong cash flow and improved profitability and sales. Now, the group is further raising its sights to strengthen the brand, customer service and shopping experience. In the second half of the year, we will focus on our customers and accelerate the pace of investment, and we see good conditions for continued profitable, long-term and sustainable growth."
While bullish on the second quarter, H&M also revealed concerns about what's next. H&M revealed that sales are expected to decline in June, while the full-year 2024 operating margin target of 10% remains a certain challenge.
Daniel Erver told analysts on a conference call that H&M plans to offer more discounts in the second half to boost sales. The company sells summer dresses on its website for as low as $9.99 and jeans starting at $19.99.
Discounts are the norm
Fast fashion discounts are becoming more common these days, not just at H&M. The reporter visited H&M and ZARA's Beijing fast fashion stores to see that some products in summer and autumn have opened a discount mode, and many goods have been as low as 50% or even lower. In ZARA stores, the reporter saw a sweater with an original price of 279 yuan (RMB, without special marks under the same) sold at a discount of only 139 yuan.
Shoppers flock to a ZARA store in Wangfujing, Beijing, during the discount season. (Photo by Chen Qing, China Business Daily)
Ms. Liu, a consumer, told reporters that ZARA's discount has spread in the circle of friends, and everyone has gone to the physical store to "pull wool". Mr. Wang told reporters that many styles have been out of code and out of stock, and need to be carefully selected in order to pick out good things. "Beijing Blue Harbor, Xidan Joy City... Stores have to Amoy goods, is to feel affordable, worth more shopping." Mr. Wang added.
Ms. Zhou, a consumer, told reporters that every year fast fashion brands will discount, but this year the intensity is greater, the style is more, it is worth buying. In the H&M Tmall flagship store, the reporter noticed that the end-of-season discount has been as low as 30%, and the original price of a black halter dress is 299 yuan, and the current price is only 120 yuan. Daniel Erver said: "In the third quarter, we expect a slight increase in the (price) reduction because we see the need to activate customers and discounting is one way. Of course, creating exciting series, experiences and events is another way."
For fast fashion brand discount promotion, Zhang Peiying, an expert in the fashion field, told reporters that fast fashion brands need to reduce the inventory backlog, so they will take the form of discounts. However, this way should also be carefully used, if the brand relies on discounts to drive sales for a long time, it will deepen the image of the low-end brand positioning in the minds of consumers, and will also lead to a further decline in the gross profit margin of the product.
For fast fashion brands, it remains to be seen whether discount promotions can help brand development in the long run.
New brand impact
The entire fast fashion industry is not only ZARA and H&M, in recent years, cheaper, faster new brands are rapidly rising.
The key to the rise of SHEIN, which is optimistic about the European and American markets, is low prices. It is understood that the average price of more than 600,000 products on its platform is only $7.90. Some consumers said that 100 yuan can buy a skirt, the price is too good. It should be noted that this price is obviously lower than competitors such as H&M and ZARA.
Once proud of "fast" H&M, ZARA now on the new speed has become normal. As we all know, it takes a week for H&M and ZARA to put new products on the shelves, while the new cycle of emerging brand SHEIN is compressed in about 3 days; Fast fashion brand Urban Revivo (hereinafter referred to as UR) from design and production to launch shelves, the fastest can do 6 days a cycle.
Zhang Peiying said that with the rise of new brands, whether it is the new speed of the brand, or the style design, etc., it can compete with the old fast fashion, which leads to the old fast fashion market being squeezed. It is reported that in May this year, UR brand founder and CEO Li Mingguang revealed in an interview that UR brand sales in 2022 exceeded 6 billion yuan, hoping that UR and BENLAI (originally) two brands in the future in the global market revenue can exceed 200 billion yuan.
Some people in the industry said that although emerging brands are rising, the old fast fashion brands are not developing so smoothly, but for local clothing brands, it is not easy to grab a share in the hands of international brands. In the future, whether it is old fast fashion or emerging brands, they need to have more refined operations and differentiated positioning in order to go more stable and further in the fierce market competition. This article is reproduced in China Business Daily, the infringement is deleted (reporter Chen Qing)
