Why Did H&M Begin To Shift Strategy To Online?

Used to be strong.

Clothing brands have been struggling in recent years and are trying to find more.

Opportunity.

In December 15th,

China announced that it will enter Tmall in 2018. This is the first official online channel in China except the official website.

Sales in the fourth quarter of H&M2017 fell 4% to 58 billion 450 million kronor (about $6 billion 890 million) due to poor physical stores.

Some commentators believe that this situation can explain why H&M began to shift strategy to online.

According to the world clothing and shoe net, recently, the Inditex group of ZARA parent company plans to sell 16 shops under its name for 400 million euros (about 471 million US dollars), aiming to obtain more liquidity to expand the Spanish online sales business.

In China, it has built its own business and settled in Tmall.

Thanks to the decline in physical store performance and the pursuit of ultra fast fashion, fast fashion brands are facing a crisis. The electricity providers may help them solve inventory problems to some extent, but the electricity business has brought new logistics costs and is not conducive to the rapid upgrading of the supply chain.

In addition, the fashion of fast fashion has also sacrificed the quality of clothing to some extent, and the crisis of fast fashion brand has not been completely relieved.

Electric business started behind

In a reply to reporters, H&M said, "H&M group's brand Monki has been extended to H&M and H&M Home brands since its flagship store in Tmall.

The two sides are also exploring the possibility of H&M group's other brands joining Tmall. "

Unlike UNIQLO's strategy of entering Tmall in China at the beginning, H&M chose a self built e-commerce mode in China in 2014.

At the end of 2016, Magnus Olsson, general manager of H&M Greater China, said in an interview with the media that "the online shop that was built independently" was better, and explained that "Tmall is like a market for online shopping."

For us, it's important to focus on the way we provide ourselves, how we can keep in touch with our customers, and provide customers with what they want, or even exceed their expectations.

But in just a year, H&M changed his mind.

It is worth noting that in 2012, ZARA opened its e-commerce business in China, and also adopted the way of self built electric business.

But in October 2014, it chose to enter Tmall because China's online business did not meet ZARA's expectations.

In the clothing industry veteran observers Cheng Weixiong, the strategy of self built electricity providers is not difficult to understand, "self operated electricity providers and the offline store form linkage, get the precipitation of big data, is conducive to more direct control of consumer data, these data will provide clues on location strategy, regional demand, product mix and so on.

And through Tmall flagship store sales, although it can also get user data, it means that the acquired data need to be shared with Alibaba, which is taboo when international brands just enter China.

However, the choice of self built H&M of the electricity supplier seems to have little advantage.

"From the platform's focus capability, Taobao and Tmall account for half of China's online shopping platform. To some extent, the lack of cooperation has lost the opportunity of brand promotion and online exposure.

On the day of November 11, 2017, Tmall's trading volume amounted to 168 billion 269 million yuan. Among the major electricity suppliers, Tmall accounted for 66.23% of the total sales of the whole network.

Losing such an important entrance is not a good thing for a brand. "

Cheng Weixiong said.

Yang Dayun, CEO of Cci Capital Ltd, also pointed out: "Chinese consumers have not yet developed the habit of spending their favorite websites on the brand to consume. The influence of a single brand is limited, and people prefer to go on the platform to compare prices."

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According to the data from H&M, there are more than 500 stores in China, and more than 60 stores in mainland China in the 2017 fiscal year.

The US media Quartz commented that H&M has invested too much money in physical stores in recent years, but has been ignoring the channel of e-commerce, and through cooperation with Tmall, "H&M is trying to catch up with other fast fashion brands."

Mr. Xie, who is engaged in fast fashion garment business in Shanghai, believes that "in China, Tmall may be a kind of helplessness for the fast fashion brand under the general trend. First, in order to raise popularity, two is to promote sales promotion, and the three is to digest and clean up inventory (products sold in the first tier cities, which can be consumed by people in low line cities through the Internet). In essence, it is a means to improve performance."

However, fast fashion is not so fast on the electricity supplier.

According to the third quarter earnings report of ZARA parent company Inditex group in 2017, the group's net sales amounted to 17 billion 960 million euros in the first 9 months to October 31st, an increase of 10%. However, the contribution rate of sales in the financial report is not single listed, but only refers to the statement that online sales growth is "normal".

Since this year, Inditex group has gradually entered the Southeast Asian countries, India and other places to open online services, while at headquarters Spain, the Inditex group is also expanding the electricity business.

As of press release, Inditex group did not respond to questions related to the future business plan of the electricity supplier.

As for H&M, previously said in its earnings report, the group will continue to conquer the online market in India and other places in 2018. The ultimate goal is to provide H&M business services in all stores and wider markets.

In the 2016 financial year's annual report, it has also indicated that the original "annual 10%~15% store expansion" is replaced by "the annual sales growth of 10%~15% as the goal". The difference between the two lies in the latter's share of the electricity business.

Although this goal is aimed at the global market, it is even more urgent for the wider Chinese market in online shopping applications.

According to the data from uy international, the proportion of online sales in the global clothing and footwear market reached 14% in 2016.

In the US, UK and China, online sales accounted for 15.5%, 18.7% and 25.9% respectively.

Catch up with "super fast fashion"

H&M, which hopes to use the power of the electricity supplier, has been faced with the pressure and challenges brought by physical stores in recent years.

H&M's fourth quarter earnings report released in 2017 showed that sales fell by 4% to 58 billion 450 million kronor (about $6 billion 890 million), much lower than expected. The group said it was mainly due to poor physical store business.

The share price fell 15% to the lowest level since 2009.

Expansion is continuing. In the first half of this year, H&M group has said that it will open about 500 new stores while closing 100 undesirable stores.

As a matter of fact, ZARA has already slowed down its business. Since March 2016, ZARA's annual shop plan has been reduced from original 8%~10% to 6%~8%.

Traditional fast fashion is facing the impact from online based "Ultra-Fashion".

Roland Begg, senior manager of consumer goods and retail center of management consulting firm Cai Yuanjia, believes that online brands such as ASOS, Boohoo and Missguided are fighting for younger consumers who are more and more difficult to satisfy. They have shorter design and shelf life and more updated products in fixed time.

Public data show that in 2016, ASOS, Boohoo and Missguided revenue grew by 38%, 51% and 75% respectively, of which ASOS and Boohoo's same store sales growth rate remained at 30% and 40%, while ZARA and H&M growth slowed to 10% and 4% respectively.

The efficiency of fast fashion is not as fast as the outside world imagines.

Mr. Xie, who is a garment agent, told reporters that the output cycle of fast fashion brands is actually not as fast as that of the outside world. In fact, they all have a long preparation process. For example, UNIQLO and ZARA regular products are prepared in advance a year or 18 months. According to the operation of traditional industrial products, they only go to the market according to different cycles. When they are on the shelves, factories will be asked to speed up production.

Consumers in fast fashion stores see "new goods", usually after the completion of production by way of batch shipment to create weekly appearance of new products.

Continuous expansion of e-commerce business to a certain extent to the H&M and other supply chain accelerated the challenge.

Mr. Xie pointed out that more than 40% of H&M's manufacturing was completed in China, and more than half of ZARA's manufacturing in China has opened up e-commerce business worldwide, perhaps increasing logistics costs.

And online selling prices will be even cheaper, affecting the further improvement of profits.

"Now fast fashion brands emphasize fast response, such as requiring a product not to be broken within seven days, while the number of online sales exceeds the expected production capacity of the factory. If it is too late to find another supplier, it will be possible to complete the designated quantity quickly, but the quality of clothing will be greatly reduced.

In China, fast fashion brands also frequently produce quality problems, which is closely related to their production patterns. Shortening the production cycle to a certain extent may sacrifice garment quality assurance.

Mr. Xie said.

In addition, the inventory problem is also plaguing the development of H&M, according to the company's earnings report, the group carried out promotional activities in the third quarter of this year, but to a certain extent, it has dragged down the growth rate of performance.

Fashionunited, a foreign media, reported in October this year that a television program in Denmark accused H&M of incinerating 12 metric tons of unsold clothes every year, and has destroyed 60 tonnes since 2012, and is accused of affecting the environment.

However, H&M subsequently denied the investigation.

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