H&M on Wednesday said it is scaling back brick-and-mortar expansion plans in 2018, planning approximately 390 new store openings along with approximately 170 store closures for a net addition of 220 stores (down from 388 last year). New markets will be Uruguay and Ukraine, according to a press release.
The company also announced its ninth new brand: Afound. The brand is positioned as a treasure trove — a "style- and deal-hunting paradise" — selling discounted fashion and lifestyle merchandise from H&M’s banners as well as from popular outside brands, according to a separate press release.
In the fourth quarter, the fast-fashion retailer said sales fell 4% (or 2% in local currencies). Weak sales led to increased markdowns and handling costs that hit profits, which plunged 33%. Holiday sales edged up but only slightly. For the full year, sales rose 4% (or 3% in local currencies).
H&M's most recent quarter and holiday sales were weak for the company’s physical stores, and CEO Karl-Johan Persson in a statement Wednesday said the results were "clearly below our expectations." In addition to a shift to e-commerce, Persson said the company will make improvements in its merchandising, saying that "some imbalances in certain aspects of the H&M brand’s assortment and composition" contributed to its lackluster results.
"But our performance does need to be seen in the wider context of the transformation that the industry is going through," he also said. "Underneath the disappointing recent performance, we see reasons for optimism and good learnings but we need to accelerate the transformation even more."
The company outlined three areas of focus:
- Boosting the customer experience in physical stores and online by integrating services like click and collect
- Improving the supply chain with the help of data and analytics
- Developing new brands, like its forthcoming (in March) store on Alibaba's Tmall, opening new stores and rationalizing its store count
The fast-fashion company's fortunes are in stark contrast to rival Inditex, owner of Spanish retailer Zara. In December, Inditex reported a net sales rise of 10% to €17.96 billion (about $21 billion) in the first nine months of fiscal 2017. The Spanish apparel company also announced the rollout of same-day delivery, automated in-store pickup points for online orders and next-day delivery in six markets, including in Spain, France, the U.K. and China.
While H&M is scaling back its brick-and-mortar footprint, it's committed to the launch of new brands. In addition to new banner Afound, H&M in recent months has debuted the new millennial-targeted "Nyden" and apparel and home goods retailer "Arket."
Afound will launch in Sweden in February, with its first physical and digital store in Stockholm. The banner aims to present the kind of "treasure hunt" atmosphere found in off-price retailers like TJ Maxx, which have done well despite their own muted e-commerce operations.