Warm weather and the strong dollar will continue to force discounts amid higher buying costs in Q1, H&M said Thursday. expected sales in January will likely rise 7% year over year, a slip compared to the 9% increase in sales in Q4, which were also tamped down by muted sales of winter clothing but were likely helped by its blockbuster Balmain collection unveiled in November.
The company said that its expansion plans will be a bit less ambitious this year than last, but that it will open a net of 425 new stores in this fiscal year, mostly in the U.S. and China, and e-commerce sites in nine new markets this year. It will sell online in 32 of the 61 countries in which it operates.
Unlike fast-fashion rival Inditex, the Spanish retail company that runs Zara among other retailers, H&M sources much of its goods in Asia, which trades in dollars. Companies sourcing in Eastern Europe are escaping the effects of the strong dollar.
H&M continues to expand, but in addition to more stores and e-commerce sites, the retailer is boosting its offerings of higher-margin goods like beauty, athleisure, and home goods.
Its practice of sourcing in Asia has gone from a strength to a liability, thanks to the strong dollar.
The retailer is in a bit of a pickle because, while it has had to boost its e-commerce to please customers, the higher costs of e-commerce fulfillment wreak havoc on margins on clothing already designed to be well-priced.
But unlike a retailer like Primark, which eschews e-commerce altogether because its goods are priced so low that it makes no sense, H&M faces an expectation from its customers to be able to shop across channels.
The retailer’s clear focus, though is on stores, with executives Thursday reiterating the company’s commitment to expand its store footprint worldwide “for many years.”
“Our growth target of increasing the number of stores by 10-15 percent per year with continued high profitability remains intact,” the company said in a statement. “In 2016 we plan to open 425 new stores net and open H&M stores in three new markets: New Zealand, Cyprus and Puerto Rico.”