H&M deserves credit for investing in a tough environment
It has been a difficult landscape for fashionable clothing retailers recently, so H&M should be commended for having the bravery to invest in itself. In an effort to diversify away from cheap competitors – Primark and Boohoo.com – the company is championing new brands with different looks and higher price points. One such brand, Cos, has only 199 of the company’s overall 4000 stores – yet it is now as profitable as the main brand.
Upcoming brand Arket will similarly try to carve out a niche for itself in line with current fashion trends. It’s classic garments will be available in shops that also include branded cafés selling Nordic cuisine, hopefully playing into the modern consumer preference for “experiences” over – or alongside, in this case – things. This focus on lifestyle as a wider brand identity within which fashion exists is a bold and intelligent new strategy.
But just because H&M is looking in places that other fashion retailers haven’t quite got around to doesn’t mean it’s ignoring the obvious. It’s pumped huge amounts of money into improving its online offerings and its legendarily efficient supply chain. These investments are as much a necessity as a choice; rivals like Inditex mean H&M can’t afford to skimp.
H&M has had a troubled year so far, but in part, this is down to currency effect: it manufactures its clothes in Asia, where the preference for payment is in US currency. The strong dollar, then, is currently a heavy load for H&M to bear. Currency aside, the company needs innovation and diversification to outperform. Despite a difficult retail environment, this is where it’s putting its substantial cash balance – and the results look promising.
Dominion holds H&M in its Global Trends Luxury Fund.
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