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When Inventory Clearance Points to Bigger Problems

by simon
Once upon a time, H&M was the superstar of the fast fashion brick-and-mortar. Even as eCommerce made a dent in brick-and-mortar retail, H&M kept growing.

Now after a prolonged sales slump, the company now carries a huge overstock that inventory clearance sales haven’t helped. For H&M, the conventional wisdom goes, the problem speaks to a bigger problem.

Coverage of its recent quarterly report revealed that H&M’s woes surfaced in early 2017. At the time, H&M reported an unexpected decline in quarterly sales, the first in its two-decade history.  Over the following year, its difficulties snowballed, with H&M accruing $4.3 billion in unsold inventory. Not only did aggressive inventory clearance sales fail to bring stock down, the discount prices ate into their profits.

Beyond Inventory Clearance

According to analysts, H&M’s inventory issues stem from a more fundamental problem. Primarily, they point to its brand proposition. While they consider it fast fashion, H&M is said to be more expensive and less appealing to its target customers. Consequently, consumers spend more with online brands, like ASOS, and brick-and-mortar rival, Zara.

Slow to Market

Part of the reason H&M lost ground to competitors is speed to market. Zara, for example, is famous for its five-week supply chain cycle. However, the speed to market among these fast fashion brands can be as little as week. In other words, they’re fast enough to keep pace with consumer taste. So, part of H&M’s inventory clearance problem is their relatively glacial six-month product cycle.

Going Forward

As H&M grapples with its inventory clearance in 2018, it will also look to accelerating its supply chain. Analysts, additionally, see hope in H&M’s sister brands that are profitable but have a significantly smaller brick-and-mortar footprint. Indeed, H&M’s 4,700 stores and six-month product cycle seem a throw back to the pre-eCommerce age. Consequently, H&M’s plan going forward is to place greater emphasis on digital channels. That suggests, once again, an ultimate omnichannel solution to fixing a struggling brand.