Sweden-based fast fashion retailer is refocusing on its expansion projects to answer to the Chinese growing demand and better fight against competition reinforcement. Chinese spend only $ 180 in apparel annually, or the fifth of what Americans spend, but their appetite for new clothes is growing. According to the Boston Consulting Group, apparel sales are expected to jump to $ 125 billion over 2015 and China would account for 30% of the fashion apparel sales worldwide over the next 5 years.
Most foreign brands do not have a strong presence in China today as they entered the largest cities such as Beijing and Shanghai and have still to discover the second-tier cities. H&M entered this market in 2007, the most profitable for it, and operates 64 stores there out of a total of 2,472 worldwide. Its projects include the development of existing units, enter smaller cities and consequently triple its presence in China over the next three years. But, it will meet competition for sites as Spanish Zara and Uniqlo from Japan also have major opening projects. In addition, a few Chinese fashion retailers have already claimed their position. Thus, the Shanghai Metersbonwe Fashion & Accessories, a seller of casual apparel similar to H&M, operates a franchise network of 3,000 stores in China.
Now, to lease prime quality sites either in a mall or in a shopping street is among the first aims of H&M since its foundation in 1947. This year, its margins dropped due to the cotton cost increase and a strong Swedish Crown. But, when many competitors raised their prices to maintain their margins, H&M chose to continue offering low prices and to invest in apparel to improve quality and sustainability while using more recycled materials and organic cotton.
As, its target is to open 10 to 15% more units each year the store number might almost double in 5 years. But, this growth brings also challenges such as having the right teams. Present in 41 markets worldwide, it plans to enter new Asian markets and the south hemisphere despite the problem of reversed seasons: when summer apparel is sold in the north, customers below the Equator need winter products. After having launched the H&M Home, a homeware range in 2009, sold at all its apparel stores on some markets, it plans to introduce new products in the future.
In Q4, H&M unveiled that sales were down 3% to $ 5.4 billion in comparable units and down 1% on a LFL basis: -1% in November following -2% in October.