Fast fashion performance is polarised: ZARA is riding high as H&M drops to the bottom

H&M's results have continued to fall, with gains in the year to September falling into the lower end of the range, according to the company's earnings report. However, ZARA, also a fast fashion brand, has shown good performance. Analysts said H&M's decline was mainly due to high inventory pressure, while ZARA's aggressive online sales expansion helped boost its profits.

A few happy a few sad fast fashion

H&M group, the world's second-largest clothing retailer, reported global sales rose just 1 percent in September, the slowest pace of growth in the past year. Gross margin at H&M fell 190 basis points to 54% in the third quarter from 55.9% a year earlier. Pre-tax profit was skr6.301bn, down 9.2 per cent from skr6.936bn in the same period last year. Net profit was 4.82 billion kronor, down 9.2% from 5.306 billion kronor a year earlier. At present, H&M group has five consecutive quarters of profit decline.

But ZARA, the fast fashion leader and the world's largest clothing retailer, is showing strong growth. ZARA reported strong sales growth of 13% in the first seven weeks of August 1, solstice and September 18. Although this is a slowdown from the 16% growth in the first half of the year, ZARA has far outpaced the single-digit sales growth of H&M group.

In addition, ZARA group released the financial results of the first half of the year up to July 31, showing that ZARA group's sales rose 11.1% in the first half of the fiscal year, realizing revenue of 10.47 billion euros, or about 77.83 billion yuan. Profit rose 7.5% to 1.26 billion euros, or 9.36 billion yuan.

H&M suffers from the online advantages of ZARA

H&M attributed the drop in sales to the negative impact of seasonal weather and currency problems. However, a reporter from Beijing business daily found that in the first nine months of its earnings at the end of September, H&M group warned that poor sales in the summer would lead to the problem of high inventory in the group, which would increase the risk of price reduction and promotion in the quarter, thus putting pressure on profit margins.

Data showed that the total inventory value of H&M group rose by 24% in the year to the end of August, posing a greater risk to the annual sales, accounting for 16.6% of the annual sales, compared with 14.4% in the same period last year.

Industry insiders believe that H&M group's performance continues to decline because of structural problems caused by intensified competition. Analyst Jamie Merriman pointed out that consumers are now more inclined to use the retail network and e-commerce channels for shopping, which has a great impact on H&M group, which is still undergoing rapid physical store expansion, mainly due to weakened retail sales and long-term shrinking profitability.

ZARA, however, which is experiencing rapid growth, said the increase was mainly due to its strategy of expanding its stores online.

It is reported that as of the end of July this year, ZARA group has 7,096 stores in the world, in the first half of this year, ZARA opened 83 new stores. In addition, ZARA brand entered Vietnam for the first time on September 8, the global physical retail territory has been greatly expanded, reaching 92 markets. In the first half of this year, 39 markets have been set up in 11 new online sales regions. By October, ZARA will be selling all its brands online in Turkey. The group said it would also continue to invest in offline stores and strengthen the integration of sales channels.

Improving efficiency is the key to fast fashion

Compared with ZARA, nearly 80% of H&M's products are purchased in Asian countries through usd, which is a disadvantage compared with 35% of ZARA group. ZARA group, 65% of the purchasing is concentrated in the group headquarters near places such as Spain, Portugal, Turkey and north Africa, and ZARA group can move more quickly to respond to consumer demand and fashion trends, can even produce according to the climate of "ground" products, the efficient business model than H&M and other fast fashion brand.

In this regard, kang lanxin, dean of the school of fashion collocation of pai shang, believes that fast fashion brand, as an economic indicator, is still a very dynamic market, which is a parallel market development with luxury brands. It can represent the average consumption capacity of a country or a region, because it can meet the different needs of consumers, so it is a valuable market that can develop in the long run. Fluctuations in H&M and ZARA's performance are normal. At present, H&M's declining performance and ZARA's rising performance actually reflect the competition process of fast fashion brands. H&M's declining performance due to its high inventory indicates that it has some problems in inventory management. However, in fact, inventory is a problem that every brand will face. However, whether the inventory can be well handled also reflects the group's ability to estimate the market of this brand. If H&M wants to make a beautiful turnaround, the primary problem is to clear the high-pressure inventory, adopt online and offline sales channels to cooperate with the means, and improve the cost performance of the brand. In addition, H&M can use multi-brand strategic planning to re-plan its brand positioning and develop a slightly high-end subordinate brand, so as to help the group improve its brand image and create growth points for the group's performance.