Swedish retailer H&M's pile of unsold garments grows as earnings plunge

H&M expects sales to return to growth in 2019
Swedish fashion retailer Hennes & Mauritz said it’s increasing markdowns this quarter after accumulating a record pile of unsold garments worth more than $4 billion.

 

Operating profit fell 62 per cent to the lowest level in more than a decade as clearance sales failed to reduce quantities of T-shirts and jeans that customers had passed over. The stock slumped to the lowest level since 2005.

 

“The worrying sign again comes from unabated piling-up of inventory,” said Chris Chaviaras, an analyst at Bloomberg Intelligence. H&M’s already-downbeat forecast for the start of 2018 was exacerbated by unseasonably warm European weather in January followed by February’s cold snap, whipsawing the clothing retail industry. That forced the company to slash prices even more. Chief Executive Officer Karl-Johan Persson said Tuesday the company made mistakes by narrowing its assortment last year, though he expects sales to improve in the second half.

 

Persson said H&M plans to reduce markdowns in the second half, when sales should improve and a weaker dollar will reduce garment costs. The retailer aims to reduce inventory to 12 percent to 14 percent of sales in 2019. Stock-in-trade rose to almost 18 percent of sales in the first quarter. H&M said most of that is spring garments, though a small portion is older than 12 months. “We haven’t improved fast enough,” said the 43-year-old scion of the billionaire Persson family. “We’re working hard to fix that.”

 

The retailer is starting a new brand called Afound to sell clothes from various brands including H&M at a discount, and it’s adding three automated logistics centres this year to speed up deliveries. Last month, H&M forecast sales in comparable stores to drop this year before returning to growth in fiscal 2019.


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