Despite its Russian exit impacting its bottom line in its most recent results, H&M is laying out plans for “long-term initiatives to meet customers’ ever-increasing expectations”

Our Prospect analysts examine how the retailer plans to meet customer demand now, and in the future.

1. A diverse brand portfolio

The H&M Group portfolio comprises a handful of differentiated brands, which cater for a variety of demographics and budgets and span a number of markets worldwide. 

 

In its most recent financial year ending November 2021, global group sales rose 6.4% in constant currency to SEK 199bn (£16.9bn). The UK is the fashion giant’s third largest market, with sales of SEK 13.9bn (£1.2bn) in 2021/22. In the UK, all but its AFound brand can be found either online or in store.

Internationally, by the end of 2022 H&M expects to have launched in six new markets: Cambodia, North Macedonia, Costa Rica (via franchise), Ecuador, Kosovo and Guatemala (via franchise). The company is accelerating its expansion in the North and South America region, with a focus on Latin America. 

H&M Home range

In 2022 H&M launched its first children’s furniture collection under the H&M Home banner

Its Cos brand recently entered a number of wholesale agreements worldwide with Yoox, Nordstrom and Breuninger, and H&M Group could consider partnering with other retailers as a route to expansion in order to save costs.

Ensuring its foothold in a volatile homewares market, in September 2022 H&M broadened its brand reach by launching its first children’s furniture collection under the H&M Home banner.

2. Integrated sales channels and frictionless retail

The retailer is once again experimenting with a number of formats across its brands, having paused some ambitious store tests when the pandemic hit, which saw initiatives such as its H&M café concept It’s Pleat shelved in the UK.

It opened its “world-first” 29,200 sq ft H&M store in Manchester’s Trafford Centre in April this year, building its profile outside of London. The store, which also contains H&M Home, boasts click-and-collect lockers as well as self-checkout kiosks. With 32% of its sales coming from online in 2021/22, the fashion retailer is looking to blend its online and offline services to create a frictionless customer experience. 

Evolving its experiential strategy, it opened its new H&M Home store in Berlin in the same month, which it describes as “a new elevated level of global H&M Home flagship stores” offering “a dynamic and inspiring customer experience”.

It boasts an in-store café as well as “artworks from local artists, handpicked vintage pieces, and a curated selection of local external brands”. Increasingly, consumers are looking for compelling storytelling in store, and these innovations prove H&M is focused on delivering retail for the future, while also not averse to adding brands outside of its portfolio in store.

Cos

Cos customers can access a range of options using a smart mirror in its changing rooms

Within its Cos brand, it is rolling out a pilot in its US stores, where “tech-enabled in-store shopping solutions provide visitors with seamless payment options, personalised styling recommendations, faster checkout and upgraded delivery/return options”.

Customers can access a range of options using a smart mirror in its changing rooms, allowing them to order other items or sizes at the touch of a button. 

Technology is a key part of its future strategies, with chief technology officer at H&M Group Alan Boehme stating: “Throughout 2022 we will test a new frictionless and personalised shopping experience — from the fitting room to checkout. This initiative is a natural next step in H&M Group’s long history of innovation, where we use technology to discover new ways of enjoying fashion.”

3. Ensuring value for money

As the cost-of-living crisis intensifies, consumers will be looking for value for money in an incredibly competitive fashion environment.

Little-known portfolio brand Afound may offer a window into how H&M group will tap into a growing market for discounted retail. The online-only brand launched in June 2018 and is now present in four countries within Europe.  

Afound

Afound launched in June 2018 and is now present in four countries in Europe

An online marketplace, it offers customers discounts on products from all of the group’s brands using previous seasons’ products, as well as a wide mix of “other popular external fashion, sports, interior and beauty brands”.

With online marketplaces growing in popularity, expansion into new markets seems a safe bet.

Retailers will also lean into loyalty programmes to track any changes in customer behaviour and entice customers to spend, with H&M undoubtedly reviewing its strategies within its H&M Membership programme over the coming months.

In a nod to future initiatives, H&M opened its first outlet store in the UK earlier this year, the 700 sq ft store at Affinity Staffordshire. As retailers are likely to be carrying excess stock as demand softens, online and offline discount models will gain traction.

4. Evolving its sustainability strategy

In keeping with the rest of the retail sector, H&M is working on a number of initiatives to bolster its environmental credentials, looking to recommerce and rental solutions. 

Strategy lead for circular business development at H&M Group Sara Eriksson says: “Expressing who you are through fashion doesn’t always have to mean buying something new.”

Cognisant of changing consumer sentiment, in 2019, the group acquired a majority stake in recommerce platform Sellpy, which allows users to buy and sell second-hand items, including those outside of the H&M brand portfolio. Currently present in 24 markets, the retailer will undoubtedly look to expand its reach over the next few years. 

H&M

‘Expressing who you are through fashion doesn’t always have to mean buying something new’

H&M group already boasts a number of second-hand economy initiatives within its brands too – Cos Resell launched in the UK in 2020, and in 2022 it listed its &Other Stories brand on rental platform Hurr, joining a growing list of brands partnering with the start-up. 

Tapping into a changing homeware market, H&M Home launched its ‘Rent a Christmas’ service in a number of markets in 2021. In the UK, customers could rent a box of festive decorations from the brand’s Regent Street store in London for up to 10 weeks for £49.

Retailers cannot ignore rental and recommerce – as forecasts predict exponential growth over the next five years, they will become key service elements to invest in.

5. Future fashion

Lending itself to personalised experiences, in 2020 its Weekday brand piloted a 3D body scan tool in collaboration with the Laboratory at H&M Group and external vendors, including Unspun, to make bespoke jeans. 

Customers scan their body in store, generating a digital avatar to try different denim colours and styles virtually. Machine learning then converts the body scan into a paper pattern and measurement list, and the jeans are then produced to order, to be picked up in store or delivered to the customer a few weeks later.

H&M-Conscious-Points-image

H&M’s virtual showroom launched in connection with its Cherish Waste Collection

Bespoke fashion is one area that will aid retailers in driving down return rates, which have been flagged by multiple fashion retailers as a prominent issue this year. Like some of its competitors, H&M has started to test online return fees to dissuade shoppers from excessive returns – CEO Helen Helmersson stated in H&M group’s third-quarter results that it would trial the idea “in a few of the markets” initially to gauge market response.

Looking to the future, the group launched its first virtual reality space in April this year, joining a host of brands entering the metaverse to provide both escapism and inspiration for its customers.

Its virtual showroom launched in connection with its Cherish Waste Collection. Inside, press and media could walk around, talk to other guests and view the collection. 

 

Boehme states: “Our brands aim to offer fashion and quality at the best price around the world in a sustainable way. In the virtual world, we are not limited by the same constraints as in the physical world.”

As retailers grapple to understand how to use the metaverse to their advantage, H&M is definitely joining the conversation.

Although H&M group faces a challenging year ahead, with the cost-of-living crisis as well as its Russian exit set to harm its bottom line, it is arming itself with the tools for future success. Prospect estimates that by 2026/27 sales will reach £22bn.