We visited an H&M store and saw everything that’s wrong with the brand

H&M's store is filled with sale signs.

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H&M’s store is filled with sale signs.
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Business Insider/Mary Hanbury

  • H&M reported its biggest sales drop on record in the fourth quarter of 2017.
  • The company is increasingly losing to fast-fashion competitors like Zara and ASOS, which have sped up their supply chain to stay on top of trends.
  • We visited the store to see firsthand what’s happening.

The king of fast fashion has been knocked off its pedestal.

H&M’s share price dropped by almost 10% in Stockholm after the store reported the biggest drop in quarterly sales on record on Wednesday. Total group sales decreased by 4%, according to the company.

For years, H&M was regarded as a revolutionary retailer with a speedy supply chain that enabled it to stay on top of trends. However, sales growth at the company started to falter in 2016 and continued throughout 2017, culminating in its biggest sales slump on record in the last quarter of 2017.

One of its largest shareholders, the Swedish savings and investment fund Skandia, has sold off most of its stake in the company, Bloomberg reported earlier this month.

“There’s so much they need to do that I don’t think they’ll solve this quickly,” Erik Sjostrom, a senior portfolio manager at Skandia, told Bloomberg.

In the company’s full-year results, which were reported on Wednesday, CEO Karl-Johan Persson said that the “disappointing performance” stemmed from weak sales in its H&M stores, while online sales and newer brands, such as & Other Stories and Cos, performed well.

Persson confirmed that a turnaround was at the forefront of the company’s strategy. It’s investing in new technology to speed up its supply chain, growing its online business, and adding new brands to its portfolio, such as Nyden, which launches this year.

We recently visited one of its stores in New York City to find out why the brand is struggling:


We visited H&M’s store in Soho at lunchtime on a Thursday. The store is located right next door to its biggest rival, Zara, in one of the city’s busiest shopping areas.

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Shutterstock/DW labs Incorporated

On first impression, the store looked empty, which wasn’t too surprising considering that we visited on a weekday.

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Business Insider/Mary Hanbury

But a visit to the Zara store next door was very telling. This store was buzzing with customers shopping its winter sale.

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Inside a Zara store in SoHo.
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Business Insider/Mary Hanbury

H&M was once known for its slick supply chain but has been outsmarted by competitors like Zara, Boohoo, and ASOS.

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H&M.
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Business Insider/Mary Hanbury

These stores have moved production closer to key markets, enabling them to speed up the design and manufacturing process.

65% of Zara’s products are made in Spain, Portugal, Turkey, and North Africa, close to its core markets. On the other hand, the majority of H&M’s suppliers (80%) are based in Asia, the Wall Street Journal reported.

This hinders the speed of its supply chain. According to a report done by Fung Global Retail & Technology, it takes online stores ASOS, Boohoo, and Misguided between one and eight weeks to get a product from concept to sale. Zara has a speedy five-week turnaround, while H&M can take up to six months. H&M did not return Business Insider’s request for comment about its supply chain speed.


This slower turnaround means that H&M isn’t able to get new trends out on the shelves or respond to consumer demands as quickly. This was visible in store: the display at the entrance, which should be drawing customers in, looked drab.

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Business Insider/Mary Hanbury

In Zara, on the other hand, you’re instantly drawn in by glitzy designs.

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Zara.
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Business Insider/Mary Hanbury

In its 2017 third-quarter results, Persson blamed lower profits on aggressive summer sales, but said they had helped to clear inventory and put the store in a good position for the next quarter. This store tells a different story — almost a third of the first-floor space was taken up by a clearance section.

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H&M.
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Business Insider/Mary Hanbury

Source: The Financial Times


In the company’s most recent earnings, announced Wednesday, Persson said that H&M is launching an outlet store, Afound, that will sell its discounted clothing. The concept is being run as a pilot in Sweden.

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Business Insider/Mary Hanbury

At Zara, it felt more like you’re getting a trendy bargain rather than doing the store a favor by getting rid of old, unwanted stock.

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Zara.
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Business Insider/Mary Hanbury

Further inside the H&M store, there was another prominent display of womenswear. Although this was well laid-out, the mismatch of styles made it hard to understand what kind of person and situation these clothes were being marketed to.

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H&M.
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Business Insider/Mary Hanbury

H&M’s workwear was a prime example of how the store can sometimes be off-target …

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Business Insider/Mary Hanbury

… and there was an excessive amount of simple apparel.

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Business Insider/Mary Hanbury

H&M has faced increased pricing pressure from online stores. The prices were cheap in the store but sometimes felt a little off. This flimsy black skirt cost $29.99.

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Business Insider/Mary Hanbury

This men’s faux leather jacket cost $69.99 …

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Business Insider/Mary Hanbury

… while a pair of good quality cotton chinos cost only $29.99.

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Business Insider/Mary Hanbury

H&M is growing its digital platform but still falling behind other fast-fashion retailers like ASOS. In 2016, online sales accounted for only 6% of H&M’s global sales.

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ASOS

“We are integrating our physical and digital stores to offer our customers a great shopping experience with services ranging from Click and Collect to Scan and Buy and online returns in store,” Persson told investors in the company’s year-end earnings report on Wednesday.


Overall, H&M seemed muddled. It felt like it was trying to be all things to all people, but this message was ultimately confusing.

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Business Insider/Mary Hanbury

The company is now trying to grow its online platform, scale back on stores in oversaturated markets, and focus on adding trendy new brands to its portfolio.

Its eagerly anticipated new venture, Nyden, launches online this year.