Image source @ Visual China
Institute of Literary | Value
On 30 March, the European Commission updated a strategic proposal for sustainable textiles. In the report, EU Environment Commissioner Virginijus Sinkevi Ius said that "the EU wants fast fashion to be a thing of the past":
"In the EU, about 5.8 million tonnes of textiles are discarded each year, with apparel consumer goods accounting for the highest proportion, at 81 percent. We expect that by 2030, textile products on the EU market will have a long service life and are recyclable, most of which will use recyclable fibers as a production material. ”
The EU's personal "rectification" of fast fashion seems to cast a shadow on the prospects of industry giants such as H&M and ZARA. But the truth is that long before the EU struck, H&M was in turmoil.
The first quarter of fiscal 2022 financial results show that H&M's net profit rose in the quarter, but the overall profit level is still much lower than analysts expected. H&M Group shares fell 11 percent after earnings, wiping $2.4 billion in market value, the biggest drop in nearly two years.
On the other hand, according to media reports, fast fashion upstart SheIn is negotiating a new round of financing with asset management giants such as Transatlantic Capital, with an estimated financing scale of $1 billion and a post-investment valuation expected to be close to $100 billion. With the decline of H&M and the rise of SheIn, fast fashion seems to have ushered in a moment of dynastic change.
In response to the $100 billion valuation rumors, SheIn said it would not comment, stressing that the company currently has no IPO plans. But judging from the media reports and the reaction of the capital market, the industry's enthusiastic pursuit of the SheIn model is visible to the naked eye.
The old giant H&M, which is plagued by negative news, is certainly not willing to give up. But in the face of a series of shocks such as declining profits, large-scale store closures, and collective consumer "defection", H&M has too many lessons to make up.
Closing 224 more stores, who is abandoning H&M?
In H&M Group's latest financial report, the after-effects of the epidemic and the impact of geopolitical conflicts can be seen everywhere.
According to the data, H&M Group's total revenue in fiscal 2021 was SEK 199 billion, a slight increase of only 6% year-on-year, and has not yet returned to pre-epidemic levels. In the first quarter of fiscal 2022, the situation did not improve much. According to the financial report data, H%M Group's operating profit and net profit in the first quarter recorded 458 million and SEK 217 million respectively, compared with the loss ratio of 1.128 billion and 1.07 billion in the first quarter of last year, but it is still difficult to meet market expectations.
What's more, in the first quarter, H&M's store opening plans came to a near standstill: only two new Arket and H&M Home stores were opened throughout the quarter. According to the data, as of the end of February this year, H&M had a total of 4721 stores worldwide, a decrease of 228 year-on-year. In the group's plans for the coming year, the number of new stores opened and closed is 95 and 224 respectively.
It can be said that closing stores and shrinking business have become the theme of H&M in the coming year.
From the perspective of store distribution areas, the European market, where the epidemic and geopolitical conflicts are most severe, have shrunk significantly. Among them, H&M's 227 stores in Eastern Europe were also closed in March, of which 170 stores were located in Russia. From the perspective of revenue structure in fiscal 2021, Russia is the sixth largest market for H&M, and this large-scale store closure is expected to have a greater impact on its performance in the next quarter.
However, in addition to the forced closure of stores in Eastern Europe due to force majeure, H&M's collective setbacks in markets such as Asia, South America and Western Europe have revealed more problems.
First of all, the South American market, which occupies an important position in H&M's future planning, has developed relatively slowly.
On the South American continent, H&M's biggest problem is coming too late — especially relative to rival ZARA. As early as 2014, ZARA made a large-scale expansion into South America, at which time H&M still adhered to the Expansion Strategy based on Europe. By the time H&M realized the potential of South America and was ready to attack, ZARA and the sudden rise of SheIn had already wiped out the local market.
Secondly, in the Chinese mainland market, where the epidemic is relatively well controlled and the economic growth rate is also the fastest, H&M's performance has also plummeted. According to the data, H&M closed more than 40 stores in the Chinese mainland market in the first quarter, from first-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen to the sinking market.
Stretching the timeline reveals that H&M's decline in the Chinese market came sooner than expected. In the second half of last year, H&M began to close stores intensively in China, and its sub-brand Monki has closed all offline stores in Hong Kong and mainland China. On March 31 this year, Monki's Tmall flagship store also announced its closure and completely withdrew from the Chinese market.
After the intensive closure of stores, H&M's revenue in the Chinese market naturally deteriorated. According to the financial report data, China has fallen out of the ranks of H&M's top ten global markets since the third quarter of last year. In the second quarter, H&M's revenue in china fell 23% year-over-year, losing nearly $74 million due to store closures.
In the view of the Value Institute, the ups and downs of Monki, a sub-brand that has completely defeated the Chinese market, is a concentrated embodiment of H&M's various mistakes in the process of transformation and change in the past few years.
In early 2015, Monki's first store in China opened in Dalian. Monki, which focuses on the cost-effective and high SKU model, aims at the sinking market and conforms to the trend of fast fashion consumption sinking at that time.
However, after the successful settlement of the first store, Monki's store opening strategy began to "deviate": most of the new stores opened in the following years were concentrated in first-tier cities such as Beijing, Shanghai, Shenzhen and Xi'an, as well as new first-tier cities. At the same time, the construction of Monki's online sales channel was not smooth, and it was not successfully stationed on Tmall until 2016.
The misplaced and imperfect online sales channels of store location and consumer population have made Monki difficult in the Chinese market, and also exposed the old problems of H&M Group in terms of operation and expansion strategy, lack of localized operation planning, etc.
Today, Monki has completely collapsed, and even H&M's large-scale closure of stores in the Chinese market can be said to be the concentrated outbreak of this series of problems in the past.
With the rise of online channels and local brands, H&M and Zara cannot retain Generation Z
Of course, it's not just H&M that's cold in China.
An embarrassing fact is that in addition to H&M, a large number of once-popular fast fashion and clothing brands have now collectively slowed down, especially in the downhill of the Chinese market.
On January 13, Fast Retailing Group, the parent company of UNIQLO, released its financial results for the first quarter of fiscal 2022 (three months ending November 2021). According to the data, the sales of Uniqlo's clothing, shoes and hats and knitted textile products in the quarter declined year-on-year, and the revenue of the entire Greater China region also rarely declined, and the profit level fell to the low point since the outbreak of the epidemic. In addition, Uniqlo's Premium Division recorded revenue of only 69.8 billion yen in the first quarter, a year-on-year decline of 8.7%, showing full decline.
From the perspective of revenue structure, the Greater China market is Uniqlo's second largest source of revenue, second only to the Japanese domestic market. However, in the past first quarter, UNIQLO's performance in the Chinese market was far less than that of the same period last year, especially the decline in both market revenue and profit in the Chinese mainland, which worried industry insiders.
The days of another fast fashion giant, ZARA, are even more difficult.
Over the past year, ZARA has been surrounded by negative words such as store closures and declining performance. At the beginning of last year, ZARA's parent company Inditex announced the closure of all offline stores of its brands Baska, Paul & Bear and Notes, retaining only online e-commerce sales channels. In the second half of the year, even ZARA, Inditex's most reliable cash cow, was under pressure.
From H&M, Uniqlo to ZARA, these once-invincible international giants have collectively lost their way to the Chinese market, what is going on behind it?
In the view of the Value Institute, H&M has gradually lost the favor of consumers, mainly because of the loss of two core competitiveness: brand appeal and quality advantages.
The former problem has a lot to do with the rise of domestic brands and the popularity of the national tide economy in recent years.
In the view of the Institute of Value, the rise of the national tide economy is mainly due to the rise of Generation Z.
This group of young people are Internet natives, the channels for collecting news are very different from those of the previous generation, and they are already quite familiar with fast fashion brands such as H&M, which have been in China for more than a decade, and will not look up to the front line or blindly worship. On the contrary, under the trend of cultural revitalization and national consciousness, domestic brands have occupied the high ground of public opinion and begun to penetrate into the world of Generation Z through overwhelming social marketing.
The first outbreak period of the national tide economy appeared in 2018-2019. During this period, the number of notes on local fast fashion brands in Xiaohongshu increased by more than 100% year-on-year, and more than 5 million users spontaneously brought goods for national tide single products on this hot social platform.
At the same time, capital is also flocking to provide fire support for local fast fashion brands, helping the latter to make up for the shortcomings in the supply chain and marketing channels.
According to the data of IT Orange Statistics, the number of financing in the domestic fashion apparel industry in 2021 was 48, with a total financing of about 4.3 billion, nearly double that of 2020. Among them, early financing accounts for the majority, angel/seed financing accounts for up to 33%, and new brands have sprung up. Under the frenzied pursuit of capital, local fast fashion brands have hitched a ride on the growth express.
Secondly, the high quality of "foreign brands" such as H&M and ZARA, which was once proud, has also become controversial in recent years.
According to the data compiled by the Nandu Appraisal and Evaluation Laboratory, in the data of the relevant regulatory departments and consumer complaints in 2021, ZARA and H&M are among the best.
Among them, in the official quality black list, ZARA has been named by the regulatory authorities a total of 10 times to top the list, H&M ranked second with 7 times, and foreign fast fashion brands such as GAP are also at the top of the list. Among the quality problems exposed by the authorities, the product identification, fiber composition and pH value sampling tests have the highest unqualified appearance rate, and the proportion of the former two is more than 30%.
Although more high-end brands, such as Canada Goose, which started at a price of 10,000 yuan, and even the top luxury brand Armani, have a disgraceful history of being officially named, the impact of the quality decline is significantly greater for fast fashion brands that focus on the mass market and attract young consumers with high quality and cost performance.
On the appeal of the brand, H&M, ZARA and Uniqlo have gradually been abandoned by a number of national tide brands; if the two advantages of cost performance and quality are difficult to maintain, their core competitiveness will be further disintegrated.
As for the decline of H&M and ZARA in overseas markets, it has a lot to do with the rise of another retail format - cross-border e-commerce. In particular, SheIn, which focuses on high cost performance and specializes in the sinking market, has successfully killed a piece of the sky in the post-epidemic era.
In the previous article "Ice and Fire of Cross-border E-commerce: SheIn Downloads Exceed Amazon, Small Players Struggle to Survive" in the previous article, the Value Institute has listed several sets of data for everyone:
Since the global spread of the epidemic in 2020, SheIn's downloads in many countries and regions have exploded, and as of the first half of last year, it topped the iOS shopping APP download list in 54 countries, driving Amazon off the throne.
Relying on rapid product iteration and massive SKUs, SheIn has fully connected the upstream and downstream of the supply chain, and can update 34,000 products in one week. In contrast, zara has an average annual new volume of only 12,000 pieces, and H&M's update rate has been lagging behind ZARA.
What needs to be more vigilant is that due to the characteristics of SheIn's fast update and large demand, it is loved by upstream suppliers, and the former has gradually snatched the upstream bargaining power from the hands of a number of old giants.
According to the data of media statistics, SheIn can get a bargaining advantage of about 5 yuan from upstream suppliers compared with the average independent site seller. Although SheIn has not yet "invaded" the core supply chain of H&M and ZARA, as the competition between several giants becomes more and more fierce, the dispute between the upstream of the supply chain is inevitable in the future.
The rotation of fate between H&M, ZARA, Uniqlo and a number of local brands actually appeared once more than a decade ago, but the two sides reversed roles.
Around 2010, H&M and UNIQLO took the lead in expanding wildly in the Chinese market, and the living space of local brands such as Mark Huafei was seriously squeezed, and the performance deteriorated. Nowadays, with the continuous adjustment of business strategies and the rebirth of the dongfeng of the national tide economy, fast fashion giants such as H&M and ZARA have come to the crossroads of transformation.
In a single thought, it may be the difference between heaven and hell. Whether the next step should be to go left or turn right, H&M should think carefully.
Brand upgrades, supply chain transformation, the common antidote of fast fashion giants
H&M and ZARA are naturally clear about the dilemma they are facing, and they have already begun to save themselves.
According to the observation of the Value Research Institute, in response to the above-mentioned problems, H&M's response measures mainly focus on several aspects: actively develop sub-line sub-brands and open up new markets; adjust the layout of stores, build a distribution system that combines online and offline; strengthen supply chain management and achieve digital and intelligent upgrading.
First, let's look at the development of the secondary line brand.
According to the statistics of the Prospective Industry Research Institute, 24.3% of Gen Z consumers said that they most like local fashion brands, 21.3% of Gen Z voted for light luxury brands, and the proportion of international fast fashion brands and international top luxury brands was only 17.9% and 6.9% respectively.
It can be seen that in the context of the popularity of the national tide economy, H&M wants to re-conquer the Z generation, and the light luxury brand is a good way out. The exit of Monki, which is positioned as a big-name draw and focuses on the sinking market, is the performance of H&M's adjustment of its future development strategy.
In terms of high-end sub-brands, COS, which entered the Chinese market in 2012, and other stories and ARKET, which have recently been popular, constitute H&M's brand matrix.
In the second half of last year, H&M's high-end sub-brands entered a period of expansion, opening stores intensively in the Chinese mainland market. On the eve of the National Day alone, there was a high-end Nordic historical brand ARCKET stationed in the Beijing fashion center Sanlitun, and then another high-end brand COS lagged behind Guangzhou Taikoo Hui, and LV, Channel as neighbors, & Other Stories also entered Shanghai IAPM with a high profile soon after.
However, compared with the H&M main brand that focuses on cost performance, high SKU and large single volume model, the slow expansion of the above-mentioned high-end sub-brands and the high cost of opening stores are also a problem that must be solved.
What's more, it's not just h&M that is aiming at the light luxury route. ZARA's parent company, Inditex Group, announced in the second quarter of last year that it was accelerating the expansion of high-end sub-brand Massimo Dutti in the global market and launched a new sub-brand Origins. Uniqlo's parent company, Fast Retailing Group, with Theory as the main force, has opened a number of stores in Shanghai, Shenzhen, Beijing and other places in the past two years to seize the first-line market.
Don't guess, the battle between these fast fashion giants in the high-end market will soon enter the white-hot stage.
Let's look at the supply chain.
It is worth mentioning that it is not only fast fashion brands such as H&M and ZARA that are plagued by the supply chain, but also IKEA.
In March, IKEA announced the closure of its Guiyang store, the first city IKEA to withdraw since it entered the Chinese market in 1998. The closure of the Guiyang store has a lot to do with IKEA's sluggish growth in the sinking market and the supply chain that cannot keep up with the pace of expansion.
According to media statistics, affected by the epidemic, the global shipping market will rise wildly in 2021, and the container freight rates of some popular routes in Eurasia will soar by nearly 10 times. At the end of last year, IKEA announced a 9% price increase because of the supply chain crisis and logistics costs, but it still could not cover the soaring costs.
Similar to IKEA, H&M, ZARA and UNIQLO are also laying out a global supply chain system, and rising logistics costs will also have a heavy impact on them.
In view of this, creating a supply chain with a higher degree of localization, intelligence and digitalization is an inevitable choice for fast fashion giants.
As we all know, ZARA has always been a loyal supporter of anti-globalization, insisting on leaving upstream supply and midstream production in Spain headquarters, and neighboring Portugal, Morocco and other countries and regions. The advantage of this is that it can respond quickly, ensuring that the headquarters has control over the upstream of the supply chain. But the problem is that after the outbreak of the epidemic, not only the logistics costs have soared, but the anti-risk ability of the production line in a single region is also seriously insufficient.
H&M has a similar problem. The data shows that nearly 70% of H&M's suppliers and production lines are concentrated in Southeast Asia, and this layout is also in line with the trend of industrial migration in recent years. The problem is that Vietnam, Indonesia and other countries are also the hardest hit areas of the epidemic, logistics and production capacity are seriously restricted, and the cost of H&M is also rising sharply.
In contrast, sheIn's flexible production line and large supplier team can diversify risks and reduce costs to a certain extent, and it has not slowed down product updates.
Although SheIn is a new player in the fast fashion market, its supply chain management is worth learning from H&M, ZARA and other old predecessors.
Write at the end
The last time H&M got a big discussion, it was also because of the negative event , the Xinjiang cotton incident that everyone was impressed by.
Now, a full year has passed since H&M was criticized by the state media and the e-commerce platform was completely "banned", but H&M's life has become more and more difficult. And through the above analysis, I believe you can also see that even if there is no controversy a year ago, H&M's decline in China and even the global market is very obvious, and the recession has long been foreshadowed.
As mentioned earlier, brand upgrading and supply chain transformation are one of the important ways for H&M, as well as fast fashion giants such as Uniqlo and ZARA, to regain the hearts and minds of young people. From the current business layout, H&M is indeed actively developing in the direction of high-end and light luxury.
However, in addition to sub-brands gathering together to open stores, brand image management, product update iteration and adjustment of the group's distribution channels should also keep up with the pace of reform. H&M, which once stood at the top of the market, must realize that time has changed, and now it needs to put down its body and carry out comprehensive innovation in all aspects of business to win the future.
![Defeated! H&M's sister brand Monki lost the Hong Kong market[fig]](data:image/gif;base64,R0lGODlhAQABAIAAAP///wAAACwAAAAAAQABAAACAkQBADs=)