Will H&M be able to reposition itself on the market?

The clothing industry is in turmoil. Now that major fashion brands, after discontinuing secondary lines and raising prices to the extreme, have isolated themselves in the luxury segment, held hostage by their own policies, both large and small brands are racing to fill the middle market. This refers to the segment of intermediate customers who spend more than the average for fast fashion (but less than luxury) and who previously accounted for a significant portion of fashion sales. The first among these brands are undoubtedly fast fashion and ultra-fast fashion from mass retailers, which are trying to improve their image with campaigns full of top models, legendary photographers, and high-level collaborations. Recently, Zara has been the brand that has best exploited this moment, but now Swedish brand H&M is also attempting to do so. The brand recently announced a collaboration with Glenn Martens, released one with Swedish brand Rotate, and celebrated the 20th anniversary of its strategy of collaborations with iconic designers through a series of events. There have been several new store openings in India and the Dominican Republic, with plans to expand soon to Brazil. It has entered Chinese platforms Douyin and Pinduoduo and opened a store in Sweden dedicated solely to its beauty line. It also collaborated with Charli XCX, releasing a capsule collection, and sold its outlet business, Afound, streamlining its corporate structure. All these are signs that the brand is trying to establish itself not only as a commercial powerhouse but also as a prestigious and desirable brand. But will it succeed?

In the statement for the first nine months of the year, the brand's CEO, Daniel Ervér, said that this year the company expects margins to be 10% lower due to the well-known consumption crisis but that the group's current expenses will yield results in the long term: “2024 is a year in which we are laying the foundations for future growth. We are increasing the pace of improvements in our customer offering and eliminating what does not strengthen our brands and does not contribute to our sales and profitability. [...] We are strengthening the H&M brand by investing in products, the shopping experience, and marketing, and we are already seeing the impact of these efforts.” We can summarize the available report by stating that the brand has neither grown nor declined, despite increased marketing expenses, unlike, for instance, Inditex, whose sales rose by 7.2% mid-year. However, the issue seems more complex: while Zara appears to have succeeded in its resurgence and competes with more high-street brands like COS (owned by H&M), the Swedish company has found itself competing against giants still tied to the old concept of fast fashion, such as Shein and Primark. The situation now appears more fragile, as the Financial Times reported that when monthly sales dropped by 6% in June compared to the previous year, there was a 13% drop in shares, signaling investors’ nervousness about the group's ability to meet its growth targets. While the business itself is not at existential risk, the key to growth lies in understanding how to elevate the brand in the market.

One critical point for the brand is its ability to stand out in an increasingly crowded market: standard basics are no longer enough, and the old clientele is divided between Chinese ultra-fast fashion and secondhand options. Competing on price with companies like Shein and Temu is not feasible, as the product would suffer in terms of quality and, consequently, desirability. Thus, the focus is on design prestige, product improvement, and shopping experience. However, as the CEO rightly pointed out, “improving the product” is a good idea in theory, but its implementation is challenging, as there is no magic recipe. Last month, BoF discussed an internal restructuring of the design team, stating: “A significant recent change to the design team was the removal of decision-making layers to facilitate specialization and collaboration. This change gives design and creative teams the freedom, responsibility, and autonomy to steer collections in the direction they see fit for the brand, from concept to execution.” The BoF article goes on to interview several members of the creative team but does not delve pragmatically into what changes were made and how. We can assume that H&M's latest fall collection was the first product of the “new order” brought to the brand by CEO Ervér, who also appeared at BoF Voices this year to announce the collaboration with Martens—another assertion of prestige.

The core issue remains the challenge H&M has set for itself. While H&M calculates its revenues in millions, Inditex has already reached billions. Furthermore, H&M has spent significant capital adapting to a market where stores must be increasingly engaging spaces, where competition is fierce, and creativity is less important than the ability to anticipate trends. How long will it take to break even? Despite successful collaborations with Mugler and Rabanne and periodic issues with sustainability (often contradictory: in April, a report linked H&M and Zara's cotton to deforestation in Brazil; in September, the group signed an agreement to combat this issue), the main challenge remains perception. If, after years of stagnation, Abercrombie&Fitch managed to recover and report $1.2 billion in sales in the third quarter of the year, and if other brands like Gap and J.Crew are trying to climb back up, H&M remains the retailer in the most ambiguous situation. Will it succeed in convincing the public that it has changed?