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Sweden's fast fashion giant Hennes Mauritz AB (below H M) on Thursday announced the first quarter of this fiscal year data, the group by reducing the cost of pre tax profit decline. In order to keep up with competitors - the Spanish fast fashion giant Inditex (Zara parent) pace, H M plans to increase investment in the supply chain reform.
In the first quarter of fiscal year ended February 28th, H M's core financial data are as follows:
Net profit fell 3.5% to SEK 2 billion 460 million
Gross profit margin rose 52% from the same period last year to 52.1%
Pre tax profit from the same period last year fell to SEK 3 billion 330 million SEK to SEK of today, better than analysts had forecast of SEK 2 billion 870 million, mainly due to cost control and exchange rate factors.
Sales rose 7% to SEK 54 billion 400 million
March sales (including VAT) grew by 7%, subject to Easter and weather factors are more obvious.
Over the past three years, H M inventory has almost doubled.
Lower than expected sales and substantial price cuts make H M profitability fell. After years of rapid global expansion, H M profitability began to decline.
According to Goldman Sachs report this month, H M supply chain delivery time is two times Inditex. Therefore, the company recommends investors to sell the hands of H M shares. After the announcement, H M shares fell 4% to SEK 227.7 per share.
Despite the downturn in the opening, the market environment is weak, but the annual sales of H M is expected to remain an increase of 10%~15%. H M investment relations department head Nils Vinge said that the first quarter is more difficult than expected, if the April and May, the group continued poor performance, it will have to face a greater intensity of promotional discounts.
Societe Generale analyst Anne Critchlow said the first quarter H M gross profit margin is higher than expected, which is the most basic indicators to evaluate the profitability of the group.
In her view, March sales at constant exchange rate, an increase of 7% disappointing. Meanwhile, inventories rose 30% compared to the same period last year. Company warning, if the stock does not fall in the next few months, then the continued promotional discount will hurt gross margin.
Since two years ago, H M shares reached a record high, as of now has fallen 1/3. January, H M was selected as the most valuable listed company in Sweden Nordea.
New brand Arket
Response to the continued downturn in the performance of the store, the group announced that it will launch the Nordic minimalist fashion brand Arket to meet market demand, advocating simple, functional and classic design.
The Arket product line will cover: men and women, children's clothing, accessories and so on all categories, pricing is slightly higher than that of group a fast fashion brand H M, closer to the group's high-end fashion brand Cos (below) in the form of products, stressed that the material function and fit.
Nils Vinge introduction, Arket products are both casual also suits, including: Double Breasted Navy short coat, coat and striped sweater etc.. In addition, Arket will also sell third party brand Veja and Kickers brand shoes and other goods, the brand's target consumer covers all age groups.
Arket creative director Ulrika Bernhardtz introduction, the brand name in Swedish meaning is white, a layer of meaning is the continuation of the Swedish traditional culture, the other layer means that white paper with unlimited possibilities and creativity.
Arket focus on the development of the domestic market in Europe, the first stores this fall will be settled in London's Regent Street (Regent Street), Brussels, Copenhagen, Munich will gradually set up shop.
Arket will be headquartered in Stockholm, S dermalm, the brand products will also be for the 18 European market launch channels. No disclosure of overseas market information.
Asked about the number of stores planned Arket, Nils Vinge H M said that ten years ago launched a fashion brand Cos currently has 200 stores, another in 2013 launched a fashion brand Other Stories has about 50 stores, the number of stores Arket please guess roughly.
Brand diversification strategy
M International, a consulting firm Euromonitor footwear analyst Bernardette Kissane believes that the diversification strategy has the potential of H. Because H M is a brand name of fast fashion brand, but compared to Inditex's Zara and other fast fashion brands, H M on the trend of the sensitivity is not so strong, the procurement cycle is longer, and finally by the discount puzzle.
The industry hopes that H M can adopt a more flexible, agile procurement strategy, and in fact the group using the launch of Arket, Cos and Other Stories, such as the diversification of brand reform, there is a warming trend. Currently, H M has been involved in popular sports such as leisure sports, the future will cooperate with the third party brands, to provide consumers with a more convenient shopping experience, to convey a more convenient, more streamlined concept.
H M launched a diversified brand does not mean that its fast fashion business on the end of 2016, the fast fashion business accounted for 95% of the group's total sales revenue. Bernardette Kissane believes that fast fashion in emerging markets still exist, but in western countries, consumers gradually began to abandon the fast food consumption habits.
The success of the two brands, Cos and Other Stories confirms that the H M brand diversification strategy is correct, although they currently account for only a small part of the group's business, but the future potential.
Currently H M group's brands include: H M, Cos, Other Stories, Monki, Weekday, Cheap Monday and H M Home.
Analysts believe that, in contrast, Inditex's brand portfolio (Bershka, Pull Bear and Zara) are completed by the group's internal production, similar pricing between brands, consumer groups are the same as the crowd. H M diversification strategy reflects its unique advantages.
Supply chain reform
However, although the diversification strategy has a strong long-term potential, but the short term is still facing no small resistance:
H M CEO Karl-Johan Persson acknowledged that over the years the company's supply chain has not been reform. Therefore, Future Ltd will put the production base closer to the terminal market position, focusing on profitability. For example, for the European market, in order to faster delivery, production centers will be located in Turkey and other countries. In addition, the company will also be more flexible with suppliers to reduce inventory as needed.
H M in order to get the price advantage, the 4/5 products on the production in Asia, while rival Inditex nearly half of the products are produced in the main market of the neighboring countries, the supply chain of goods to sell and make a more rapid response.
Inditex's orders are delivered on a quarterly basis as needed, and production is completed within one week of the plant near the core market, so it can accurately capture the preferences of young consumers.
In addition, recently, the British fast fashion brand Primark to enter the German market, the market is the largest market share of the same name H M brand, so the latter felt unprecedented competition and price pressure.
H M the future supply chain is likely to be affected by the British referendum and the new deal by President Trump on the impact of international trade. Kantar retail consultant Tiffany Hogan believes that in the long run, this will greatly affect the supply chain of many retailers.
H M to reform the supply chain, the biggest problem encountered in the future is: logistics problems, and its commodity pricing was originally less than Zara, and the cost of production in Europe is far greater than the cost in asia.
At present, H M executives efforts will focus on warehouse automation management, metadata analysis and apparel commodity RFID tags (RFID), so quickly find and solve the problem of excess or shortage of inventory.
Their goal is to use the RFID tag next year to check inventory, so the time required is less than 1/6 of the original. Inditex has been widely used in the supply chain of Zara.
Tiffany Hogan think, H M to do is not only to catch up with the pace of innovation of competitors, but to achieve the lead. H M current sales situation is far behind Inditex, this year the company's store expansion slowed down, began to focus on multi-channel operation.
store
H M to meet the needs of consumers in real time shopping, began to provide the same day delivery and online shopping service next day.
Although the trend of the current trend of the fashion industry store has turned online, but H M is still seizing the opportunity to snatch the best retailers to seize the area, in 2017 plans to open 430 new stores. Nils Vinge, many colleagues have begun to shut shop, but the store location in the B or C market, so it is not attractive; while H M stores will usually choose the best position, so the demand is still great.
In mid March, H M opened its first store in Kazakhstan, and plans to launch in the first half of six markets (Turkey, China, Hong Kong, Macao and Taiwan regions, Singapore and Malaysia) online business. This year, there are four markets will be opened stores, namely Columbia, Iceland, Vietnam and georgia. 2018, H M Home will launch independent stores.
In addition, H M will consider upgrading stores, using computer algorithms to accurately calculate consumer demand, reduce discount promotions.
Source: Reuters, the United States website WWD
Source: H M official website
Editor: LeZhi
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