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Demand "muted" as H&M begins re-opening stores

Lauretta Roberts
11 May 2020

Global fashion giant H&M has begin re-opening stores in markets in line with the various countries' government guidance but says demand has remained "muted".

At the height of the COVID-19 pandemic, the Swedish fast fashion group said 80% of its stores were closed. Now around 60% of its stores (3,050 of its total 5,061) remain temporarily closed.

The company said that it had also implemented social distancing measures in its stores but the comment on muted demand perhaps gives a taste of what UK-based stores might experience when some will be permitted to re-open on 1 June, depending on the progress made in suppressing the virus.

In a brief trading update, it said that sales at the group had tumbled 57% during the period 1 March – 6 May but that online sales, which are still operational in 46 of the 51 countries in which it has an online presence, are up 32%.

H&M broke down the sales drops by country with the UK showing a drop of 60%, while Italy showed the steepest decline at down 80%, followed by Spain (76%), then France and the USA (both 71%). In its home market of Sweden, where lockdown rules were less stringent, sales dropped by 31%.

The company said it was implementing a number of initiatives to help offset the lost trade including "forceful measures" in the areas of purchasing, investments, rents, staffing and financing.

It is sitting on stock to a value of around £3.38 billion (SEK 41 billion). Costs for markdowns are expected to decrease in absolute figures in the second quarter compared with the second quarter of 2019, but since sales will be significantly lower the markdowns are expected to have a negative effect on the gross margin of 2 – 4 percentage points.

The assessment, based on current information, is still that operating expenses – excluding depreciation and amortisation – will be reduced by approximately 20-25% in the second quarter compared with the corresponding quarter 2019. However the second quarter will be loss-making as it cannot offset all the lost sales.

However the company said its cash position was positive describing liquidity as "good" with cash and cash equivalents plus unutilised credit facilities totalling SEK 23.8 billion (approx £1.9bn).

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