H&M’s recovery in China post COVID-19 peak paints stark picture for retailers

H&M’s recovery in China paints a bleak picture for retailers on a global scale, according to figures released today from leading data and analytics company, GlobalData.

H&M’s weekly sales figures show that it is slowly starting to recover from the peak of the COVID-19 pandemic in China, but there has clearly not been an immediate bounce-back, with sales down -79% in week 10 despite 89% of its stores in the country being open again.

It points to retailers on a global scale needing to take greater consideration regarding reopening stores too early, with a staggered approach dependent on location key, as consumer demand is still weak and, with store running costs high, the dent to profitability could be severe.

Retailers must therefore consider their store reopening schedule post isolation measures, and whether consumer demand post peak-pandemic will be sufficient to support the cost of operating all stores straight away.

Honor Strachan, principal analyst at GlobalData, comments: “Looking at H&M’s results in China, sales were down -79% in week 10 despite 89% of its stores in the country being open, raising the question whether this is a financially viable strategy in other affected markets due to the burden on operating costs.

“Understandably retailers will be keen to reopen stores to clear seasonal stock and recover lost revenue, but the impact to profitability by opening these stores too early could be severe. Flagship and tier one stores will be a priority to reopen as soon as possible, but retailers must consider what their neighbours are doing in each location as trading from under-occupied high streets or shopping centres will impede traffic and draw out the recovery period.”

Strachan says that, in China, nearly all retailers have now reopened stores, but consumer propensity to spend is significantly higher than in mature retail markets such as the US and much of western Europe, so she expects store reopening schedules and the recovery process to be longer than what has been witnessed in China.

In markets where the government is offering support to retailers, such as in the UK where the government has suspended business rates and removed landlords’ rights to take back shops for non-payment of rent, as well as provided income support to staff who have been furloughed for set periods, it may be in the retailers’ interest to keep staff out of work until consumer willingness to spend on non-essentials returns and footfall picks up.

H&M’s performance in China paints a harsh reality for what is to come across much of the world’s major retail markets, with the US, Spain, Italy, Germany, France, Iran, the UK and Turkey now having the highest number of confirmed coronavirus cases, excluding China, leading to significant slumps in consumer spend on fashion.

Not only that, H&M operates in a winning segment of the apparel market, it has the scale to negotiate with suppliers, a strong physical portfolio where many stores are new or have been modernised, and stores operate in core retail locations – making its recovery more advantageous than many of its rivals, especially smaller domestic chains.