Short term pain for long term gain

Brought to you by Retail Insider and K3 Retail

For the first time in a decade H&M has made changes to the guidance it gives investors on its expectations for future performance. It is to now focus on achieving 10-15% growth in total sales each year rather than on the long established aim of a 10-15% increase in physical store openings each year.

This is very significant because it signals a fundamental shift away from increasing sales through simply adding stores to a more multi-channel approach where the plan is to look for growth both online as well as in-store. When the UK reports online retail sales growth of 12% year-on-year in January, according to IMRG Capgemini e-Retail Sales Index, was the highest in seven years this move by H&M seems eminently sensible. We all surely know which way the wind is increasingly blowing.

Online or in-store – who cares?

But you would not believe that from the financial analysts that follow the company. They are now fretting that such a move will add operating costs to H&M, with the resultant hit on margin. They recognise that this greater focus on online will require the company to offer the likes of next day delivery, Click & Collect type services, and have to deal with the costly returns conundrum.

They clearly have their point and H&M will no doubt succumb to the margin deterioration that they predict. But the reality is that to continue to pursue the simple game of opening more stores while eschewing a greater focus on online and multi-channel is a death wish. The longer term potential for H&M is surely being put at some risk by maintaining the established trajectory.

The company is now arguing the case that although it respects the desires of investors for growth over the next quarter it has to be most interested in ensuring healthy long-term growth. Delivering on both fronts is the massive challenge for quoted companies like H&M. And it is the reason why Amazon has always stated from day one that it is not interested in generating short term profits but is wholly focused on continual investment for the long-term.

The leaders of the world’s major retailers are coming around to this way of thinking but their challenge will inevitably be around convincing their investors and the analysts. But if they don’t bite the bullet and tackle the issue then there will be serious problems ahead.

Glynn Davis, editor of Retail Insider

K3 Retail deliver multi-channel solutions that enable retailers to create joined up shopping experiences for their customers whether they choose to buy on-line, direct, in-store or via mobile. It has over 20 years’ experience delivering award winning solutions, to more than 175 internationally recognised retail brands.