H&M invests in supply chain as fashion rivalry intensifies

Thu Mar 30, 2017 9:18am EDT
 
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By Anna Ringstrom

STOCKHOLM (Reuters) - Cost controls helped H&M (HMb.ST: Quote) to limit a drop in quarterly pretax profit but the fashion chain said it was increasing investments this year as it tries to keep pace with its larger rival, Zara owner Inditex (ITX.MC: Quote).

H&M, the world's second-biggest fashion company, said conditions remained very tough in key European markets and in the United States, with shopping behavior and expectations changing rapidly.

Earnings were dented by weaker than expected sales growth and bigger mark-downs and H&M shares fell 5 percent.

After years of hectic expansion across the world, the Swedish company's profitability has faltered as Inditex, Fast Retailing's (9983.T: Quote) Uniqlo and online specialists such as ASOS (ASOS.L: Quote) gain an edge in "fast fashion". By turning over more new styles each year and having production closer to customers, they can quickly boost supplies of best-selling items.

H&M's supply chain lead times are around double those of Inditex, according to a report this month by Goldman Sachs, which recommended that investors "sell" H&M shares.

H&M Chief Executive Karl-Johan Persson conceded that the company's supply chain practices had remained the same while the world had changed. H&M would "definitely" move some production closer to end-markets while keeping an eye on profitability.

"Some is about moving to Europe as well, it could be Turkey or other countries in Europe, in order to get faster deliveries to Europe," he said. The company would also seek more flexibility with suppliers so it needs lower inventories and boost spending to make the supply chain more flexible.

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FILE PHOTO: People walk past the windows of an H&M store in Barcelona, Spain, December 30, 2016. REUTERS/Regis Duvignau/File Photo