Online shopping is where profits are found
The Short Version
Forbes magazine is reporting that fast-fashion retailer H&M is going to start closing under-performing stores and is abandoning its goal of opening 10-15% new stores each year. The chain is moving to put more emphasis on online shopping as it continues to chase a younger demographic that doesn’t shop in stores.
A Bit More Detail
No, your favorite H&M store isn’t going to close tomorrow. Probably. Maybe. Unless it’s one that has been defined as “under-performing.” For now, those are the only stores on the chopping block. The majority of stores in the US and Europe will keep right on putting out the fashion as fast as those factories in Bangladesh and Turkey can churn them out.
For now.
However, H&M’s CEO Karl-Johan Persson has changed his mind about the company’s growth strategy, away from physical stores in Europe and the US and more toward online sales. The reasons are numerous. In posting a six percent increase in sales last year, net income actually dropped almost eleven percent, largely because of increased markdowns necessary to stay competitive. Persson also said that events such as terror attacks and Brexit are creating problems in certain areas of the world.
The move toward a more online strategy isn’t universal, however. Persson says that emerging markets such as India, Mexico, South Africa, and Turkey are growing and will see more stores open. In fact, 430 stores will open this year, including new entry into Kazakhstan, Colombia, The Republic of Georgia, and Taiwan.
As H&M grows its online presence, it looks directly at competing with Amazon, Zalandro, and Alibaba, hoping to capitalize off its online/brick-and-mortar combination. The company still expects a 10-15% annual sales increase despite the shift in focus. They are also expanding their online presence, adding Malaysia, Mexico, Hong Kong, Singapore, Taiwan, and Turkey to the list of cyber markets.
The move by H&M is important in light of the continued struggles that have plagued mall-based retailers over the past several years. Rumors that Hudson’s Bay, who already owns Saks, is making a takeover move on troubled department store Macy’s was greeted with considerable optimism. Traditional fashion retailers are struggling and brick-and-mortar stores are a large cost factor that yields little, if any, profit.
Fast-fashion retailers, such as H&M and Forever21, have been seen as the exception to the decline of retail fashion stores. Where others have failed, fast-fashion outlets have been booming, for the most part. H&M’s change in strategy seems to signal the popping of that bubble.
Again, H&M emphasizes that only under-performing stores are going to close. However, there was no detail defining “under-performing” and whether that might expand should on-line sales beat sales goals. We only know that once a store is targeted for closure, that the door-shuttering will happen quickly. Don’t expect a lot of huge clearance sales.
We also don’t know how this might effect H&M’s partnerships with fashion brands such as Kenzo and its relationships with designers, things that have made the store popular in the past.
What we do know is that this could be a serious blow to real estate and mall developers in the long-term. Any hope for a resurgence based on fast-fashion growth would appear to be crushed. As Amazon and other companies look at faster and cheaper delivery methods, the days of physical in-store shopping look to be shorter than previously anticipated.
At the same time, this move makes the opportunities for smaller boutiques that much stronger. Located in more urban areas in places where storefront rents are not quite so expensive, boutiques counter the online trend with a more intimate shopping experience. As bigger brands drop physical stores to move online, boutique owners are likely to see an increase in traffic, especially from shoppers over 40 who still like to touch and try on clothes before buying.
Either way one looks at the situation, however, the consumer almost certainly comes out the winner.
Defying Authority
Retailers don’t care who Ivanka’s daddy is, they’re not carrying her junk.
The Short Version
Retailers including Nordstrom and T.J. Maxx have dumped Ivanka Trump’s fashion line, saying that the products were cheaply made and not selling well. Ivanka’s daddy, who just happens to be president of the United States, tweeted his anger toward Nordstrom yesterday. Not only did the tweets not have the desired effect, it once again draws attention to the ethics issues raised by the president’s business holdings.
A Little Background
Fashion retail is a challenging market, as we’ve discussed several times before. Several once-popular chains have gone completely under. So, it makes sense that a store would stop selling anything that doesn’t sell well. Back in January, department store Nordstrom, as well as T.J. Maxx and Marshall’s, announced that they were dropping the entire Ivanka Trump line because they didn’t sell well last year. Any sane business person would have done the same thing.
Unfortunately, it is an insane businessman we have elected as president.
What The President Said
Yesterday, almost a month after Nordstrom and other retailers dumped his daughter’s label, the president issued this tweet:
Typically, that would be bad news for Nordstrom. Other times the president has tweeted about a company, their stock took a dive. Not this time.
That’s right, the company’s stock value went UP after the president’s tweet. Could it be that the great orange one holds no sway over fashion? That would certainly seem to be the case.
The Washington Post quotes Indiana University retail merchandising professor Mary Embry on the matter:
“Politics certainly do matter in fashion,” she said, “but the strength of the Nordstrom stock validates the strength of the decision making of that retailer that is based on absolutely knowing its customer.”
Also, she said: “The president is not seen as having any particular expertise on fashion.”
The Fallout
The loss of influence may not be the only consequence of the president’s actions. While the tweet was initially issued from the president’s personal account, it was later re-tweeted from the official @POTUS account. That would appear to be a serious ethics violation, using his position as president to influence a business on his daughter’s behalf. That is a very big no-no in both business and political circles.
Kathleen Clark, a law professor at Washington University in St. Louis, told the Associated Press: “The implicit threat was that he will use whatever authority he has to retaliate against Nordstrom, or anyone who crosses his interest.”
Ethicists all over the country have been weighing in on social media and while some defend the president’s use of his private account to defend his daughter, there is very little question that retweeting the message on the president’s official account is definitely crossing a line.
This adds to a growing list of ethics concern that could eventually end up as part of a Congressional investigation, though the president and Congressional leadership are doing everything they can to prevent that from happening. However, Congress cannot stop the growing number of lawsuits against the president for breaching ethics issues. Already, the president is facing multiple lawsuits over his failure to fully divest his business holdings as other presidents have done. Most damaging may be a lawsuit that claims the president has violated the Emoluments clause of the Constitution. Should the courts ultimately decide against the president, then Congress would be compelled to take action against him.
For all the reasons for opposing the President, ethics is the one over which he has total control. He doesn’t have to tweet at all. He doesn’t have to comment. He chooses what, when, and where he is going to speak. The entire ethics argument could go away overnight were the president to simply keep his hands in his pockets and be more presidential in what he says. Unfortunately, this president seems to be incapable of either of those things.
Over at T.J. Maxx, employees have been instructed to remove all Ivanka Trump merchandise from their shelves and place the branded signs in the trash.
If only it were so easy to remove the president.
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