Close More Physical Stores, H&M And Zara Invest More Resources For E-Commerce Business.

The Swedish company Hennes & Mauritz, behind the brands such as H&M, Monki and Weekday, and the Spanish fashion retail group Inditex, which owns Zara and Massimo Dutti, decided last year to cut down the store network and invest more resources in the field of online sales.

For the threat posed by the development of the electricity supplier industry, European major fast fashion giants were slow in responding. But now it seems that they have already strengthened their electricity business to survive under this pressure - and may even become more prosperous.

The Swedish company Hennes & Mauritz, behind the brands such as H&M, Monki and Weekday, and the Spanish fashion retail group Inditex, which owns Zara and Massimo Dutti, decided last year to cut down the store network and invest more resources in the field of online sales.

Just 18 months ago, H&M was under intense pressure to try again to reform its online store business. At that time, the company betting on opening more stores, which never seemed to bring rewards to them. But this summer - this is a turbulent summer for the stock market - H&M kept 15% growth in its latest quarterly earnings report at the end of June.

There are two main reasons for this remarkable performance. First, the company launched a series of summer products, sales increased by 12% year-on-year; second, the company said its unsold stock is expected to decline for fourth consecutive quarters, and is expected to continue to decline before the end of the fiscal year. The earnings report brought good results to the retailer: its stock price has risen 1/3, compared with the 14 year low it hit in August last year.

An important factor in H&M's turning around is that the company is cutting its physical network. After shutting down about 140 stores last year, H&M has cut its plan for opening stores this year from a net increase of 175 globally to 130, while the performance guidance of "optimizing" its store network suggests that the company will further reduce its number of stores in the future. A spokeswoman for the company declined to disclose whether the target would be revised in the face of slowing global economic growth.

The Karl-Johan Persson, chief executive of the fast moving consumer goods giant, told investors that the company is waiting for more acceptable rent levels, so some stores may be delayed in the opening hours of Carle Persson. In the near term, the company is cutting excess capacity in Europe. There has been a net decrease in the number of H&M brand stores across the continent this year.

Meanwhile, under the leadership of former CEO Pablo Isla (Pablo Isla), the number of global stores of Zara parent Inditex increased by two times to nearly 7500. Under this expansion, the group's business portfolio has indeed achieved valuable diversification, including high-end brand Massimo Dutti and Bershka brand, which focuses on young people. But at the same time, it has greatly increased the number of stores and increased the cost pressure, which is contrary to the current electricity supplier era.

Isla's response to the situation was that he closed 355 stores last year, 76% more than he originally planned. This year, under the leadership of the new CEO Carlos Crespo, the company will further close 250 stores and open 300 new stores at the same time, Carlos Crespo. Inditex has yet to respond to requests for comment.

However, despite the measures taken to reduce the store network, H&M and Inditex are still in the growth mode in the physical store area, and the number of stores in the two chain stores is expected to gain a net growth this year. This is noteworthy because the number of stores that the US retailer has announced this year will exceed the number of stores closed in 2018, according to data provided by CoreSight Research, a market research firm.

Data show that by 2019, the retail industry, including the Gap and Abercrombie & Fitch brands, has announced that they will close about 4500 stores (net value, if they do not include the adjustment of new stores, the number of outlets will be as high as 7500). In 2018, the net value of retailers closing stores was only slightly more than 2600.

For this year, the two companies' online sales plan is more noticeable. Considering that the online sales of the two companies are still less than 15% of the total sales, it may be worthwhile to take bold measures. By comparison, about 27% of the clothing sales in the United States are online. Inditex has opened online stores in Saudi Arabia, Arabia, the United Arab Emirates, Lebanon, Egypt, Morocco, Israel, Serbia and Indonesia this year (covering a total population of nearly 500 million), and plans to launch online sales in South Africa, Qatar, Kuwait, Bahrain, Oman, Jordan, Columbia, Philippines and Ukraine (which will cover an additional 275 million population).

"We want to make our fashion products face to all customers, no matter where they are in the world." Isla said in May. "Even in markets where we do not currently have entity stores."

At the same time, H&M is committed to major upgrading of its online store, including improved shopping guide and product display, and shortening delivery time. For the latter, H&M is disadvantaged in the field compared with pure online retailers such as Zalando, Boohoo and Amazon (NASDAQ:AMZN). In addition, H&M has promised that it will become more flexible in payment issues after investing in financial technology Unicorn Klarna last year.

There is no denying that any enterprise will pay a price when reorganizing its business. Because of the high cost of investment, H&M's profits may decline this year, and the company will have to raise loans to finance the dividend payment last year. After raising the dividend earlier this year, the dividend paid to shareholders by Inditex now accounts for about 80% of its annual profits, which is contrary to the claim of Morgan Stanley analyst Geoff Trudell (Geoff Ruddell), who believes that the company has used some obscure, though legal, accounting methods to overestimate the profitability of the past four years.

Even so, the Inditex empire of Oman Theo Ortega (Amancio Ortega) sits on the market capitalization of 85 billion euros (US $95 billion) and is the richest retailer in the world, so even if the company makes such one or two mistakes, it will still be able to survive. H&M, who is under Persson's leadership, seems to have passed the worst, and many other retailers are also willing to blow their own trumpet.