Blog Post - Minos Makris, May 4 2020

How H&M’s recent restructuring is preparing it for today’s challenges

How H&M’s recent restructuring is preparing it for today’s challenges

H&M’s decision to restructure its stores earlier this year - signalling the opening of new stores globally while closing a number of branches in Europe - was hailed by its management team as a significant step into the future.

But whilst H&M’s new 2020 collections were well received and it gained market share, the restructure to optimise its physical estate was something it simply had to do. Too many retailers have been slow to react to the rising expectations of consumers, especially when it comes to younger generations of shoppers who’ve become more accustomed to ‘fast fashion’ brands that provide them cheap and stylish clothing.

Today, however, H&M and other retailers face a separate challenge – a thunderbolt that no one could have prepared for, namely the coronavirus outbreak and its ensuant throttling of physical retail.

Modern customers up until now have been fuelled by their desire for speed and convenience – traits that aren’t exactly synonymous with physical retailing. But these demands have forced many brick-and-mortar stores to evolve their offerings to much more than physical stores. And in a time where social distancing is the norm – and quite possibly beyond 2020 - online channels will be more important than ever. Our new Future Shopper report confirms it, with 65% of consumers set to use digital shopping channels more in the future.

Finding the digital balance

One of H&M’s most significant changes has been in linking its online platform to its physical stores. This is to accommodate consumers’ increasing desire for seamless transition between digital and physical experiences.

It’s a sentiment younger shoppers have towards physical retail that many businesses didn’t expect from the first truly digitally native generation. The surprising truth is most (53%) of Generation Zs (16-24-year olds) prefer to shop with retailers who have online and physical stores. Across all ages this drops only to 46% in UK as confirmed by the Future Shopper 2020 report. Post-pandemic, it remains to be seen whether these findings still stands up, but if China’s experience is anything to go by, people are looking to return to the new normal.

While COVID-19 has put nearly all physical retailing on pause, when social distancing measures are lifted, it’s very likely these digital native shoppers certainly won’t be digitally exclusive.

The impatient shopper

On a logistical level, H&M’s choice to transition the purpose of its stores into distribution hubs is also a wise one. Younger generations have become accustomed to a ridiculously high level of service when it comes to the speed of their online deliveries. For instance, one in five 6-16-year olds say they wouldn’t even bother ordering from a retailer that didn’t offer next-day delivery.

Even in normal times, the demand for faster delivery has forced more organisations to re-consider their distribution networks.

Put into context, 59% of Generation Alpha said the one thing they would change about retailing would be for products they order online to be delivered within two hours. This really highlights the still growing expectations of future shoppers.

One solution to this would be to adopt a shipping system capable of predicting where and when consumers will order products, ensuring customers receive their items promptly. But such innovations can only be achieved through an extensive network of distribution centres. So it makes sense for H&M to transform its stores this way.

Elevating service

Another interesting change to consider is how H&M has shifted its strategic focus away from its brand equity and onto the services it offers. The shift represents a larger trend in the market; strong brand identity is no longer enough to retain consumers’ loyalty – it needs to be backed up by strong service. In fact, our last two Future Shopper surveys indicate that the service trumps brand in terms of consumer purchasing criteria. This is particularly relevant for fast fashion brands who are undoubtedly in the sights of the biggest online retailer in the game – Amazon who have reset the benchmark on service time and time again. And you can expect other retailers to steadily follow suit; they all must work hard to keep pace with their consumers.

Future forward

A major challenge for digital commerce retailers like H&M is planning cycles. Leaders such as Jeff Bezos are currently planning for a commerce future where Amazon’s production and distribution is launched from space. Now compare that to the average UK digital commerce leader who plans, on average, just 13.3 months ahead.

As a result, most physical retailers are already far behind the curve of customer expectations and are equally under enormous pressure due to their paper-thin margins. This has not been helped by the seismic impacts of COVID-19.

The nature of the UK’s lockdown is pressuring physical retailers to move their entire operations online, proving to be the latest threat facing the high street and forcing a lot of retailers into survival mode, with several big names in fashion already in administration.

Whilst the focus is on the here and now, it’s also crucial that these businesses give attention to future planning. Because while their reticence is understandable, the problem with a survival mode mindset is that it allows start-ups and tech giants to set new benchmarks for customer expectations and to move at pace to fulfil them. And whilst the new normal may represent new rules of consumer engagement, there will be a light at the end of the tunnel.

If brick-and-mortar retailers aren’t careful, new market entrants will change the face of omnichannel retailing before traditional brands have even had a chance to react. For some, it’s already happened.

Wunderman Thompson Commerce is working with many clients across fashion and luxury retail to help them pivot to safety and emerge stronger from this current challenging climate. We appreciate this is a trying time for all of us. If you’d like to discuss how we can help your business, please don’t hesitate to contact us.