H&M, the Sweden-based fashion retailer, has taken a strategic move to compete with Shein, the Chinese discount e-retail upstart that experienced significant growth during the pandemic. H&M has lowered the prices of its clothing, with ribbed crop tops now available for only $1.70, a 70% markdown from their usual price of $4.99. Shein, known for its affordable items, has gained popularity among US shoppers and has reached a valuation of $66 billion. Despite facing scrutiny over its alleged unethical business and labor practices, Shein managed to raise $2 billion in its latest fundraising round. Last year, Shein generated a staggering $23 billion in revenue, surpassing the combined market capitalization of H&M and Zara, two major players in the fashion industry.
Meanwhile, H&M has been focusing on cost-cutting measures, closing a total of 303 stores across its brands in the year leading up to May 31. However, the company recently reported second-quarter profits that exceeded expectations, resulting in a more than 18% increase in share prices. The company’s shares rose by 1% on Friday, closing at $3.39. By significantly reducing the prices of crop tops, H&M hopes to directly compete with Shein, whose popularity has soared in the United States since the COVID-19 pandemic.
Despite challenges such as consumers’ reduced spending ability and unfavorable weather conditions, H&M managed to increase sales in various markets. CEO Helena Helmersson attributed this success to the strong performance of the H&M womenswear collection, as well as the Cos and Arket brands. Sales from June 1-27 showed a 10% increase compared to the same period the previous year, indicating a positive start to H&M’s third quarter. Although the company reported a weaker margin of 8.2% for the second quarter, down from 9.2% in the previous year, the better-than-expected profits were well-received by investors. H&M aims to achieve an operating margin of 10% by 2024.
Notably, H&M faces formidable competition not only from Shein but also from another controversial Chinese-based fast fashion retailer called Temu. Recent data revealed that Temu surpassed Shein in terms of spending by US consumers in May. Temu’s app consistently ranked as the most downloaded and engaged with on Apple devices throughout the year. However, both Shein and Temu have faced criticism for their alleged business practices. Temu, in particular, was subject to harsh scrutiny in a Congressional report that accused the company of failing to establish an effective compliance program to prevent the sale of goods made by forced labor on its platform. Similarly, Shein has been embroiled in controversy due to its business practices.
As H&M navigates the competitive retail industry, it has been forced to shutter hundreds of stores in the past 14 months. The company aims to overcome these challenges and maintain its market presence.
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