H&M Aiming to Catch Zara With Delayed American Web Push

H&M Aiming to Catch Zara With Delayed American Web Push

Hennes & Mauritz AB (HMB) began selling cheap-chic clothes online in Sweden about the same time Google Inc. (GOOG) started crunching its first search results. Fifteen years later, H&M’s American fans are still waiting for Web shopping.

If the hype is to be believed this time around — the Stockholm-based retailer has postponed twice before — in August H&M will enter the world’s biggest online apparel market, allowing American shoppers to click to buy $12.95 zebra-striped ballet flats and $59.95 trenchcoats.With the delay, the retailer has missed out on revenue as it tries to make up ground lost to rival Inditex SA, owner of the Zara brand. Inditex, which overtook H&M in 2006 as Europe’s biggest apparel seller, has topped the Swedish company’s sales growth for the past three years.

Since 2011, when Zara began selling online in the U.S., the American market for apparel and accessories online has grown 44 percent to $54 billion, researcher EMarketer estimates.

H&M was “late to the party” in the U.S., said Richard E. Jaffe, an analyst with Stifel Nicolaus in New York. With the roll-out, “they need to be competitive from day one.”

Inditex shares have gained 69 percent since its U.S. Web shop opened Sept. 7, 2011, more than double the gain for H&M shares in that time. Despite its relatively late start — Zara first sold clothes online in 2010 — Inditex now offers Internet sales in 23 markets while H&M does so in eight.

The Dakotas

For many American shoppers, H&M’s absence online hasn’t been a big deal, since the company has almost 300 stores, in dozens of big cities. But customers in Montana, the Dakotas, Nebraska, and 14 other states have no local outlets.

“I tried to buy stuff online, but you can’t,” said Clarissa Silvagno, 18, a student in Charlotte, North Carolina, who discovered H&M on a trip to Italy four years ago. “We don’t have a store in Charlotte so the only real opportunity I get to shop there is if I’m out of town.”

The Swedish company has repeatedly said it needs more time to prepare the online opening to figure out issues such as security and logistics. It has also blamed the delays on the complexity and size of the U.S. market.

Since 2000, when H&M opened its first American store, in Manhattan, the U.S. has become its second-biggest market, with sales of $1.9 billion last year, or 9 percent of total revenue. Rival Urban Outfitters Inc., (URBN) which aims to generate half its revenue online by 2017, got about a quarter of sales last year from the Web and catalogs. And London-based online-only retailer Asos Plc (ASC) saw its third-quarter U.S. sales surge 59 percent compared with a year earlier.

Perfect Fit

Despite the lag, H&M’s steady expansion in the U.S. means it has developed strong brand recognition even in cities where it doesn’t have stores, according to Bank of America Merrill Lynch.

“There should be pent-up demand,” Merrill analysts Richard Chamberlain and Aurelie Caspar wrote in a note. They say H&M’s U.S. website now accounts for about 20 percent of the company’s total online traffic even though it offers no goods for sale.

The analysts estimate revenue growth of 10 percent or more in the U.S. in the second half of the year and anticipate the new Web shop will increase H&M’s like-for-like sales from fiscal 2015. “H&M’s demographic profile with a focus on young fashion fits the Internet generation perfectly,” they said.

With her arms full of shopping bags from H&M and Bloomingdale’s on New York’s Lexington Ave., Linda Rodriguez said she’ll probably buy more from the Swedish chain once the site opens.

Facebook Yawns

“It would be great because the stores get too overpacked on weekends,” said the 38-year-old fitness club receptionist, who estimates she spends about $200 a month on clothing. “Online would be so much better for quick, easy purchases.”

But the company first needs to show up to convince fans. A Facebook group set up to petition H&M to offer online sales “everywhere” is packed with non-believers. A post that proclaimed the plans to open the U.S. Web shop earned yawns and damning comments.

“Heard that B4,” said one. Another added: “I’ll believe it when I see it.”

To contact the reporters on this story: Katarina Gustafsson in Stockholm at kgustafsson@bloomberg.net; Jennifer Surane in New York at jsurane1@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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