Fashion and inflation: Never forget that the customer is always right

H&M looks out of sync with shoppers’ reality

MILAN (Web Desk) – Inflation is hitting everyone. Even the rich want to save money, if possible. It shouldn’t a surprise because they are rich after accumulating money here and there to spend later on their choices but only when and if they feel necessary. They have the power to make their own decisions.

The successful businesses always keep the consumers in mind as the free market and competition allows people to switch their priorities. Not acknowledging the consumer needs and demand mean you will suffer in the long run. Hence, “the customer is always right” and “the consumer first”.

However, some businesses don’t take them into account as the most important factor. H&M – a Sweden-based $21 billion company engaged in the design, manufacture and marketing of clothing items and related accessories – is an example.

According to a commentary published by “Reuters Breakingviews”, H&M CEO Helena Helmersson is feeling the heat. The Swedish fast-fashion retailer she leads on Friday reported “flattish” net sales between June and August, well below the 5 per cent year-on-year growth forecast in Reuters’ analyst poll.

“That’s partly a result of a trickier time in general for retailers, but also Helmersson’s focus on profit margins rather than sales. Surveys by RBC analysts suggest H&M clothes and homewares have been pricing at a 10pc discount against the UK average, against a previous 20pc average discount.”

“H&M has probably been operating under the illusion that it could maintain pricing power while consumers are being hit by inflation. Other retailers took a different approach.”

The piece also mentions the strategy adopted by the rival companies. “Its $120 billion rival Inditex, whose Zara brand is considered more upmarket than H&M, has started to pause price increases. Meanwhile more affordable rival Shein is winning market share by offering big discounts.”

“Right now, H&M trades on the same 20 times forward earnings multiple than Inditex. But at 6pc, its expected 2023 EBIT margin pales against Inditex's expected 18pc. If the Swedish player starts offering cheaper goods to spur sales growth, that valuation may also need a price tag cut.”

Meanwhile, this Reuters commentary also reminds us of the price war among the electric vehicles makers from China and Tesla – the US giant owned by Elon Musk – to attract maximum number of customers and grab greater market share.