H&M’s Sales Flatline as Competitors Swoop in With Rock-Bottom Prices

Competition in the fast-fashion world is heating up as clothing retailers battle it out for rock-bottom prices.

H&M reported “flattish” net sales in constant currencies in the three months ended Aug. 31, compared to a year earlier. The Stockholm-based retailer said in a release Friday that it is prioritizing profitability and keeping inventory levels low this quarter, while working toward a 10% profit margin next year.

But RBC analyst Richard Chamberlain told Bloomberg that H&M’s prices have been climbing, with its UK prices only 10% below average. H&M’s prices usually sit at about 20% below average clothing prices offered by other retailers, Chamberlain said.

This has left the once-dominant budget fashion retailer vulnerable to growing industry competition. Chinese ultra-fast fashion retailer Shein has stood out among competitors for its lower-than-low prices, including shirts and bodysuits for under $3 and jeans for less than $10. 

As of 2022, Shein commanded more than 75% of the U.S. fast-fashion market share, according to an antitrust lawsuit filed against the retailer by new industry player, Temu. Online retailer Temu sells trendy clothing at extremely competitive prices that allow customers to “shop like a billionaire” — another example of the contentious battle to sell clothes at bargain prices. 

In its lawsuit, Temu claims that since it entered the market last September, “Shein has engaged in a campaign of threats, intimidation, false assertions of infringement, and attempts to impose baseless punitive fines and has forced exclusive dealing arrangements on clothing manufacturers.”

Shein has also faced growing scrutiny from U.S. lawmakers and consumers for its alleged use of forced labor in China’s Xinjiang region to achieve its low prices. Shein has denied the allegations and said it does not source its cotton or products from Xinjiang, home to Muslim Uyghurs who have reportedly been brutally repressed by Beijing — claims which China vehemently denies, according to Bloomberg. 

Meanwhile, other competitors, including Zara’s Spanish parent, Inditex, posted a strong second quarter that points to H&M’s weakening pricing power, Bernstein analyst William Woods told Bloomberg.

Inditex’s net income grew 40% in the first half of 2023, fueled by 17% growth in constant exchange rates, the company announced Wednesday. 

While H&M posted sales growth of 6%, the Swedish retailer noted that its sales growth was actually higher, at 8%, excluding markets in Russia, Belarus and Ukraine.

H&M exited Russia last year in the wake of its invasion of Ukraine, which had a “significant negative impact on our results, since Russia was an important and profitable market for us,” chief executive Helena Helmersson wrote in the company's 2022 annual report.

H&M shares dropped about 5% on Friday.

The retailer will be releasing its complete third-quarter report on Sept. 27. H&M declined to comment further.