- H&M has become known for its frequent deals and discounts in recent years.
- But according toMartino Pessina, H&M's newly appointed president of US operations, we can expect to see much less of that in the retailer's US stores and online platform this year.
- Pessina said that "deals kill creativity" and are not viable long-term.
Prepare for fewer clearance racks at H&M.
In a recent interview with Business Insider, Martino Pessina, H&M's president of North American operations, insisted that H&M US already has scaled back on - and will continue scaling back on - heavy discounting this year.
"It is not in line with our business idea," Pessina said. "Deals kill creativity. It's a shortcut you do and it's great, and next year you have to do it even bigger, and then all of a sudden, all you do is deal planning."
Pessina likened these deals to a sugar addiction, and while it will be hard for customers to kick it, H&M is adamant it will scale back to preserve profit margins and rebuild its brand image.
Cutting back on inventory
Leftover inventory is most vulnerable to discounting, one of the main problems that H&M grappled with in 2018.
In March 2018, the group announced that it had accumulated a mountain of $4.3 billion worth of inventory.
At the time, H&M CEO Karl-Johan Persson said in a note to investors that the retailer had weak sales in the fourth quarter and, therefore, that leftover stock had "resulted in the need for substantial clearance sales in the first quarter."
A spokesperson told Business Insider in April that this pile consisted mostly of new spring and summer items, sales of which had been delayed because of unseasonably cold weather. The rest was "season-less garments," which can be sold year-round, the spokesperson said.
"Every snapshot of the inventory contains a lot of new products that are on their way on ships, and in our distribution and replenishment centers. Just a small part is actually in the physical stores," they said.
But analysts said it was also down to H&M's fashion misses and its supply chain, which is relatively sluggish compared to online rivals such as ASOS and Boohoo.
In the year ahead, H&M is focused on keeping a better handle on this inventory and ensuring it stays ahead of trends, both of which are meant to reduce the risk of heavy discounting.
According to H&M's most recent quarterly report, which was released in December, the company has around $3.9 billion of unsold clothing on its books. According to Pessina, this is largely new stock.
"The really old stock? That's gone," he told Business Insider.
Pessina said that 90% of the clearance racks in US stores today are reductions from its most recent fall collection and that the company is about six to twelve months away from optimum inventory levels. In the future, a possible global rollout of radio-frequency identification (RFID) technology could also allow H&M to have a better grasp on real-time inventory levels.
The company is now looking at how it can use artificial intelligence to predict fashion trends as well as how it can speed up the supply chain.
"A lot of our efforts are into how we both develop the product and supply product," Pessina said. The supply chain is just as crucial as hitting on trends.
"Sometimes you see things, but if you're slow at bringing them to the stores, it doesn't matter."