H&M Leaves $4.3 Billion In Unsold Inventory On The Racks
AUDIE CORNISH, HOST:
H&M was the clothing chain that came to define the very idea of fast fashion, but it looks like they got a little ahead of themselves. The retailer is now sitting on a giant pile of inventory - more than $4 billion worth of dresses, shirts and pants and not enough buyers. H&M notes this huge buildup in its new quarterly report that came out yesterday.
New York Times fashion writer Elizabeth Paton has read it and has been tracking H&M's problems over the last few years. She joins us now on Skype from London. Welcome to the program.
ELIZABETH PATON: Thank you very much for having me.
CORNISH: So $4.3 billion worth of unsold stuff - what does this look like?
PATON: It's a great question. I mean, of course, this is not sitting in some giant single location. This is spread across thousands of warehouses and stores across the world. But to try and imagine what $4.3 billion worth of clothes look like, it's a staggering amount of inventory.
CORNISH: So is this an H&M problem or a fast fashion problem? Like, is it affecting other retailers?
PATON: So the H&M problem, in some way, is unique because it is the way that it has been run. Its problems first started emerging last year when it saw the first sales decline in two decades. And initially, you know, that wasn't that big a deal. But because of the perfect storm that we're seeing emerging, particularly for bricks-and-mortar retailers as more and more people shop online or from their smartphones and competition in this space gets far more fierce, matching sales with inventory is very, very important, and it's something that soon spiraled out of control.
But then at a broad level, yes. This is not just an H&M problem. This is also a fast fashion problem because I think people are thinking more now than ever about the kind of quality that they want to buy, the styles they want to buy. And H&M has fallen out of fashion.
CORNISH: I was reading that their website is not so great.
CORNISH: And have they just fallen behind in the online sales market space?
PATON: I think the big issue for bricks-and-mortar retailers at the moment is how quickly they can ramp up their online operations. H&M just hasn't been so far. They said yesterday that they wanted to try and boost their online sales by 25 percent this year. Whether they'll actually be able to do that is another matter because I think the pressing matter is how are they going to get rid of $4.3 billion worth of stock?
CORNISH: What are their ideas so far?
PATON: Well, there's a couple of things. I mean, the first thing that they're going to have to do, which obviously is not going to please their investors, is they're going to have to discount. They're going to have to slash prices on some of the stock that customers have already turned their noses up at. Another thing that they're going to do is they're going to shut unperforming stores in Western markets like U.S. and Europe.
CORNISH: The wackiest thing we've heard is that they'd burn it.
PATON: Yes. I mean, it's very difficult to quantify just how much unsold stock there is at the moment sitting on H&M's books, but to give you an indication of how much, you know, there is currently a power station in Sweden, which is burning stock that H&M can't sell in place of coal or oil in order to create energy and supply the surrounding area.
You know, H&M, ever since the Rana Plaza tragedy which happened in Bangladesh in 2013 - a factory collapsed, killing over a thousand workers, and H&M was one of the Western retailers that was manufacturing in there. H&M has become much more focused on being transparent about its supply chain and how it can be more sustainable as a business.
It's almost impossible, of course, to be sustainable as a business when you're producing hundreds of millions of items of low-cost clothing a year, but how you get rid of $4.3 billion worth of stock is a question that no one has a good answer to at the moment.
CORNISH: New York Times fashion writer Elizabeth Paton - thank you so much for explaining it to us.
PATON: Thank you.
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