How H&M can happily set up shop while Myer weeps.

Swedish clothing brand H&M is opening a new store in Melbourne today. It’s the latest big global clothing retailer to show up here, following Zara and TopShop.

Japanese brand Uniqlo is also set to launch here soon.  But why are they coming? The headlines have been full of bad news for all retailers.

Clothing retail looks especially terrible.  

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Growth has been stagnant for years. Why come to Australia?

The beginnings of our answer are overseas:

The value of clothing retailing fell in Canada last year by 0.6 per cent. The UK saw the same result.

People everywhere are spending far more on food than on clothing these days. And yet I don’t see people shuffling around in clothes that need repairing.

I had begun to suspect prices may have something to do with it, but the ABS inflation data for clothing was still a shock to me:

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Despite a 10 per cent hike at the time of the introduction of the GST, the price of clothing has risen only 1 per cent since 1993!

I remember 1993. I was 12 years old. For the first time it was possible to buy a pair of Nikes that cost over $100. The last time I went and looked at Nike sneakers, the price range was roughly the same (and I picked up a pair from the factory outlet for $30). If they’d followed the inflation path of food and beverages, sports shoes would all be over $200 now. But they haven’t and they aren’t.

Why not? The answer is not on the demand side. It’s not that in two decades something fundamental has changed in the way humans wear clothes. It’s about the supply side.

And that’s what’s interesting about H&M. It owns stores that sell its own brand. It makes only very limited attempts to stock fancy Italian or American brands. A bit like its Swedish retail older sibling, Ikea, it is vertically integrated and tightly focused on cost.

I bought a terrific shirt at H&M’s Sapporo outlet 10 days ago, for ¥500 (A$5.50). Even on the discount rack that is an absurd bargain. Only after I got it back home did I think to look for this tag, and it was as I suspected.

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There are moral issues when it comes to making clothes in Bangladesh. I don’t want the fact that this post doesn’t cover them to stand, in anyone’s mind, for the idea that they are unimportant.

The fact of the matter is that if you can control costs well enough, you can make big margins even as prices fall. That’s the difference between Myer and H&M. Cost control. Myer can’t do it so easily because while it has 66 stores, H&M has 2600. H&M can make or break people while Myer deals with suppliers that have options and won’t let their margins be crunched. 

A quick look in the H&M annual report shows just how good those margins are. More than half of the average price tag is mark-up. 

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And that’s why H&M‘s share price is up about 20 per cent over 3 years, while Myer’s is down around 30 per cent. 

MORE FACTS:

The H in H&M stands for Hennes (“for her”), the name of the original company that sold women’s clothing. The M stands for Mauritz Widforss, which was the name of a hunting apparel shop next door to the original Hennes, which H&M took over to develop a men’s line and become what it is today.

If you’re interested in knowing more about the business models of big clothing retailers, check out these very good Forbes profiles that highlight the differences between Uniqlo, Zara and H&M.

Published by

thomasthethinkengine

Thomas the Think Engine is the blog of a trained economist. It comes to you from Melbourne Australia.

3 thoughts on “How H&M can happily set up shop while Myer weeps.”

  1. Have you fully checked supply chain details for H&M as part of your ‘analysis’ Thomas? I am not prepared to accept that country of origin details automatically implies exploitation for every garment that I see from Bangladesh. See for example http://www.fairtrade.org.uk/press_office/press_releases_and_statements/april_2013/statement_bangladesh_building_collapse.aspx

    In my opinion, apart from the high class labels, the quality and range of smart clothing supplied in H&M bricks and mortar stores in Europe is far superior to Myer offerings. This is an important area that the likes of Myer and others competing in the same space that needs more attention.

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    1. Hi civic watcher, thanks for that link.

      I do not imagine for a moment that every garment made in Bangladesh is made in exploitative conditions, but that is not to say everything is above board either. I hope to actually address this topic properly in a post before long.

      Like

    2. Actually, the country of origin being Bangladesh STRONGLY implies exploitation of H&M garment makers, because the only reason they are producing there is because of Bangladesh’s poor human rights laws, lack of unions and poverty line minimum wage. If they were interested in producing clothes ethically, they would know that ethical production HAS to be more expensive, and then they would not be interested in producing clothes in Bangladesh in the first place. American Apparel is a company that produces in the US for that reason. H&M is not.

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