Enterprise Mobility & the Connected Worker Blog

Sitting on $4.3 Billion of Unsold Inventory, H&M Falling Victim to their Low Tech Approach to Inventory Management

by Nick Elia, with Chris Kondracki | 04/25/2018

While a decent chunk of retail organizations over the past few years have been increasing their in-store and online sales via investment in Omni-channel initiatives to keep up with the likes of Amazon, retailers like H&M have fallen behind. This can be seen most notably in H&M’s struggle to sell off $4.3 Billion of unsold inventory. As a way to combat their inventory problem H&M has been increasing the amount of markdowns they have, but this in turn has led to slipping sales and more importantly, lower profits. One of the driving factors behind H&M’s struggle as of recently has been their slow supply chain and difficulty managing inventory to efficiently meet customer expectations. To put H&M’s supply chain issues into perspective with one of their main competitors Zara, lead times for H&M were almost double. 2018 will represent the “year of transformation” for H&M, where they will start investing a significant amount of resources into technological, operational, and digital improvements like RFID tagging, store operations, and warehouse automation tools. While the success of retailers like TJX clearly indicate that there is more to being a successful retailer than bleeding edge technology (in the case of TJX it is their merchandising operations that sets them apart), H&M’s current struggles are very much rooted in traditional supply chain and inventory visibility issues.

The H&M story goes along with many things that we have seen in our 2018 retail report – “Foundational Layout and Requirements of Enabling Omni-channel Retail Initiatives”. Inventory visibility is the single biggest hurdle for retailers attempting to implement Omni-channel initiatives, but only 41.9% of respondents in our Omni-channel survey viewed inventory visibility as extremely important. In the past H&M has struggled with managing their inventory. The primary reason why this is the case is because they have been driven hard by the industry leaders to catch up with modern day retail technology, but are using inefficient solutions on the backend to put everything together and aren’t thinking about investments that will benefit the company long-term. If H&M wants to enable inventory visibility and accuracy across the entire enterprise then it will require them to have more frequent auditing of inventory in their warehouses/physical store locations, as well as develop a more strategic long term plan around their technology investments. Retail organizations that audit their inventory on a quarterly/annual basis tend to be more prone to inventory being mismanaged and not being sold.

Sitting on $4.3 Billion of Unsold Inventory, H&M Falling Victim to their Low Tech Approach to Inventory Management

H&M seems to be doing everything they can to improve their customer experience and create value via various Omni-channel initiatives, but one has to wonder if this will be enough to stall their decreasing sales and negatively affected profits. Moreover, the success of these “customer-facing” initiatives is a function of how well H&M can manage their inventory and provide accurate visibility into their operations.

Implementing Omni-channel initiatives today is a specialized process, and it is crucial for retailers like H&M to find solutions that have the ROI on the front end that can be converted in tangible/real results. Retail organizations in general need to move away from this reactionary approach to Omni-channel and need to think about the operational implications these initiatives have. By doing this, organizations can avoid issues like additional costs of shipping and coordinating in-store activities (staffing; location; etc.), which have presented challenges and eaten into/eroded the profitability of retailers. Moving forward, VDC sees these as some of the best practices for retailer’s enabling an Omni-channel strategy.

  • Retail organizations must build out and plan multiple deployment methods for these supporting technologies to avoid leveraging initiatives that lack internal support, have below-average performance measurements, and fall significantly short of shopper’s in-store and online expectations.
  • Establishing an effective Omni-channel strategy requires all stakeholders of the company to buy into these new technologies as well as evaluate their existing organizational structure to identify employees, potential service gaps, and processes that won’t coincide with the strategy.
  • Retail organizations should strive to create a seamless and personalized shopping experience both within and beyond the physical store. While there has been a significant amount of market pressure on retail organizations’ E-commerce development over the past few years, the physical store continues to be the primary sales mechanism in retail and fulfilling orders from here represents the best opportunity to attract and drive customers into the store and generate incremental revenue. Beyond the store, customer engagement is critical for retail organizations trying to build relationships, push ads/promotions, and track specific shopping habits.
  • In general there has been a lack of top-down approach in the way stores are organizing their key performance indicators (KPI’s). Retail organizations need to reevaluate, reshape, and create a proven set of KPI’s in order to benchmark their Omni-channel capabilities against those of their competitors.
  • These types of programs and initiatives can have transformative results on your business, but it doesn’t just require a technology investment. Organizations need to have dedicated and trained staff in place to support these functions, and the processes/culture need to be aligned with this technology in order for it to work. You can throw as much innovative technology at store associates as you want, but the technology can only be effective if associates have the knowledge and understanding to leverage it and create insights.

For more on this topic, see VDC Research’s report Omni-Channel Retail Initiatives.

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