H&M may struggle to steal market share in the competitive UK off-price market with its new discount retail platform, Afound, industry experts have said.
Afound will stock both H&M group’s own and third-party brands. It will launch online and in stores in Sweden this year before an international rollout. The UK is thought to be one of the first markets next in line. Drapers understands H&M has approached several young fashion women’s and men’s wear UK brands about coming on board.
However, sources have said the retailer may find it difficult to compete with established off-price players such as TK Maxx and Asos Outlet. Furthermore, it risks creating a “distraction” from its main business.
Operating profit at the H&M group fell by 13% to SEK20.6bn (£1.85bn) in the year to 30 November, while sales including VAT fell by 4% to SEK232bn (£20.8bn).
Charlotte Pearce, associate analyst at GlobalData Retail, said: “Considering H&M’s recent results, Afound seems like it could be a further distraction to its core business. With H&M’s online platform falling short of the likes of online pureplays Asos and Boohoo, the retailer will need to work hard to bring Afound up to industry standards.
“TK Maxx has firmly established itself in the UK as an off-price retailer and is synonymous with designer brands, but Afound’s positioning is still unclear.”
The commercial director of one accessories brand said: “The only way Afound could interest me would be if it gave me a better price than anybody else – and I just don’t think it can,” he said. “Out of respect I continue to work with TK Maxx. It acts very responsibly, it pays very well, it collects the goods and it’s extremely professional.”
Rob Feldmann, chief executive at off-price etailer BrandAlley, agreed that Afound’s launch should not pose a threat to bricks-and-mortar outlets: “If I were a physical off-price retailer, I wouldn’t be scared. TK Maxx doesn’t need to worry, as it offers designer brands.
“Asos is such a strong player – it’s hard to challenge a business like that from a standing start.” He added that Afound will need strong brands: “If they’re working with low selling prices initially, it will be hard to make the economics work. But if they can get a selection of good, more expensive brands to work alongside them, it could work.”
H&M group chief financial officer Jyrki Tervonen said: “The idea is to bring something new to the off-price market, which is huge and growing. There is a great opportunity for Afound to take a big part of [the market] with a well-curated and wide assortment. It will offer stylish product and great deals.” He added that it would attract existing H&M customers as well as new shoppers.
Despite the doubts over its success on the high street, the managing director of one sales agency said online could pose an opportunity for the business: “Several big players such as TK Maxx have a poor online representation, so this will be interesting. It’s a huge market, and more consumers want to see a red line between ‘was’ and ‘now’.”
Kam Harris, co-founder of lifestyle brand Universe of Us, said Afound could be beneficial for the H&M group, as it will enable it to clear old stock from stores and make space for more in-season drops: “Retailers such as Zara are putting pressure on that segment to keep product fresh and on trend. H&M has made a smart move in reacting to demand for continual newness.”
The Drapers verdict
H&M is entering what is currently a strong off-price UK market. If it wants to steal market share from existing players, it has its work cut out. Established retailers already deliver a clear offering for consumers and have strong relationships with brands.
However, a solid online strategy could spell success for the online operation as competitors retain their bricks-and-mortar focus. It raises the question of why H&M is not launching Afound as an online-only platform instead of competing with TK Maxx on the high street.
While many off-price etailers focus on premium and luxury, H&M group should try to get a strong line-up of young fashion brands on board to create a niche for the new fascia.