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H&M’s international ambitions come at the expense of store profits and margins

H&M Group has seen its profits per store fall by more than 35% over five years as the business has expanded internationally.

In its most recent results, published on January 30 for the year to November 30, 2013, the Swedish retailer recorded a profit after financial items of Skr 22.53bn (£2.11bn), up slightly on last year’s Skr 22.29m (£2.09bn). Group sales hit Skr 128.6bn (£12.08bn), an increase of 6% on the previous year.

During the year H&M Group opened a net 356 stores, increasing its total store portfolio to 3,132, up from 2,776 at the end of November 2012. As a result, global profits per store fell to Skr 7.19m (£672,880) from Skr 8.03m (£751,154).

This compares with Skr 11.12m (£1.04m) in 2009, when the store number stood at 1,988. In the intervening five-year period only 2010 saw a marginal rise, of 1.8% on the previous year.

Business analyst and head of external affairs at risk management firm Company Watch, Nick Hood, said: “H&M looks in danger of becoming a busy fool – it may have got to the stage where it would be better to shrink [its store portfolio] than grow any more.”

But H&M shows no signs of slowing expansion. It plans to open a further 375 net stores in the current financial year, including launching in Australia.

Hood added: “There are questions as to how much further that would exacerbate what looks like fundamental operational challenges within the business – and how far it will further press margins. The numbers scream overexpansion.”

Figures from consultancy Verdict Retail show H&M’s UK market share grew over the five years from 1.7% to 2.2%, but associate retail analyst Jessica Fioriti said increased competition from Primark, Asos, Topshop and Zara had

H&M declined to respond to any of Drapers’ questions. However, in a statement a spokeswoman said: “H&M is affected by international money conditions specific to those countries we are present in. The Swedish krona has strengthened by approximately 25% since 2009 which can cause results from our subsidiaries to appear deflated when reporting in Swedish krona.

“We have invested in an even stronger customer offering since 2009, giving our customers maximum value for money. This resulted in a lower gross margin, which was a conscious initiative in line with our long-term strategy.”

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