H&M's unsold clothes have become a $4.3 billion problem with piles of shirts, dresses, and accessories increasing as sales continue to struggle for the Swedish fashion retailer, The New York Times reported.
H&M detailed its challenge in its latest quarterly report Tuesday, raising concerns about whether the fashion retailer will be able to keep up with morphing demands from customers, the newspaper said.
"As communicated previously, the start of the year has been tough," Karl-Johan Persson, chief executive officer of H&M, said in the latest three-month report. "2018 is a transitional year for the H&M group, as we accelerate our transformation so that we can take advantage of the opportunities generated by rapid digitalization.
"Weak sales in the fourth quarter, partly caused by imbalances in the assortment for the H&M brand, resulted in the need for substantial clearance sales in the first quarter. The high level of clearance sales combined with unusually cold winter weather had a negative impact on the sales of the spring garments. In the first quarter the H&M group's sales were unchanged in local currencies.
Persson added in his comments that weak sales and substantial markdowns continued to impact H&M in the first quarter of this year.
The New York Times wrote that as one of the world's largest clothing stories, H&M creates millions of items each year. The newspaper said that in Vasteras, where H&M started, the power plant burns defective unsold store items for energy.
Bloomberg wrote that H&M's operating profit tumbled 62 percent to the lowest level in more than a decade as clearance sales failed to reduce quantities of T-shirts and jeans that customers had passed over. The media outlet noted that the company's stock fell to the lowest level since 2005 as well.
"The worrying sign again comes from unabated piling-up of inventory," Chris Chaviaras, an analyst at Bloomberg Intelligence, noted.
Bloomberg wrote that H&M, though, made its targets for sales growth of at least 25 percent from e-commerce and new businesses this year, even though it missed that rate in the first quarter.
H&M's internet sales jumped 20 percent while revenue from new businesses gained 15 percent.
Persson said that the company may have e-commerce up and running in all its markets by 2020. H&M started online sales in the potentially lucrative India market and launched its products on China's Alibaba Group Holdings Ltd.'s Tmall service.
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