Swedish fast-fashion giant Hennes & Mauritz (H&M) first set up shop in mainland China in 2007, when it unveiled a three-storey flagship store in one of Shanghai’s busiest shopping districts .
Last week Chinese media reported that the company had closed the store on Huaihai Road (although it still has 26 other locations around the city). The closure came soon after IKEA, another Swedish retailer, announced that it too was shutting one of its outlets in Shanghai too.
H&M says it is still planning to open new stores in Shanghai. Nevertheless, retail sales there have been sluggish even after the city came out of a draconian two-month lockdown. Sales sank 48.3% in April compared to the year earlier, much more than the 11% decline recorded nationally over the same period. The sales figures plunged another 36.5% in May.
H&M has been suffering on a national basis too. Its latest financial report shows that in the second quarter of 2021, sales in the China market fell by 28% year-on-year. By the third quarter, China was no longer in the retailer’s top 10 biggest markets, despite featuring in fifth place in 2020. The clothing giant’s store count has fallen from 445 in China last November to 362.
H&M is hoping to get back in the good graces of China’s consumers after disavowing the use of Xinjiang cotton in 2021, which triggered an angry response against the foreign brand. “You want to make money in China while spreading rumours to boycott Xinjiang cotton at the same time? Wishful thinking!” the Communist Youth League threatened at the time. Responses to the closure of the flagship outlet have indicated that many netizens are in no mood to forgive the Swedish chain either.
“When is H&M going to leave China fully for good?” responded one critic, a comment that received over 20,000 likes.
After announcing the Xinjiang ban, the brand was subsequently dropped by all the largest e-commerce platforms like JD.com and Tmall. H&M stores also disappeared from Chinese map apps such as Baidu Maps or Gaode Maps. Even now, the only way to buy H&M goods online is through its website, mobile app and WeChat mini-programme.
H&M has also been in the crosshairs of government regulators. In 2021, it was ordered to pay more than Rmb260,000 ($40,000) for “misleading” consumers over adverts that claimed certain products were exclusive to the Chinese market when they were available in other countries as well. And in February it was called out by a Beijing regulator for failing to meet a quality test. Some consumers have complained about its clothing too. “Most people agree that the quality of H&M’s apparel is very bad,” one shopper warned on social media. “After the Xinjiang cotton incident, no one wants to touch it.”
The growing popularity of ultra-fast fashion brands like SheIn has also brought new competitive pressures for H&M. “Fast-fashion brands quickly copy, produce and put out the latest fashion trends at low prices,” Gu Xinyin, an industry insider claimed. “And besides, even after the Xinjiang cotton and Covid outbreak, the entrance of other fast- fashion brands – foreign or domestic – has really hampered the company’s development in China.”
Nike, another company that has made commitments not to use cotton from Xinjiang, is struggling with similar headwinds. Revenues in Greater China in the quarter that ended in May fell almost a fifth year-on-year for the sneaker maker, the steepest decline across all of its core markets.
Xinjiang cotton aside, Nike is also having to contend with intense competition from local rivals. “The problem is that shoppers born in the ‘post-95s’ are now driving the consumer market and they are no longer blindly obsessed with foreign sportswear brands,” says New Brand Strategy, a retail news portal.
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