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Bargain-priced H&M pose a threat – should local retailers panic?

This month H&M opened in Melbourne's GPO building. Many local Australian retailers feel under threat from the new fast fashion competition. We analyze their options.
Bargain-priced H&M pose a threat – should local retailers panic? | EDITED
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We’re excited to announce the release of our latest downloadable report, which investigates the impact that H&M’s first store opening in Australia will have on the local retail market.

H&M’s entrance into the new market has obviously ruffled local feathers – the Swedish retailer’s bargain-priced and fashion-forward product has a global reputation. Add to that the prime location H&M have taken (The GPO building on Melbourne’s main shopping street, Bourke Street), the big-budget refurbishments to the building and the blow out VIP launch last week and it’s clear that H&M aren’t taking a soft approach. Attracted by the affluent economy of the country (with 22 years of growth) and following Zara and Topshop, H&M are the first overseas value retailer with women’s, men’s, kid’s and homewares offerings to contend with incumbents Cotton On, Target and Kmart, among others.

Our research addresses the risks and opportunities facing local brands. Successful retail hinges on three fundamentals: the right product, at the right price, and at the right time. We’ve broken our findings down into those three areas and below, we’ve highlighted the key insights on right product.

Missing categories: swimwear and underwear
Analysis of the category breakdown at H&M and Sportsgirl, one of the local fast fashion retailers who may feel pressure with the new entrant, shows that Sportsgirl give a much higher weighting to their accessories category than H&M do. The two retailers appear to agree on the weighting they give to dresses, tops and bottoms. However, Sportsgirl do not carry swimwear or underwear – in the Australian market the majority of retailers leave these two categories to specialists, with Cotton On perhaps being the only real contender. H&M will benefit from this greatly if the local market doesn’t react.

Price architecture
The report drills down further into the pricing of each category at H&M compared to the spread of pricing locally. The chart featured here shows the average prices at H&M UK and on the local Australian market. H&M’s positioning suggests they would have the lowest pricing around, but the data shows that widespread panic in the local market is not necessary – there are some categories which the local market already undercuts the new entrant: footwear and bottoms. Tops will be a competitive category, with the local market and H&M competing on the same average price, but H&M have a much broader offering.

Undefined customers
Analysis at product level offers key insight into a brand’s target customer. Looking at the dresses category, the top moving garments (those which arrived online in the last three months and saw a majority of sizes sell out at full price) show huge diversity around the age and trend preference of H&M’s customer. There’s a mix of styles: bodycon, occasion wear, skater dresses and casual jersey dresses. No clear customer can be defined from these popular products. In contrast, Topshop’s assortment is made up of a range of styles which, theoretically, could be worn by one person, demonstrating their much narrower consumer base. Local retailers should not be swayed by the design direction in this category at H&M, however. Their diverse range is both a positive and negative; their breadth of range means they have appeal across the entire consumer market, however, by not specialising on a specific consumer, the shopping experience can be haphazard.

Activewear is a huge opportunity
One area that H&M really excel in is activewear. They were early to adapt to the surge in interest, and have even trialled standalone sports pop-up stores. With more people exercising than ever before, and the runway adding kudos to the appeal of sporty looks, brands like Lululemon and Lorna Jane are dominating the Australian market. Currently, Target have the most comprehensive and affordable range, however they are doing a poor job in communicating this well. H&M are entering the market with an offering tailored to a number of pursuits – yoga, tennis, running and trekking. Their activewear has a high rate of replenishment (21% higher than the sportswear global average) and low rate of discounting. Australian retailers may want to pay close attention to the success of this category.

Want to find out more? Download a free copy of the full report today!