The clash of the retail giants continues. Following a bleak second quarter due to the disruption of COVID-19, both retailers managed to bounce back with more optimistic results. The H&M Group reported $229 million in quarterly profits from Jun-Aug and Inditex $254 million from May-Jul.
While YoY net sales for both remain down, these businesses are still well-placed to tackle the challenging retail landscape and thrive in the next normal. Using market intelligence, we analyze the brands representing the jewel of each groups’ crown – H&M and Zara.
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Key takeaways
Zara’s fashion-forward route of flooding the market by creating aspirational products and campaigns drove high sell outs even during the work from home era. Products continue to boast a high turnover with subtle discounting and elevated price points.
H&M remains more bullish with discounting. Its brand positioning in the market is broad, aligning with families and attracting the Gen-Z consumer driven by designer collaboration hype and low prices.
Happily retaining these competitive differences while remaining reactive to wider market trends will allow both retailers to continue on their ambitious paths.
High arrivals return at Zara, leading to speedier sell outs
Fast fashion retailers are characterized by abandoning traditional seasonal collections and leveraging their slick infrastructure to deliver high and frequent drops of newness. The cadence of deliveries across all market sectors was disrupted as factories closed due to COVID-19. This is evident in the fall of arrivals between March and June.
As the industry adjusted to the new normal, order cancellations due to sluggish sales saw arrivals struggle to return to pre-COVID levels. Over the three months ending in November, Zara is the only retailer from the analyzed range to see a YoY increase with arrivals up 11%. Arrivals are down 2% at Nasty Gal, 8% at H&M and 31% at Topshop compared to 2019.
Even with this higher injection of stock, Zara can sell through newness quicker. Of the new products arriving over the past month, majority of SKUs sold out in an average of eight days compared to an average of 12 at H&M.
Casualwear thrives at H&M while consumers seek dressier options at Zara
Both brands have starkly different marketing communications, with H&M’s emails often blurring men’s, women’s and childrenswear together to create a family-focused offer. In contrast, Zara sends more targeted and directional emails by age and gender.
With distinct consumer groups in mind, different products are sought after at each brand. Using EDITED’s Assortment tool, we can drill down on new arrivals within the past three months that sold out of their majority SKU’s over that period, revealing the most recent best performing products by brand. Tops and bottoms are the standout and delving further reveals this was fueled by strong demand for sweaters, T-shirts and sweatshirts. However, shirts equal 14% of tops sell outs at Zara and are less than 10% at H&M, indicating consumers are more likely to shop for dressier items from the former.
More telling evidence of this is by examining the bottoms category, where sweatpants are the best selling item for H&M while at Zara its trousers.
Outerwear follows these top two categories making up 17% of sell outs at Zara, outpacing H&M’s 9%. Following the success of its viral pink puffy house dress, dresses are a higher proportion of sell outs at H&M while accessories are nearly 10% of Zara’s sell outs.
Another bright spot for H&M is product sets, which are driven by sell outs in childrenswear. While Zara’s first intimates collection only adds a small percentage to its underwear offering, the range sold out of the majority of its SKUs in under a week.
H&M command lower price points for core items
Zara has a slightly bigger online offering, with currently 6% more products available than H&M. However, the pricing strategy at the two retailers varies dramatically. H&M’s advertised full prices for adult’s apparel spans from $2.99 for a short jersey top to $299 for a metallic-coated leather jacket. Meanwhile, Zara’s pricing ranges from $5.90 for a ribbed cropped top to $599 for a double-breasted leather coat. This puts the average price point for apparel at H&M at $32.28 vs. $54.13 at Zara.
The different pricing structures are even more visible when comparing one of the most competitive categories to emerge from the pandemic wardrobe: loungewear.
H&M’s most optioned price bracket in T-shirts is $10-$15, while $5-10 and $15-20 is given a similar weighting, offering more competitive price points in comparison to Zara, where most T-shirts sit between $15-20 and $20-25.
Both retailers favor distinct price points for hoodies and sweatpants to offer a matching set around the $100 mark. The majority of H&M’s assortment sits between $20-35 while Zara is more elevated, advertised at $35 onwards. With two distinct pricing categories in the market, quality and detailing will play an important role in consumer purchasing.
Discover the sweet spot for pricing across all categories with EDITED’s suite of pricing tools.
Opposing discounting strategies
A key differentiator between the retailers is their approach to sales. Zara has traditionally taken a subtler approach to reductions, only discounting during key sales periods while H&M takes more frequent and aggressive markdowns.
COVID-19 has forced both retailers to rethink their strategies, especially over Cyber Month, which presented itself as an opportunity to clear through stock built-up from the pandemic. In the recent Black Friday sales, Zara revised last year’s strategy, offering a greater proportion of products reduced with 27% discounted compared to 17%. Shallower markdowns were taken with the average advertised reduction sitting at 41% this year vs. 49% in 2019 to safeguard margins. This is also noted in Zara’s Black Friday communications which move from offering “50% off selected items” in 2019 to “Up to 40% off selected items” this year. By Cyber Monday, less than 10% of items are advertised as reduced.
H&M ran with the completely opposite strategy, discounting a smaller proportion of products than Zara yet at a deeper reduction rate of 44%.
Images via Zara Email US Nov 28 2019 & Nov 27 2020
They’re striving for a greener future
While both brands have built a fortune on affordable fast fashion, they are now working to reduce their environmental footprint with sustainable initiatives.
Last year, Zara set in place ambitious, longer-term goals. By 2023, the viscose used will be 100% sustainable. By 2025, all of its clothes will be made from 100% sustainable fabrics, 80% of Zara headquarters, factories and stores consumed energy will be from renewable sources and its facilities will produce zero landfill waste.
The H&M Foundation recently partnered with The Hong Kong Research Institute of Textiles and Apparel (HKRITA) and introduced the Green Machine, refining circular fashion by separating mixed fibers using heat, water and biodegradable chemicals to re-spin into new materials. The goal is to make the machine commercially viable and scale capacity by the end of 2021, starting with Monki piloting the process with a limited edition loungewear collection.
Both brands continue to introduce eco-friendly alternatives through their respective sustainable ranges. H&M’s latest Conscious drop for winter consists of eveningwear pieces crafted from sustainably sourced materials made from waste, including post-consumer carpet fiber, post-industrial plastic packaging and PET bottles.
While any actions tagged as “sustainable” by fast fashion retailers often invite skepticism and greenwashing claims, both retailers’ status in the market will automatically influence competitors to examine their environmental impact and work towards initiatives to benefit people and the planet.
Image via H&M Email US – Nov 19 2020
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