H&M’s $4.3 Billion of Obsolete Inventory – And How You Can Avoid It

The market of fast fashion is exactly that – fast, and H&M is having a hard time keeping up. Competitors like ASOS and Boohoo have cut down their supply chains to between two to four weeks. In contrast, H&M is falling behind with a six month turnaround time. Although H&M was once a top performer and pioneer of fast fashion, operating profit went down 62% in the first quarter of 2018.

Also, H&M was late to the e-commerce game. Shopping habits are moving more and more online, but this is an area where H&M is lacking. The reality is that they’re not the cheapest or the trendiest brand. Between this and the online shortcomings, H&M is running into problems.

Their latest is a $4.3 billion inventory problem. That’s the value of unsold inventory they’re currently holding. But how did this even happen? With 220 new stores opening and an expansion in e-commerce, more stock was needed. However, H&M greatly overestimated just how much they’d need.

Now, H&M needs to get rid of the $4.3 billion worth of unwanted inventory. There are plans to slash prices further and even talk of burning stock. There’s even a power plant in Sweden burns defective H&M items instead of coal. Obsolete inventory comes with carrying costs that can mean huge losses for a firm. Here’s three ways you can avoid it:

Lower Lead Times

Lead times are crucial to all firms, but especially to H&M given the nature of their operations. Focusing on trendier pieces, it’s vital to get items out before the world moves on to the next big thing.

Your firm may not be under the same pressure, but obsolete inventory piling up is still very costly. With lower lead times, you can streamline your supply chain. As a result, this will help you react quicker and avoid obsolete stock.

Improve Forecasting

Since they were opening new stores and expanding their e-commerce site, H&M also ramped up production. However, they clearly did not accurately forecast the demand for their products. This is a vital aspect of avoiding obsolete inventory. You have to keep in mind that at the end of a product’s life cycle, it will no longer sell.

This is also where an inventory management system comes in. You can use these solutions to forecast demand and make real-time decisions. Don’t forget that there are many factors that affect demand, which brings us to our next point.

Better Quality and Design

These days, competition in the fast fashion world is fierce. Stores like Zara and ASOS are known to quickly replicate runway trends on a large scale. In contrast, H&M is falling behind in quality, cost, and design. This can also have implicit costs such as damaging a firm’s reputation. As a result, H&M is alienating loyal customers and not attracting new ones.

If the quality and design of a product is poor, demand will quickly decline. As a result, you may be left with large amounts of obsolete inventory. What differentiates you from your competitors? Are the quality and design of your products meeting customer expectations?

 

There’s a lot we can learn from this inventory fiasco. Obsolete stock comes with a price tag, both in the stock itself and the cost of holding it. Carrying costs consist of storage, depreciation, labour, disposal, and more. With these tips, you can avoid obsolete inventory and the costs that come with it.