H&M, the largest clothing brand in the world, is shifting its attention towards artificial intelligence in an effort to win back shoppers while working to reverse one of the most severe sales slumps ever experienced.
Hennes & Mauritz AB’s retail chain is increasing its use of data in a bid to customize what it sells, particularly in individual stores.
This endeavor is intended to help the clothing brand break away from its past practice of stocking all its stores across the globe with the same merchandise.
Having been in operation for about 71 years, H&M is currently looking forward to dealing with the slump in similar store sales, which has existed for 10 straight quarters.
It plans to do so as it faces various challenges in the industry including the fierce competition that is emerging from digital startups and the limited number of customers visiting stores due to an increment in online shopping.
For this reason, H&M has slashed its prices severally in a move to clear out nearly $4 billion worth of unsold stock.
Like many other retailers, H&M depends on a team of designers to find out what shoppers are interested in buying.
Presently, the clothing brand is utilizing algorithms in carrying out various tasks including analyzing loyalty-card, returns and store receipts data in an effort to better align demand and supply.
The aim of this undertaking is to minimize markdowns and has led to some of its stores stocking fewer basics like leggings and T-shirts and more fashion.
Erik Sjostrom, Skandia Investment Management AB’s portfolio manager, said that currently, you are at risk if you do not have the right product at a reasonable price since a customer can search for the preferred product elsewhere around the globe.
Skandia is H&M’s longtime investor that is known for slashing its position in the clothing retailer to 2% of its total equity portfolio
According to FactSet, a data provider, analysts are still unsure whether the new strategy will help in pulling H&M out of its sales slump.
Furthermore, Richard Chamberlain, an RBC analyst, said that it seems to be a long road to recovery for the clothing retailer, as he looked at the heightened competition in the sector.
H&M marks the most recent retailer to try to win customers by leveraging technology. In fact, Inditex SA’s Zara chain of stores is utilizing robots to allow shoppers to pick up online orders in stores. On the other hand, Gap Inc. is depending on market-research data and Google analytics in monitoring consumer preferences.
However, consultants said that H&M ’s approach of leveraging granular data to customize merchandise in each store to the local tastes as opposed to taking a cookie-cutter strategy, which groups stores by size or location, is widely untested in the retail space.
Ludovica Dodero, Boston Consulting Group ’s principal, said that most entities are still used to making decisions that are not propelled by analytics, and instead make them on the basis of the manager ’s experience.
The task of getting every H&M store right is massive considering the store’s size. Specifically, the brand boasts about 4,288 stores in comparison to Gap’s and Zara’s 1,301 and 2,127 respectively.
H&M’s store in Ostermalm, a Stockholm-based posh residential neighborhood, hints at the importance of data.
Previously, the store focused on basics for children, women, and men with its managers assuming that was what local customers desired.
However, through the analysis of returns and purchases in an granular manner, the retailer found out that most of the customers were women. H&M also realized that fashion-focused items such as pastel-colored floral skirts for spring coupled with higher-priced items sold surprisingly well.
Late in 2017, H&M reduced the number of items sold in the store by a whopping 40%. In this case, the largest victim of the cut was menswear. In turn, the store added other things including a coffee shop, crockery, a kiosk vending flowers.
Currently, it stocks $107 cashmere sweaters coupled with the usual $12 shorts and $6 T-shirts. According to H&M, sales at the store have improved considerably even though it did not disclose any figures to support its claim.
During H&M ’s first-ever investor day back in February, its head of business development Daniel Claesson said that a relevant offer is all about being personalized and local.
In the physical world, this statement translates to the need to curate the company ’s assortment to each location.
Currently, H&M analyzes data on a wide scale from various sources including search engines and blog posts as opposed to relying only on its staff in a bid to identify trends three-eight months in advance.
H&M is also utilizing analytics to track back the purchasing patterns of each item in its stores thanks to the assistance of nearly 200 data engineers, analysts, and scientists.
The pool of data comprises information gathered from five billion visits to both its site and stores last year. The data also takes into account what the retailer scrapes or purchases from external sources.
The clothing chain takes advantage of algorithms to consider account factors like currency fluctuations as well as the cost of raw materials to make sure that goods are properly priced when they reach the stores.
Nils Vinge, H&M’s investor relations head, said that the algorithms not only work around the clock but also adjust constantly to the ever-changing expectations and behaviors of customers.
Michael Feindt, Blue Yonder’s founder, said that in some cases, the staff needs to be persuaded to depend on the numbers as opposed to gut instincts.
He added that although there is an overestimation of an individual’s potential and tastes, such can be extremely bad.
Instead, Feindt insisted that artificial intelligence is more unemotional, which is a good aspect.
H&M is not trying to phase out merchandizing heads, but instead, it is providing tools to inform their decisions better.
Even with the increased emphasis on data, it is important to note that it does not always lead to reasonable conclusions. Last year, algorithms recommended that H&M promotes reindeer-printed sweaters in January.
The executives had to adjust it to account for the Christmas duration. With that, H&M ’s Head of AI and Advanced Analytics Arti Zeighami is convinced that the use of algorithms is all about empowering the gut instincts.