Bye flagships, hello boutiques? H&M invents the retail of the future

Last Friday, H&M began a phase of experimentation with its stores. The Swedish company, that is going through a difficult moment and making one move after another to remain strong in the global fashion contest, opened one of its smaller stores. If the test works, it could represent a change of course in the strategy of the group and of the sector, opening the debate of the expansion to smaller stores.

The company has opened a 300 square meters store in Berlin called H&M Mitte Garden. With it the company wants to explore how to make a global company local. As explained by Anna Bergare, business developer at H&M Laboratory (the innovation hub of the group), to WWD, it is a “hyperlocal” store. With pale green walls, wooden shelves and high vaulted ceilings, the place does not resemble at all the great cold spaces that H&M has in its traditional stores.

Sweatshirts or cotton jeans, so characteristic of the Swedish giant, are not the protagonists either. A selection of lifestyle items such as perfumes, bags or cosmetics from different niche brands, as well as vintage garments stand out among the product, while the store also has a space for juices, coffee and a garden. In the following months, the store will host yoga sessions and a Christmas market is planned for the Holiday season.

And what garments does H&M sell at the store? Few. H&M Mitte Garden only offers a selection of items from the main collection of the chain. The rest of the collection is available, of course, but only online, using two Microsoft Surface Pro touch screens installed locally.

It is not by accident that this experiment was carried out in Germany, the largest market of the Swedish group and where it has a large and somewhat outdated network of 468 stores. “It’s a test,” Bergare was quick to say the store opening “we know that in the next few years, half of retail sales will be digital - she added; the learnings of this project and other future projects will really contribute to that, we will have to wait and see.”

H&M has hit the key to re-attract consumers to stores and, above all, to make buyers fall in love again, retail is in the process of adaptation. Over the past few years, macro stores have become the preeminent model in the large fashion distribution, in an attempt to offer the most similar experience possible to that of online platforms, with greater depth and breadth of supply.

Inditex is one of the greatest examples of this strategy. The company launched a plan in 2012 to reorganize its store network, betting on fewer stores but with a larger area. Since then, the company has increased its commercial area by 57%, reaching 4.9 million square meters in 2018. The average area per store has increased from 511 square meters in 2008, to 526 meters in 2012 and 662 square meters in 2018. In the case of Zara, the increase is even greater. According to the company, the stores of the main Inditex chain opened in 2018 are 50% larger than those of 2012, with an average of 2,184 meters.

Mango, meanwhile, launched in 2013 a new concept of large-format stores, which the group calls megastore, matching with the company’s turn towards fast fashion. These stores have an area of between 800 square meters and 3,000 square meters and integrate all or much of the group’s collections. The company has about 200 stores with this format, although after making 16 openings in 2017 it has slowed its expansion.

Uniqlo has also followed this same strategy. The Fast Retailing chain has gone from 208 large-format stores in Japan 2015 to 230 stores of this type at the end of its last fiscal year. The company does not break down the type of Uniqlo stores abroad, but also outside its borders, the company has opted for large-format stores: that of Soho, in New York has 3,300 square meters, in London, 2,240 square meters and in Barcelona, 1,730 square meters.

“Flagships and macro stores are an invention of the real estate sector to sell huge stores where money is lost,” said David Nogué, founder of the real estate portal specialized in the analysis of retail stores Eixos, in the last edition of the real estate summit Barcelona Meeting Point.  

As online sales increases, it becomes more complex to make large-scale stores profitable, so the sector strives to find new kpis. Without specifying any indicator, Mango explains that when it opens a physical store (most of which are macro stores) it perceives an increase in orders in the local zip code.

“In the current context where physical stores share sales quota with their own online stores, it seeks to maximize the square meter of sales much more," says a retail consultant at Cushman&Wakefield.

The consultant explains that there are many firms that, due to their penetration or brand strength, even if they earn square meters, they cannot increase sales. “That’s why we talk about both the effort rates and not the value of the square meter,” he says.

“The H&M movement makes it clear that the future of retail is not just about flagships - says an executive with a long career in fashion; there is space for smaller stores that fulfill their function of connecting with the customer, with certain communities…”.