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H&M Is Leaning Into Discounts

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It has $4.3 billion worth of inventory it needs to get rid of.

Sale sign outside H&M Dan Kitwood/Getty Images

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For a while, it seemed like fast fashion was immune to the current retail apocalypse. Zara, for example, recently boasted surging sales and opened 183 stores this year, at a time when department stores and mall brands were hit with bankruptcies and store closures.

But not all fast fashion brands are created equal: H&M, the Swedish fast fashion giant, is having trouble selling its clothes.

On Thursday, in its quarterly earnings announcement, H&M reported that profits have declined 21 percent. It made $520 million from March to May. That’s plenty of successfully sold T-shirts and maxi dresses, but it doesn’t exactly reflect H&M’s huge footprint, seeing as it has 4,700 stores around the world. The news of its slipping sales comes three months after H&M admitted in March that it’s currently stuck with about $4.3 billion worth of unsold clothes. The company’s supply chain hasn’t kept up with shoppers’ migrating to the web, and so it’s left with mountains of inventory that it can’t sell.

“The first half of the year has been somewhat more challenging than we initially thought,” chief executive Karl-Johan Persson admitted to analysts.

H&M will now be marking down its clothes, according to Reuters. The company believes these cuts will appeal to shoppers already looking for steep discounts, and will simultaneously help it get rid of the inventory problem. Most of the clothes that will be marked down will be from the prior season, according to Bloomberg. But will shoppers buy last season’s unwanted stock at a discount when they can get more current trends at any of the other fast fashion chains?

H&M’s price-slashing strategy might help it get rid of a pile or two of pants and tees, but the fashion company has bigger problems. Its design and business strategy has actually slowed in comparison to competitors.

English fast fashion brands Asos and Boohoo, for example, can turn around trending product in two weeks, as can newer digital upstarts like the venture-backed Choosy. H&M, on the other hand, runs much of its production cycle on a six-month schedule, according to Footwear News. As fast fashion author and expert Elizabeth Cline wrote in the LA Times in April: “The chain is becoming irrelevant because warp-speed, low-priced clothing is now ubiquitous and sales have moved online. H&M, the founder of fast fashion, is now too slow.”

H&M has a turnaround strategy that involves focusing on its website, and on speedy shipping. Persson admitted H&M needs a digital transformation: “The fashion industry is changing fast. At the heart of the transformation is digitalization, and it is driving the need to transform and rethink faster and faster,” he said in a statement in January.

But the company has struggled with that, too. After tons of customers took to its Facebook page to complain about delays in receiving online orders, a customer representative admitted that a reboot of its online distribution platform had been delayed. Persson said Thursday that H&M will likely continue to see delays in its supply chain (and declining sales) as it continues to work on the kinks.

While these are certainly standard growing pains for any brick-and-mortar company reckoning with an undertaking like moving its business online, analysts have also pointed out that many of H&M’s stores are a disaster (something that Business Insider has covered with particular gusto). Retail analyst Pam Danziger recounted one telling H&M shopping experience that a customer shared with her:

“I went shopping over the holidays with my 22-year-old son (a pure millennial) and despite being a keen online aficionado, he prefers to go to a physical store when he wants to buy clothes. We entered the H&M store and exited within seconds. My son told me there was no way he was shopping there as the store was an absolute mess, clothes everywhere left by clients and with no merchandising to talk about and even less customer service.”

Danziger noted that the mother and son ended up going to Uniqlo because of its “clean store, nice merchandising (good lighting too), competent staff, and simple, well-cut basics.”

H&M announced earlier this year that it would be closing 170 stores, but there’s much more work to be done for the company to reclaim its place on the fast fashion throne (not to mention its need to own up to its environmental impact and wage disputes). There are certainly different winning formulas to help a retailer make a bang — selling luxury crystals? letting customers do their laundry while they shop? plants? It might just be worth giving any of those a whirl.