Malls and landlords which wooed them with lower rentals and free fixtures nearly two years ago are now bargaining with the fast fashion brand to cut store size and increase rent.
Sales growth at Hennes & Mauritz (H&M), the Swedish fashion retailer has worsened every quarter over the past year in India, indicating waning demand for its merchandise even as it opened stores at an average of one a month. Malls and landlords which wooed them with lower rentals and free fixtures nearly two years ago are now bargaining with the fast fashion brand to cut store size and increase rent as they see shrinking revenue growth.
During first quarter ended February 2018, H&M India grew 21%, a sharp fall from 188% same period a year ago and more than 100% in the sequential quarters, as per H&M global investor presentations.
Last week, the world's second largest clothing brand said it was stuck with $4.3 billion pile of unsold shirts, dresses & accessories globally. For stores opened more than a year ago, sales have been flat or declined by around 20% as the initial euphoria for the brand tapered off and newer stores opened in the vicinity, say executives of half a dozen prominent malls that have revenue-sharing agreement with H&M.
"If the fashion anchor you bring in on relaxed terms hoping it will help the mall grow but starts de-growing instead, it is a big concern," said a top mall executive in Mumbai that has H&M as an anchor store. Some are working on tweaking store sizes. For instance, DLF, the owner of Mall of India in Noida have asked H&M to slash its store size by a fourth, say sources. Janne Einola, country manager for H&M in India, denied it.
"In the last year with the expansion in tier 2 and 3 markets and subsequent stores in the same city, there are bound to be differences in the sales versus the top malls and cities in the country where we opened in the first year, we see this as a natural expansion phase." H&M turned profitable in its first year of operations in India and clocked significantly higher sales than largest rival Zara in its first year in the country. And unlike its Spanish rival that entered India more than seven years ago and now has over 20 outlets, H&M has been far more aggressive opening about 29 stores even as it entered five years later.
Since its first store in October 2015, several marquee malls have been courting the Stockholm based retailer – offering large spaces, about 20-25-year leases and revenue sharing percent of 6%, half compared to other brands. Few malls even paid upfront for fit-outs for the stores.