H&M opens a flagship store on Pinduoduo, why?

Swedish fashion H&M has opened a flagship store on … Pinduoduo.

H&M became one of the few brands that operate flagship stores on the Pinduoduo platform. Its products are participating in Pinduoduo’s “10 billion RMB subsidies” programme (explained below) and other price-lowering tactics:

Brands vs Pinduoduo

It is an interesting development as for a long time, established brands shied away from Pinduoduo as it is seen as a place for cheap products with questionable quality.

We have covered Pinduoduo’s journey and strategy extensively in our Who is Temu report back in Feb 2023, and again in Temu: 2 years on report released last month.

As Pinduoduo grew in user numbers by the tens of millions, it undertook major initiatives such as “10 billion RMB subsidies” and “Pin brands” to promote new and established brands on the platform:

Pinduoduo operatives have also been sourcing for stocks of established brands across their vast distribution network in China, allowing the platform to sell items from Moutai liquor to Apple’s latest iPhone.

Most brands disliked having their goods being sold on Pinduoduo at a discount, however they could do little to control their distributors and resellers, who might want quick cash turnaround. Tesla was one of the only brands which fought back effectively, but that was because Tesla did not have a distribution network (it sold directly to consumers).

In recent years, many brands, facing the reality of Pinduoduo’s massive consumer traffic, started working with Pinduoduo, often by offering a different assortment of goods in order not to cannibalise the brand margins. Brand flagships remained rare.

H&M’s challenges

While in China H&M does not face intense competition from SHEIN (because these players sell cross border outside China), it is in an even more fierce competitive environment powered by the supplier chain that enabled SHEIN.

While H&M’s share price is flat year to date (as of 30 Sept), it certainly has gone through a lot of turbulence, as you would have read in the press after each earnings announcement.

 

Concerns about H&M’s performance were centred around the company’s pledge to achieve a 10% operating margin in 2024. In June 2024, after announcing a disappointing set of quarterly results, CEO Daniel Ervér stood by the 10% pledge but said it was harder to achieve.

The company gave up on the 10% target altogether last week, with Ervér saying that while the company would eventually reach that target, it would not happen in 2024.

H&M’s operating margin used to be almost 25% back in 2020, but has dropped to lower than 5% in some of the past few quarters:

When Ervér took over as CEO from Helena Helmersson in January 2024, he vowed “to create unbeatable value for our customers and profitable growth.” Whilst Helmersson, who quit after 4 years at the helm, said the job had been “very demanding” and she did not have the energy to continue.

The company has certainly focused a lot of attention on profitability lately. In recent years, H&M has also been reducing the number of stores globally, reversing the growth trends of the previous decade:

Plotted by ChatGPT4o

In China, H&M’s store count has reduced from more than 500 in 2019 to about 300 in 2024.

Its ecommerce operations also took a hit in 2021 because of the controversies surrounding Xinjiang cotton – Tmall and JD.com took H&M products off the platform for more than a year.

H&M needed to break through its downward trend.

H&M & Pinduoduo

We do not know what exactly were the considerations of H&M to open the flagship store on Pinduoduo: Tapping into Pinduoduo’s large consumer base? Boosting sales to reach year-end targets?

As of 6 pm on 1 October 2024, the H&M flagship store had 825 followers and 448 items sold – not very big numbers:

 

On 26 September 2024, H&M’s Douyin account hosted the brand’s first live commerce session on the platform.

The Douyin store has 68,000 followers, but only 433 items sold … yet:

It is a long and bumpy road ahead.