The Brilliant Business Model Behind H&M's Clothes
>It's a brilliant piece of green marketing by H's corporate responsibility staff. But the company's number-crunchers deserve some credit, too; they have carefully constructed the program in a way that makes it hard for H to lose. For every bag of clothes (regardless of brand), the Swedish retailer gives a small discount. On its corporate website, H says it will offer E ($7. 70) Off purchase of at least EYE. On its U. S. Site, H promises a voucher for 15 percent off one item per bag of old knickers and pajamas, with a limit of two vouchers per day.
In other words, H is not granting discounts of more than 17 percent?and less as shoppers spend more. That's a commendable amount, but not overly generous for a company that routinely posts a gross profit margin around 60 percent and a net profit margin around 15 percent. H&M also sells the castoff clothes, subsidizing the discount further. Say a London customer donates a bag and then buys EYE worth of skinny Jeans and H&M's David Beckman-brand underwear.
If the retailer sells the used clothes for Just El, it has encoded Just E overall?a 10 percent discount, effectively?and is probably still in the black. H, which did not respond to phone calls and e-mails this morning, notes that revenue from the returned garments will be used to offset the rewards, but it will also donated to local charities and groups working on recycling innovation. Meanwhile, customers get to feel virtuous about shopping at H, a pitch that's been hard for the company to make in the wake of the garment factory fires in Bangladesh.
H&M, which has more of its clothes made in Bangladesh than any other apparel many, quickly agreed to sign a legally binding agreement to improve building safety there. H&M sustainability manager Henries Lamp told Bloomberg: "We don't want clothes to Decode waste, we want teem to Decode a resource Instead. " A resource n eye. The time it next reports earnings, H&M may have recycled a bunch of ratty old skinny jeans into revenue. If the recycling program functions correctly, it could help turn around H&M's same-store sales, which fell another 4 percent in the three months through May.