H&M Uses AI To Ride Fashion Cycle Wave

When H&M shares skyrocketed last month after the company reported a rise in the sale of full-price garments, it wasn't just a salute to the fashion sense of its designers; it was a clear sign that its backroom improvements are, at last, paying off.

H&M is the world’s second-biggest fashion conglomerate.

H&M is the world’s second-biggest fashion conglomerate.

The globe’s second-biggest fashion conglomerate is investing significantly in areas such as artificial intelligence and customer loyalty as it seeks to improve the method it uses to spot trends and plan logistics, and ultimately reduce discounted sales and piles of leftover unsold stock.

Arti Zeighami, H&M’s head of advanced analytics and artificial intelligence, stated the strategy is starting to bear fruit as the company funds new pilot projects that aim to use data to detect and match supply and demand more closely.

Allocating the right goods to the right stores in the right markets is one of the key projects we are working on. For 2019 we have huge plans for growing that and hopefully, by the end of next year, covering globally.
— Arti Zeighami, H&M’s head of advanced analytics and artificial intelligence

In this new era of social media, fashion companies have far less power to stimulate trends, which are coming and going much more quickly as influencers promote their "outfit of the day" on Instagram, Snapchat and other similar platforms.

This proves a major problem for H&M, which produces most of its garments in Asia. This is far from its major markets, making it less responsive to trend changes than its main rival Zara, which boasts it can get new designs to its stores in the space of a week. This has lead to H&M seeing stocks of unsold goods pile up over the past three years.

Similarly, sportswear brand Adidas confessed last month that it had been caught flat-footed when its suppliers failed to keep up with strong U.S. demand for its mid-priced clothing ranges.

In the quarter through February, inventories grew to a value of £3.3 billion, or 18.6 percent of sales, but H&M insisted they were made up of a higher share of clothes that are newer, and thus less likely to be sold at marked-down prices.

It has said this is a sign its overhaul is working, and it expects a improvements in buying and logistics to help it reduce inventories to between 12 and 14 percent of sales by the close of 2022.

At rival Zara, merchandising teams use data sourced from stores, web-pages and its official app to adapt their designs, in addition to insights from social media, returns and reviews, with the entire stock gradually being purged and then refreshed every four to five weeks.

However, unlike Zara, H&M also has a fast-growing customer loyalty scheme from which it is harvesting data, in addition to analysing information from social media.

This “club”, which membership doubled to 30 million in 2018, is in 16 of the H&M brand’s 71 markets and will add seven more, including the United States, by the end of the year.

Samuel Holst, head of the H&M Club, said another eight markets would be added in 2020 and he expected to maintain the membership growth rate.