How H&M have transformed customer experience using global retail standards

In February 2018, shares in clothing giant H&M nosedived. Failure to keep up with online competitors led to a USD$4bn inventory problem and a 61 per cent slump in profits, causing stocks to drop to their lowest levels in a decade. But a year on, H&M’s latest annual report suggests things are beginning to head in the right direction.

H&M’s transformation efforts have been much publicised with the launch of concept stores, expansion of H&M Home and key investments in logistics and digital. What is less apparent to the average customer is the background role GS1 standards have played in the company’s turnaround.

Adopting industry standards opens up opportunities to trade

GS1 standards function to form a common language between trading partners so, until recently, it would’ve been rare for a vertical brand like H&M to adopt them.

However, in today’s globalised, multichannel retail landscape, many brands are finding there is a limit to the level of growth that can be achieved through a vertical footprint alone. The use of standardised identifiers is a basic trade requirement for many large retailers and likely came about due to H&M’s collaboration with Alibaba.

Switching to Global Trade Identification Numbers (GTINs), has enabled H&M to link to external platforms and trade with new retail partners, making their brands more accessible - and, the switch appears to have paid off. In 2018, H&M expanded its assortment on Tmall allowing them to increase their presence in the lucrative Chinese market resulting in 24 per cent regional growth.

Using EPC-RFID to improve inventory management

To address their challenge of over stocks and higher markdowns, H&M have been trialling Electronic Product Codes (EPC) in the form of Radio Frequency Identification (RFID) tags – the industry RFID standard maintained by GS1.

By giving each product a digital price tag, items with RFID can be located quickly and efficiently at a granular level. This enables retailers to move from twice-yearly stocktakes to weekly or even daily stock counts providing more accurate inventory records.

Research from GS1 UK and the University of Leicester, found that retailers using RFID had better visibility of stock which led to better merchandising decisions, in turn, driving profitability. H&M’s last quarter saw an improvement in full-price sales and reduction in end-of-season markdowns, which is consistent with the benefits achieved through greater precision and accuracy of inventory data.

Standards support global operations

Although H&M have not released the results of their RFID trials, their 2018 roll-out to 1,800 stores across 12 markets (with more to come in 2019) speaks volumes. And, when your RFID project spans multiple countries and millions of products, using an industry standard can be a key driver of success.

In apparel, RFID tags and readers communicate using ultra high frequency (UHF) radio waves. Each region has a different frequency range assigned to pick up UHF transmissions. Essentially, this means what will work in one part of the world may not work in another – a challenge when you’re a global brand. To tackle this, EPC/RFID has been designed to operate along the full UHF frequency range meaning the same RFID tag can be used anywhere in the world.

The benefits of this aren’t limited to global operations, it also extends to the supply of tags. The size of H&M and volume of product means that the company is likely to require multiple tag providers. A feat that is only possible when all your tag providers have a single technology standard they can all comply to.

Bridging the gap between online and offline

Online expansion and enhancing the customer experience has been a big focus for H&M as they attempt to recover market share lost to new online players. In addition to rolling out HM.com to new markets, integrating the online and offline world has been a key tenet of their transformation strategy. To support this H&M have done something quite revolutionary with their price tags.

If you’ve visited H&M recently (and happen to be a barcode geek), you may have noticed their barcodes have been replaced by a strangely pixelated rectangle. This is data matrix.

Similar to a QR code, data matrix is a 2D barcode that can hold an impressive amount of data. An EAN barcode will only hold numbers and a maximum of 13 characters. In contrast, data matrix will carry numbers and letters and could store an essay provided it was within the 4,500 character limit.

Typically, it is used to hold serialised-identifiers and supply chain data like batch numbers, factory identifiers, or information to support traceability or product authentication. While already in use in healthcare and food manufacturing, its use in apparel retail is rare due to the requirement of camera scanners to read at point of sale. That said, why have H&M chosen this particular route?

One small tag, many applications

Like many fashion businesses, H&M has a highly varied assortment. With products ranging from large coats to lip gloss, finding an RFID tag that will fit different product shapes and sizes can be a challenge. Data matrix can address this: 50 characters can be encoded into a symbol 2–3mm large meaning it can hold large amounts of data – like the serialised GTINs used for EPC-RFID – and maintain read quality even at small sizes.

Data matrix can also hold e-commerce data like a URL, meaning the same barcode can be used at the point of sale and to support the digital service offer.

The combination of up-to-date inventory data through RFID, and a tag that can be read in-store and online has enabled key innovations to improve the H&M customer experience and compete with new entrants to the market.

In 2018, H&M rolled out “Scan and Buy” to all 47 online markets: by scanning the data matrix, customers can seamlessly locate the product online and complete a purchase in the H&M app. Supported by accurate inventory data H&M have also introduced “In-Store Mode” in Sweden, Denmark, the UK and Ireland which allows customers to view exactly which items are in a specific store as well as online and to locate different sizes. These applications increase the chances of a shopper finding what they’re looking for, improving customer experience and H&M’s revenue.

GS1 standards - helping to put customer experience first

Reflecting on the year, H&M CEO Karl-Johan Persson commented that: “Against a backdrop of rapid changes in the fashion industry, in 2018 we accelerated our transformation to future proof our business, ending a challenging year for the H&M Group and the sector with strong signals that we are on track.”

By putting the customer experience first and establishing a stable technology foundation built on GS1 standards, H&M are laying the groundwork for a scalable and profitable business.

If you would like to find out how to implement RFID for your business, check out our RFID toolkit here.

Related

GS1 UK and ONS join forces for incisive retail analysis

Poor product data impacts purchasing

Preparing for changes at the UK border