H&M is the latest victim of an alarming shift in consumer behavior

Popular clothing retailer H&M (HNNMY) which operates more than 500 stores in the US, is beginning to feel the brunt of a major shift in consumer behavior.

The retailer just revealed in its third quarter 2024 earnings report that its customers are starting to pull back on spending and that is having a negative impact on sales.

Related: Popular Fast Fashion Brand Raises Prices Amid Controversy

During the third quarter, H&M’s net sales in all regions fell by 3% compared to the same time period in 2023. In North and South America in particular, sales decreased by 2%. The company’s operating profit, which is how much money a company has left after paying expenses, also fell 26 percent.

“Consumer living costs remained high throughout the year, and at the same time we continue to see turbulence in the world around us,” H&M CEO Daniel Ervér said in the report. “External factors impacted our sales revenue and acquisition costs more than we expected.”

The retailer also claimed in the report that cold weather in “key” European markets negatively affected sales in June.

People shop at an H&M store in Herald Square on July 1, 2024 in New York City.

Michael M. Santiago/Getty Images

As H&M faces declining sales, the retailer plans to renovate around 250 stores worldwide and will close more stores than it plans to open.

“After reviewing priorities regarding things that do not strengthen the H&M brand or contribute to the long-term sales and profitability of each brand, additional stores have been identified for consolidation,” H&M said in its earnings report. “For 2024, the plan is to open about 100 new stores and close about 200 stores, making a net decrease of about 100 stores. Most openings will be in growth markets, while closures will be primarily in established markets.”

More retail:

• Macy’s store closings can unlock valuable real estate
• Target CEO tackles a growing problem in retail
• Latin America’s version of Amazon is taking on e-retail

Despite the drop in sales, H&M expects September sales to rise 11% year-on-year thanks to its “very well-received” autumn collection, which is fronted by stars such as Charli XCX, Lila Moss and Arca . .

The retailer also reportedly plans to lower prices at its stores as it expects the cost of discounts to increase year-over-year in the fourth quarter.

Consumers are ditching retailers for second-hand clothing

As many consumers across the country struggle with high inflation and a higher cost of living, many have cut back on clothing spending and opted to buy second-hand clothing instead.

According to a recent report by online retailer ThredUp, it found that consumers, on average, plan to buy 7% fewer full-price clothing items in 2024 than they did in 2023. Also, 55% of consumers say that if I don’t. see an improvement in the economy, they will spend a greater proportion of their clothing budget on second-hand clothing.

The report predicts that the US used clothing market will be valued at $150 billion by 2028. It is currently worth $100 billion.

Related: Veteran fund manager sees world of pain coming for stocks