H&M considering rolling out credit sales this year

● H&M South Africa is considering offering credit to customers — an unusual move for the largely cash retailer.

This is in spite of the recent debacle when the group’s “racist” advert triggered a global backlash. Following the trashing of six local H&M stores by the EFF, its stores were temporarily closed.

The prospect of extending credit in South Africa has been up for discussion for months, but country manager Par Darj wants to assess what proportion of sales could be credit sales and why some apparel retailers have reduced their exposure to credit.

The world’s second-largest clothing retailer has been flourishing in South Africa since it opened its first store in the V&A Waterfront in Cape Town in 2015, but has met with some challenges.

The retailer apologised for the advert, which features a five-year-old black boy from Sweden in a hoodie with the wording “Coolest Monkey in the Jungle”.

In 2015, the retailer was challenged for having no black models in its marketing materials.

The 70-year-old company now has 17 stores in South Africa — six opened in the past few months — and about 1 000 employees. Despite its small footprint it has been making inroads in the retail market along with foreign peers Cotton On and Zara.

Darj said: “We offer credit in some countries and we’re looking at it in South Africa. There’s a big discussion in South Africa about offering credit or not. We are not used to it, but we’re considering it and see it possibly being rolled out this year.”

Evan Walker, a fund manager at 36One Asset Management, said although the credit market has shrunk because of job losses and tighter credit regulations, credit would benefit H&M and would be another negative for competitors Truworths, TFG, Woolworths and Mr Price.

“This market is a little saturated with credit, but I think people will take up credit at H&M. It’s a phenomenal business and will probably do incrementally better because of it.” He expected credit to be managed through a third party.

Jean Pierre Verster, a portfolio manager at Fairtree Capital, said: “It’s quite a South African phenomenon that we sell a high percentage of product on credit.”

The high proportion of store cards in South Africa is a legacy of inequality. Retailers were happy to extend credit to a large part of the population because the price included gross margins, so the impact of nonpayment was reduced.

“It kicked off a fortuitous cycle. People proved to the apparel retailers that they were good payers and could build up a good credit record.

“The retailers, in turn, extended even more credit as they realised it would stimulate sales,” said Verster.

“It makes sense that a foreign entrant might have looked at this.”

Driven by demand from customers, Cotton On has been offering credit in South Africa for more than two years.

There’s a big discussion in SA about offering credit or not. We are not used to it