Fashion retailers in Europe, US resilient despite consumer fears

A strong start to June for the world’s second-biggest fashion rtailer H&M, an optimistic outlook from Hugo Boss and a return to profitability at ASOS helped allay concerns over a sector hit by weakening US demand.

Signs of resilience came as a relief to investors concerned that economic uncertainty is driving shoppers in key markets like Europe, the US, and China to spend less on clothes.

However, squeezed consumers are being more selective with their apparel purchases, driving a wider divergence between brands.

“Retailers with a clear, distinctive brand and a very clear value proposition, where product quality is key, will emerge as the winners from a tougher environment,” said Erin Brookes, head of retail at consultancy Alvarez & Marsal.

Shares in H&M rose 3.5 percent as analysts forecast a stronger third quarter after flat sales from March to May.

H&M, which has lagged Zara owner Inditex, has sought to increase its fashion appeal and further develop its higher-priced brand Cos, targeting shoppers who are less vulnerable to a higher cost of living, as fast-fashion giant Shein takes market share with cheap clothes.

H&M’s sold-out collaboration with luxury brand Mugler could also help boost half-year earnings expected on June 29, according to Bank of America analysts.

ASOS, which is trying to recover from a sharp increase in inventory and debt, is also highly dependent on young shoppers who want the latest trends at low prices. Despite sales falling, it said its focus on profit per order was paying off.

The online retailer, bruised by shoppers return to physical stores post-pandemic, has cut stock since the start of the year and said it was removing unprofitable brands from its platform.

“Our experience in the current trading environment is that when we create a product that really resonates with our customers and is priced correctly, full-price sales are very strong,” ASOS said.

Highlighting the divergent fortunes of different brands in this uncertain environment, premium fashion retailer Hugo Boss raised its sales and profit targets for 2025 and said it continues to see strong growth in the US even as peers flagged weakness among “aspirational” shoppers there.

“While cracks are clearly visible in the US consumer environment and to a lesser extent in Europe, Hugo Boss has been immune so far,” Citi analysts said.