What's going on?

Swedish fashion retailer H&M has a problem: online shopping is taking over! Its stock dropped 5% on Thursday after its CEO partially blamed shoppers� shifting habits for a 20% drop in profits.

What does this mean?

H&M�s problem last quarter was as old as retail itself: it didn�t sell enough inventory and was forced to aggressively discount its products to move them before the autumn season. But the cause of its problem was very 21st century: people are increasingly shopping online, which is leading to fewer visitors to H&M stores and, consequently, slowing sales growth.

Why should I care?

For the market: H&M is stuck in the middle with� a heap of problems and no clear way out.

Some of H&M�s problems stem from being a middle-market player. It�s not as cheap as competitors like Primark and it hasn�t been as innovative online as new, ecommerce entrants such as Asos and Boohoo. Furthermore, its model � which has historically been dependent on in-store shoppers � may be fundamentally broken (see more below). H&M is trying to counter its middle-market issue by creating more upscale brands (like Arket, which just opened its own store on London�s Regent Street). And it says its digital sales should grow 25% this year (but it was late to move into ecommerce). Shoppers are moving on from its �brick and mortar� model, and H&M is playing catch-up while it tries to find its feet.

The bigger picture: The problems posed by online shopping are more complex than they appear.

It�s not just a functional matter of people buying their products from digital retailers. The issues are also experiential � consumers are increasingly more likely to go ice skating at a mall (and post a video of it on social media) than spend their time trying on clothes. As more money (and time) is spent on experiences, less is spent buying clothing.