H&M tries on multiple personalities to grow
Faced with falling profit amid competition from rivals such as Zara and Primark Stores, as well as online players like Amazon. com, Swedish retailing company H&M is beefing up its portfolio of niche brands. H&M is betting outlets such as COS (another creation of Hennes & Mauritz) can help expand its appeal beyond budget-conscious young shoppers.
The plan is to add 80 stores from the company’s half-dozen smaller brands this year, vs. 350 more H&M outlets. That includes a new concept called Arket, a higher-end shop with clothing, home goods, and a cafe serving Scandinavian-inspired dishes.
The push beyond the f lagship brand comes as H&M’s margins have been narrowing. Goods from Asian suppliers, priced in the strengthening US dollar, have become more expensive, pushing net profit down to 9.5% of sales today, vs. almost 26% in 2007. And with increasing competition, H&M has had to resort to deeper discounts to clear its shelves.
That has spurred the multibrand effort, which largely emulates a strategy the world’s No. 1 fashion retailer, Inditex, has pursued since 1991. The Spanish company owns Zara and seven other brands including the Italian-themed Massimo Dutti, teen-focused Bershka, and Oysho lingerie stores.
While Zara continues to account for two-thirds of Inditex revenue, it comprises just one-third of the company’s 7,300 stores. H&M, by contrast, only started diversifying in 2007, when it created COS. It added three more youth-oriented concepts in 2008 with the purchase of a Scandinavian retail group, then introduced the premium women’s wear line & Other Stories in 2013.
Those brands today make up less than 10% of the company’s almost 4,400 stores. While H&M doesn’t break out its revenue, Bryan, Garnier & Co. analyst Cédric Rossi says sales from the smaller brands account for about 5% of the total.
The new concepts aren’t a bad idea, Rossi says, but it’s more important to fix the flagship brand. He says Zara is more fashionfocused, and with factories in or near Europe, Inditex can respond faster to runway trends than H&M, which ships most of its goods from Asia.
The plan is to add 80 stores from the company’s half-dozen smaller brands this year, vs. 350 more H&M outlets. That includes a new concept called Arket, a higher-end shop with clothing, home goods, and a cafe serving Scandinavian-inspired dishes.
The push beyond the f lagship brand comes as H&M’s margins have been narrowing. Goods from Asian suppliers, priced in the strengthening US dollar, have become more expensive, pushing net profit down to 9.5% of sales today, vs. almost 26% in 2007. And with increasing competition, H&M has had to resort to deeper discounts to clear its shelves.
That has spurred the multibrand effort, which largely emulates a strategy the world’s No. 1 fashion retailer, Inditex, has pursued since 1991. The Spanish company owns Zara and seven other brands including the Italian-themed Massimo Dutti, teen-focused Bershka, and Oysho lingerie stores.
While Zara continues to account for two-thirds of Inditex revenue, it comprises just one-third of the company’s 7,300 stores. H&M, by contrast, only started diversifying in 2007, when it created COS. It added three more youth-oriented concepts in 2008 with the purchase of a Scandinavian retail group, then introduced the premium women’s wear line & Other Stories in 2013.
Those brands today make up less than 10% of the company’s almost 4,400 stores. While H&M doesn’t break out its revenue, Bryan, Garnier & Co. analyst Cédric Rossi says sales from the smaller brands account for about 5% of the total.
The new concepts aren’t a bad idea, Rossi says, but it’s more important to fix the flagship brand. He says Zara is more fashionfocused, and with factories in or near Europe, Inditex can respond faster to runway trends than H&M, which ships most of its goods from Asia.
