H&M plays catch-upTuesday, 09 October 2012
H&M records twice the sales volume per store as its Spanish competitor Inditex, yet sales growth has been disappointing. Inditex is growing at a tremendous rate. It is H&M CEO Karl-Johan Persson's intention to minimize the gap between the world's
two leading fashion companies.
It made the news the world over before the first design had even seen the light of day. Hennes & Mauritz was launching a new fashion chain. Months of painstaking secrecy had been rendered redundant in one fell swoop as the respected Swedish daily newspaper Dagens Industri revealed the news. The company confirmed the story three days later; a small statement at the bottom of a press release accompanying the quarterly report. Meanwhile, the name of the new enterprise has also been leaked: &Other Stories. As have the locations of the new headquarters: Paris and Stockholm. And the name of the Head of Design: Anna Teurnell. The launch date is slated for spring 2013. Any other information is being withheld 'until we are closer to the launch date,' says a spokesman.
With &Other Stories, H&M hopes to surpass the success of COS. A success for which Karl-Johan Persson (37) is responsible. Persson has been heading up the company his grandfather Erling Persson founded in 1947 since 2009. Before becoming a director, Karl-Johan Persson was in charge of Expansion and Business Development. His most important task, both then and now, is to generate sales growth. Although the Swedish firm is considered by stock market analysts to be a safe and solid investment and dividend returns are described as 'generous', sales growth has been disappointing. The company records growth, but the growth is minimal. In 2011, revenues climbed 6 percent, but like-for-like sales dipped 1 percent. Last year's profit even dropped by 15 percent. The US and China proved to be the exception, with sales increases in the first half of 2012 of 36 and 60 percent and with 8 and 19 new store openings respectively. Germany - with almost 400 stores easily H&M's largest market - recorded stable sales. Despite new stores still opening, the German market is in fact mature. Major growth in that country is no longer a possibility unless H&M introduces new formulas.
COS (Collection of Style) was launched in March 2007 with the opening of its first store on London's Regent Street. The new retail concept operates as an independent company, but benefits from H&M's know-how and network. Its headquarters are located in London and it took four years before the chain opened a store on home turf. COS's success surpassed H&M's expectations. COS provides rather minimalistic fashion men, women and children and the price point is higher than that of H&M. Although Hennes & Mauritz does not reveal the sales results of its individual formulas, it has repeatedly admitted to being 'surprised' by the chain. The speed at which it opens new stores - COS currently operates 54 shops - is a reliable benchmark. Also telling was the rapid opening of a shop-in-shop channel, with the first opening in Selfridges in 2009.
Fabric Scandinavien is another example of Persson's multi-brand strategy to generate sales growth. After acquiring a majority stake in the company in 2008, H&M took full ownership in 2010, adding three young, hip labels to its stable. The acquisition of the brands Weekday, Cheap Monday and Monki turned out to be solid investments, with growth across the board.
And yet Spain's Inditex still outperforms H&M. While Hennes & Mauritz has seen its market value more than double over the past ten years, Inditex's quadrupled during the same time span.
H&M stores are often far bigger than those owned by Inditex. The world's largest H&M store thus far is slated to open in New York next year and occupies over 5000 square meters. Zara's biggest stores, in Rome and New York, cover 3000 square meters. And although H&M records more sales and profits per store, Zara has enjoyed consistent sales growth, with an increase of 4 percent in 2011 compared to H&M's drop of 1 precent during the same period.
br/> In 2009, H&M introduced a home collection. Initially only available online and via catalogue, the first physical store followed in 2010. Meanwhile, Zara has had a successful home collection since 2003. It currently counts 315 stores, while H&M continues to lag behind. The same applies to H&M's offering of shoes and accessories. Compared with Zara's pricier accessories chain Uterqüe (from 2008), the differences are quickly apparent. In that respect, COS is much more successful. The Swedish chain was also quite late to jump on the diversification-strategy bandwagon. Inditex began the process around twenty years ago, with the addition of Pull & Bear and Massimo Dutti in 1991 to its existing Zara chain.
COS will therefore set the example for &Other Stories. Just like COS the new chain will operate independently and in a higher price bracket. During the annual shareholder's conference in May, Karl-Johan Persson said that &Other Stories could also learn from the mistakes made with COS in the start-up phase. For although it could rely on H&M for logistics, distribution and IT, it had to start production from scratch. H&M produces mainly in Asia, COS in Europe. COS also waited a considerably long time to open a webshop, which has now been in operation for a year. The new chain will see a faster growth pace.
|Turnover 2011 (Euros)||12.4 billion||13.8 billion|
|Net profit 2011||1.4 billion||1.9 billion|
|Number of stores||2472||5527|
|Annual turnover per store||5.0 million||2.5 million|
|Monthly turnover per store||418 thousand||208 thousand|
|Profit per month per store||47 thousand||29 thousand|
**Inditex 2011 Annual Report