The Taming of a Teen Emporium

Issue 04-10-17   |   Reviewer:   Bob Cohen, MBA


Faced with falling profit amid competition, Swedish retailer H&M is bolstering its portfolio of niche brands. It is betting that outlets such as COS 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, versus 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 flagship brand comes as H&M's margins have been narrowing. Goods from Asian suppliers have become more expensive, pushing net profit down. And with increasing competition, H&M has had to resort to deeper discounts to clear its shelves. "When you've got a very mature brand, you reach a point where it becomes challenging to keep up growth," says an analyst at GlobalData Plc in London.

That has spurred the multibrand effort, which largely emulates a strategy the world's No. 1 fashion retailer, Inditex SA, has pursued since 1991. H&M, by contrast, only started diversifying in 2007. Industry analyst Cédric Rossi says Zara is more fashion-focused, 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. H&M says it's working to reduce lead times so fresh products get to stores more quickly. And it says it's automating warehouses and improving data collection so shortages and overruns can be addressed more quickly—reducing the need for margin-busting markdowns. Also, with continued overcrowding of "[y]oung value fashion," the company's Arket brand can target different niches at the top end—where customers have more resources and prices are higher.

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