When H&M comes to town, Manhattanites queue up - Hennes og Mauritz A/S - Statistical Data Included

DSN Retailing Today, Nov 20, 2000 by Mike Duff

NEW YORK -- H&M is more than a phenomenon. It's a retailer with a plan for systematic and profitable expansion in the United States. Its latest moves include openings in New York City's Herald Square and in Poughkeepsie, N.Y., but this is certainly not the end of the company's planned roll out.

With 636 stores in 14 countries, the Stockholm-based retailer was the talk of the town in New York when it opened its first store on Fifth Avenue this spring. During the noon hour and after work, customers line up outside this store as if it was the hot night club of the moment. Only dedicated shoppers willing to shave a little time off the clock could get to the store before it became too crowded to enter on less than a shift basis.

H&M was subject to a number of magazine and newpaper articles immediately after its opening as young New Yorkers flocked to its initial location, attracted by its "disposable fashion." The description arose because the store had the sort of up-to-date styles trendy Gothamites wanted, but at a price that allowed rent-hobbled young people to update their wardrobes often.

The store's popularity grew from the same three elements that have made H&M a hit in major European markets: price, quality and fashion, said marketing director Christian Bagnoud. While U.S. discounters pride themselves on having developed trend-right styling, H&M is competing for customers with fashion leaders such as Prada.

H&M's prices can't exactly be considered remarkable, particuarly when its stores are in such high-rent locations. Forget about loss-leading and other euphamistic terms for operating unprofitably. Even though H&M only locates in top fashion districts and high-traffic malls, every store makes a profit, said Bagnoud.

In entering new markets, H&M tends to be opportunistic, and its move into America was no exception. The company had always planned to develop a U.S. location, and when it learned a location on Fifth Avenue, just north of Rockerfeller Center, was available, the company jumped on it.

Its second location in Manhattan opened Oct. 27 in another key, and pricey, location: 34th Street and Broadway, across from Macy's famed Herald Square location and adjacent to an HMV mega-music store, whose similar initials stand to confuse shoppers from the street-level perspective.

The 40,000-sq.-ft. tri-level store on 34th Street is the first in Manhattan to offer H&M's full range of departments.

In the Fifth Avenue store, limited space forced some tough decision making; rather than limiting the availability of product in men's and women's fashion apparel, H&M executives decided to drop children's and maternity.

Those departments are both available at Herald Square as well as at some of the company's other East Coast stores, including Poughkeepsie, N.Y., Paramus, N.J., West Nyack, N.Y., Albany, N.Y., New Hartford, N.Y., Syracuse, N.Y., and Springfield, Mass.

Bagnoud said that selections in the urban and suburban stores actually differ more than those between countries. For instance, H&M shoppers in New York, Geneva and London will see more similarities than will those in New York and Poughkeepsie. Essentially, the suburban locations include a more edited assortment without some of the more cutting-edge fashion items, he explained. Still, he added, about 95% of the collection is the same everywhere.

Rather than micromarket, H&M continually updates its assortment and carefully watches sales results to identify trends to follow. Not only does this permit the company to remain fashionable, it also generates excitement as customers know that there will be new merchandise available each time they visit the store, said Bagnoud.

The location of its various stores suggests H&M's expansion strategy. Only Paramus and West Nyack can truly be said to be in the New York City suburbs. Other stores are located outside the New York metro area, including in New England.

The company plans to expand southward, too, as well as filling out the New York metro area. H&M is targeting the Boston and Philadelphia markets for development next year, with other stores planned for Long Island and Connecticut. The company will open eight or nine new stores in the spring of 2001 and about 10 in autumn of the same year.

A radial distribution pattern is an element of the cost cutting that is an essential part of H&M's strategy. The company prides itself on its logistical sophistication and its attention to efficiency.

By developing contiguous regions, the company leverages its transportation and marketing costs, Bagnoud said. As for other elements of cost cutting, things are kept simple. For example, executives fly back and forth to Europe economy class. Every effort is made to cut fat from the system, he said.

This is true in development as well. All H&M fashion is private label developed by the company's 70 designers. Consequently, H&M can plan its entire assortment with an eye toward fulfilling its cost and profit goals. However, H&M designs its private-label program with multiple goals in mind. One is merchandising.