From Sweden with Love and Style
By George Anderson
The same thing happens every time H&M opens a store in the states. Long lines of people
queue up waiting for the doors to open and the shopping and saving to begin.
The Swedish retailer, reports the Star Tribune, will open its first store in Minneapolis at the Mall of America tomorrow and crowds are expected.
“If history is any indication, the store will be packed with some very aggressive shoppers,” said Wendy Farina, director of strategic consumer intelligence at Kurt Salmon Associates
in New York.
The unit, measuring 26,000 square-feet, will be stocked with designer or runway knockoffs at prices that are in a word — cheap.
“It hits the mark in terms of getting you everything you could want from the fashion magazines,” said Sara Rogers, a trend specialist at the Mall of America.
Consumers can buy sunglasses that appear as though they are straight out of the Gucci catalog for under $6, reports the Star Tribune. Velveteen jackets are priced about
a third of what consumers, mostly young, fashion-conscious and cash-strapped, would pay at a department or higher end specialty shop.
Some question whether the quality of goods will take some of the luster off H&M’s appeal.
“My own take is their merchandise is poorly made, it’s cheap and I wouldn’t buy it,” said Richard Hodos, president of the retail consulting firm of Madison HGCD. “They’re doing
well, but their stores may be a bit too fast for the Midwestern shopper.”
H&M spokeswoman Lisa Sandberg said some assume the chain’s low prices mean lower quality goods, but that is not the case. “If people go in and look at the clothes and wear
them, they’ll find out that they stand up to time,” she said.
Salmon Associates’s Farina said H&M’s appeal “Isn’t about the quality. It’s about having something that’s hot this season and getting it now.”
Moderator’s Comment: Is H&M the clothing version of Krispy Kreme, as some suggest, or does the store and its merchandising concept have staying power?
What do you see as its strengths and vulnerabilities? –
George Anderson – Moderator
As Wendy Farina says, H&M is “about having something that is hot this season and getting it now.” That sounds rather Krispy Kreme to me. But if H&M can keep doing that season after season, they will have a key retailing niche.
Swedish retailers are a resourceful bunch. Furniture icon, IKEA, offers a 99 cent breakfast in their giant furniture store across from the Mall of America and they draw daily crowds of between 200 and 600 people daily who also get exposure to IKEA’s offering. That’s another example of “getting it now.” If H&M is perceived to be delivering value and timeliness, then the “quality” argument will become moot or, at least, less meaningful.
H&M started in 1947, has 1,000 stores in over 20 countries, and opens 10% to 15% more locations each year. In the past 4 years, sales rose 76%, locations rose 57%, and profit rose 185%. In 2004, their profit after tax was 12% of sales, with a return on equity of 34% and almost no debt. 90% of the sales are outside Sweden. So they don’t seem to resemble Krispy Kreme. Like Ikea, they “design the price first.” Step 2: they get a “great look at a great price.” They claim the Karl Lagerfeld For H&M line is doing well, but they certainly don’t just depend on him. When fashion sense, sourcing, and pricing are all outstanding, a retailer’s financials just can’t be beat. And their customers have loved them for 58 years. What 50-year old US retailers sport the growth and financial strength of H&M?
H&M will need to remain as nimble, as they have been to date, and make sure to keep up with current trends and styles, as they have done so far. The other risk they run is trying to be everything to everyone. Old Navy ran into trouble when “moms” started buying their clothes and kids no longer wanted to be seen wearing the same thing as their mothers and avoided the store. I know a few too many middle-aged women who now shop at H&M for them to remain the arbiters of hip for younger people. They need to maintain their edginess. Regarding the quality issue: these women can afford more expensive clothes; they choose to shop at H&M. I think the store has successfully delivered value.
I personally think H&M has a lot to offer in terms of in-store experience. The company has kept up with market trends and is fully aware of the competition out there. It is the boldness of the management and merchandising team that truly impresses me. Good luck guys.