Europe's Top Performers Go Global

Companies, such as retailers Inditex and H&M, are using the resiliency honed in famously inhospitable home markets to succeed overseas

by Carol Matlack

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It's not easy to sell clothes in Europe. Across much of the Continent, governments require shops to close on Sundays and often on weekday evenings as well. France lets stores hold only two sales per year, during specified days in January and July. Add to that a wobbly economy, high labor costs, and an average 19.5% built-in sales tax in the European Union, and the odds against succeeding in this business seem long indeed.

Yet some European fashion retailers are not only thriving at home, they're becoming global champions. Sweden's H&M Hennes & Mauritz (HMB.ST) and Spain's Inditex Group (ITX.F), owner of the Zara chain, invented a retail category—cheap-chic fashion—and are exporting it everywhere from Indianapolis to Shanghai. British apparel and housewares retailer Next Group (NXT.L), making its first major international push, plans to open at least 20 stores in China and Eastern Europe by the end of 2009. And Puma (PUMG.DE), a German maker of sports-inspired fashion, has built a global network of more than 100 stores that's growing at a rate of two stores a month.

These four are among 50 companies on this year's European BusinessWeek 50 list, our annual ranking of the region's best-performing businesses, based on an analysis of their sales growth and return on capital investment over the past three years. The list cuts a broad swath across the economy, from No.1 Deutsche Börse (DB1GN.DE), the Frankfurt-based stock exchange, to top consumer brands such as Nokia (NOK) and Nestlé (NESN.F), to lesser-known manufacturers of everything from dental implants to mining equipment.

Star Performers

Indeed, Corporate Europe remains surprisingly upbeat in the face of a strong euro and tighter credit, not to mention the region's famously inhospitable business climate. "European companies already have had to do a lot of restructuring and adaptation, and their resilience will support the economy going forward," says Marc Stocker, chief economist at BusinessEurope, a Brussels-based federation of business groups. "We see the possibility of [European economic growth] outperforming the U.S. for some time to come."

Every company on the list is a star performer—but the strength of Europe's mass-market fashion merchants is particularly striking. This business is notorious for fickle consumers, cutthroat competition, and hair-trigger sensitivity to economic slumps. Often, the fashions that home-country customers love are a flop in foreign markets, as U.S. retailer Gap (GPS) discovered to its dismay when European shoppers spurned its cotton T-shirts and unstructured jackets in favor of more tailored garments. Gap had to hustle up a European design studio staffed by local talent in 2006 (BusinessWeek.com, 6/8/06).

By contrast, the global expansion of Inditex and H&M has looked as smooth as the slinky dresses in their ads. The Spanish group now has 3,700 stores worldwide—including Zara, Massimo Dutti, and six other chains—and plans to open at least 560 more outlets this year. H&M opened 193 stores last year, including its first seven in China, bringing its global total to more than 1,500.

European Look

Speed gives H&M and Zara a big edge. Thanks to finely tuned supply chains, both companies can get new styles from the drafting table onto store racks in as little as two weeks, compared with a minimum two months for most competitors. The constantly updated stock keeps customers coming back again and again.