H&M Defies Retail Gloom

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So far, it has proved a lucrative formula. Operating profits for the year ended Nov. 30, 2007, were up more than 20%, to $2.8 billion, on sales of $11.9 billion, up 14.5% from the previous year. Brokerage Sanford C. Bernstein estimates that 2008 operating profits will grow by nearly 15%, to $3.2 billion, and sales will rise 12.6%, to $13.4 billion.

Hoping to fuel future growth, H&M has added a number of new brands to its portfolio. In March 2007 it launched its first new retail brand, called COS (Collection of Style), in London. The new chain, which has now expanded to 12 stores in major European cities, is more upscale and targets an older customer than the core H&M brand, offering apparel and accessories for men and women at higher prices.

A Huge Potential

Last year, H&M also made its first acquisition since the company was founded in 1947, taking majority control of Sweden's Fabric Scandinavien in May. The four-year-old company owned two hip Swedish properties: Monki, a 12-store chain aimed at teenage girls, and the smaller Weekday, whose six stores sell a mix of outside labels and house brands such as über-trendy Cheap Monday jeans (which are also sold through 1,000 other retailers including Barneys New York). Both chains are still small in size and limited to Sweden, at least for now. But there's huge potential to make the new businesses more efficient and expand internationally by having access to H&M's sourcing and logistics, says Vinge.

By experimenting with new brands, H&M is taking a page from the playbook of rival Inditex. The Spanish group, which recently overtook Gap as the world's largest fashion retailer by sales, owns seven different brands including its flagship Zara chain. Many analysts reckon it's an approach that offers the best opportunity for growth. "The multiformat strategy allows mass fashion retailers to cover a broader market space, both in terms of price points and fashion content," says Luca Solca, senior research analyst at Sanford C. Bernstein in London. The challenge for H&M will be sustaining it, no matter what happens to the economy.

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Capell is a senior writer in BusinessWeek's London bureau .