Oct. 4 (Bloomberg) -- Hennes & Mauritz AB, Europe’s second- largest clothing retailer, plans to step up the expansion of its new brands in Asia, anticipating that Chinese consumers will favor more-expensive labels such as Monki and COS.
H&M is looking at locations in Hong Kong for the upmarket COS brand, Pernilla Wohlfahrt, head of new business at Stockholm-based H&M, said in a telephone interview. Hong Kong “could be a testing ground for China,” she said.
H&M is adding stores in China more rapidly than anywhere else, turning to the world’s fastest-growing major economy to help reverse falling profit. The retailer opened its first Monki outlet in Hong Kong a year ago, having gained control of the brand’s owner and two other labels in 2008. Larger rival Inditex SA has eight brands, including Zara and Bershka, and has opened 150 Chinese stores in five years, compared with 61 for H&M.
“We are seeing very healthy growth across the newer business,” said Wohlfahrt, who oversees H&M’s Monki, Weekday, Cheap Monday, COS and H&M Home units. “All these brands have a great opportunity to grow.”
H&M, which last week reported a 17 percent decline in third-quarter earnings, aims to increase its overall store space by 10 percent to 15 percent annually and hasn’t specified targets for individual brands for next year. The brands currently account for almost 5 percent of H&M’s 2,325 stores.
H&M shares have trailed Arteixo, Spain-based Inditex this year, dropping 10 percent compared with a 12 percent gain for its main rival. Inditex sources a lower proportion of clothing than its rival in Asia, where labor costs have soared.
H&M has opened fewer than 10 stores for the newer brands this year after adding more than 30 last year.
“We expanded very aggressively last year, and we took things a little more slowly this year,” said Wohlfahrt. “We can start growing again.”
H&M took full control of FaBric Scandinavien, the owner of the Weekday, Monki and Cheap Monday brands, in November, having acquired 60 percent in 2008. The company has tripled the number of stores for the three brands to 69 since it first bought a stake. Cheap Monday apparel is sold in almost 40 countries and 1,800 stores, including Selfridges department stores. H&M Home, introduced in 2009, is sold at eight stores and online.
While H&M sells dresses for less than 15 euros ($20.18), Monki advertizes 50-euro biker-boots and duffle coats for 120 euros. Weekday offers 140-euro capes, while COS sells merino- knit dresses for 79 euros and leather trousers for 250 euros.
The newer brands have “strong” potential and sales growth of COS, Monki and Weekday should be above the group average, according to Anne Critchlow, an analyst at Societe Generale in London. She doesn’t have individual estimates for the brands and has a “buy” recommendation on H&M stock.
--Editors: Paul Jarvis, Heather Harris.
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