from the wall street journal this weekend...this is awesome news...im glad the contracts have been signed!!
AS COMPETITION AMONG low-cost clothing retailers heats up, Swedish fashion giant Hennes & Mauritz AB is putting the finishing touches on a new and pricier brand of clothing in a bid to offset slowing sales growth at its mainstream stores. In line with rivals like Industria de Diseno Textil SA, or Inditex, of Spain, H&M plans to launch a chain of stores under a separate brand name as it seeks new avenues for revenue growth. The plan highlights increasing competition in the budget sector and increasing saturation in some Western European markets. H&M hasn''t yet provided details of its proposed brand, saying only that it will open shops that offer more expensive products and more personal service, starting with 10 stores in selected markets next year. Contracts have been signed forstore locations in London and Hamburg -- Germany''s second-biggest city -- as well as in the Netherlands and Belgium. The U.S. will follow further down the line. "We''re currently working on the name and registration" of the new brand, H&M Marketing Director Jorgen Andersson said. The new chain is a bold step for H&M, known for low-price fashions and high-profile collaborations with designers Karl Lagerfeld, Stella McCartney, and now Dutch design duo Viktor & Rolf, who launched their new collection for the retailer two weeks ago. Having grown into a global colossus by appealing to a young and cost-aware audience, H&M has seen its sales growth slow in recent months. The company reported a 3% rise in October sales at stores open for more than a year but saw growth of only 1.7% for the first 10 months of 2006 compared with a year earlier. H&M is losing ground to Inditex, which has more brands in higher price levels and more rapid geographical expansion at home in southern Europe and in fast-growing Asian markets. H&M wants to broaden its own business to capture more mature consumers with more money to spend and earn more from each sale. The midpoint is tricky to balance, however, and it is crowded with experienced companies, such as Dolce & Gabbana, with its D&G line; Gianni Versace SpA, which recently refocused its lower-end Versus line on higher-margin accessories; and Emporio Armani, a brand of the Armani Group. These companies are spending millions on massive marketing campaigns. But H&M has the financial muscles -- through strong cash flow and profits -- to spend as much as upmarket players on marketing and public relations. In its 59 years, H&M''s fashion events and marketing campaigns have been well received. Moreover, it has managed to increase efficiency in its purchasing and is flexible in its sourcing: It can quickly change suppliers and even sourcing countries.H&M sales rose 14% to 32.13 billion Swedish kronor ($4.53 billion) during the first half of its fiscal year, which ended May 31, from 28.1 billion kronor in 2005, the latest comparable figures available. Its stock price rose 7.1% to 269.50 kronor in that period. Since then, H&M shares have risen 21% to settle at 326 kronor Thursday in Stockholm. "It''s tough for [H&M], and they''re being forced to try new concepts," said retail analyst Lauren Van Nostrand of U.K. retail-research firm Verdict Research. Inditex''s sales rose 23% to 3.48 billion euros ($4.47 billion) for the half to July 31, from 2.82 billion euros a year earlier. During the same period, Inditex shares rose 12% to 34.01 euros. Since then, they have risen 18% to settle Thursday at 40.08 euros. Mattias Karlkjell, a Stockholm-based retail-sector analyst at Norwegian investment bank ABG Sundal Collier ASA, expects an eventual slowdown in the expansion of regular H&M stores asthe number reaches roughly 3,000 from about 1,320 now. H&M expects sales growth of 10% to 15% a year but hasn''t given a specific forecast of the number of stores it will open. "The growth will naturally slow . . . [and] in 10 years the new chain may take over as H&M''s growth arm," he said. "The new stores will probably offer the same quality as premium brands, but with a higher fashion level and at lower prices." Mr. Karlkjell expects prices 50% to 100% above H&M''s staple clothing. "I see very good suits with the right cut, like Hugo Boss, but at half the price," he added. Analysts say designer collaborations have strengthened H&M''s reputation in the high-fashion industry, and a move upmarket is the next step. "H&M wants to broaden itself with the new chain," said Pekka Lindberg, an independent retail consultant. "H&M has launched the designer collaborations to be able to charge higher prices. It has invested strongly in raising the quality level to make the whole range look a little better." Mr. Lindberg said H&M may even follow Zara''s lead and open home-furnishing stores. While some analysts warn of pitfalls of diversifying into the midprice clothing segment or home furnishings, most welcome the move. "Niche players in the [midprice] segment do really well. Retailers such as Reiss in the U.K. are more immune to a downturn in the market as their customers have more money to spend," said Verdict Research''s Ms. Van Nostrand, commenting on the U.K., H&M''s largest market after Germany and Sweden. H&M says it will take the concept of the new chain to major cities where the company has an efficient supply system. "Margins will be better as the marginal investment will be very low, and they will expand the concept cautiously in steps," said Peter Wallin, an analyst with investment bank Kaupthing Bank in Stockholm. He said H&M overspent when it entered the U.S. in 2000. "That caused a high return-on-equity to dip. Since then they have been more cautious in establishing themselves in new markets." Ms. Van Nostrand of Verdict Research said broadening H&M''s customer base with more expensive products will help support the gross margin, as higher prices H&M can charge for the garments more than offset costs for the goods sold. "There is reason for them to sell one garment at a higher price than selling more cheaper products," she said, citing the lower cost of sourcing from suppliers in Asia. "The midprice segment is growing successfully, and we think we can do it better than others," said Mr. Andersson of H&M. "We''re a growth company, and growth companies all love making even more money, but how do we do that if we rely only on H&M?"