Hennes & Mauritz AB

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Hennes & Mauritz AB

Box 1421
SE-111 84 Stockholm
Sweden
+ 4608-7965500
Fax +4608-7965703
Web site: http://www.hm.com

Public Company
Incorporated: 1947 as Hennes
Employees: 17,000
Sales: SKr 26.6 billion (US $3.15 billion) (1998)
Stock Exchanges: Stockholm
NAIC: 452110 Department Stores; 454110 Mail-Order Houses

With more than 550 stores in 12 countries across Europe, Hennes & Mauritz AB (H&M) has quickly become one of the world’s most successful clothing retailers. Each year, the Sweden-based retail chain sells more than 300 million primarily company-designed garments and accessories, including cosmetics, worth some SKr 26.6 billion (US$3.15 billion). The company has been so successful at exporting its low-price, high-quality clothing fashions that more than 80 percent of its sales are realized outside of Sweden; in fact, since the mid-1990s, the company’s largest single market has been Germany, where the company’s 150 stores represent some 30 percent of total sales. H&M has also been expanding beyond Sweden with its catalog sales, operated under the name H&M Rowells, which remains limited to the Scandinavian market in the 1990s.

H&M’s steady growth—which has seen its sales double in the four years between 1994 and 1998—can be expected to continue, with new store openings averaging some 60 per year. The company has only just begun to tap its growth potential. In Germany, the company represents less than two percent of the total retail clothing market; H&M remains similarly limited in England, where the company’s market share is less than 0.5 percent.

H&M’s expansion has barely touched such major clothing markets as France, Italy, and Spain. The company has been moving to fill out its southern European map, however. In 1998 the company entered France with six stores in Paris. Spain was added to the list in 1999, with the proposed opening of three stores. H&M is also making its first forays into the United States, a market already somewhat crowded with retailers marketing a similar concept—fashionable, low-priced, quality clothing targeted especially at 25- to 3 5-year-olds but extended also to include children and mature shoppers. Plans to open the company’s first U.S. stores were announced in April 1999. In Europe, the company’s chief competition remains the Spain-based Zara chain, the U.S.-based Gap chain, and, to a more limited extent, Italy’s Benetton.

H&M operates under the strategy of“Fashion and quality at the best price.” H&M stores are closely guided from the company’s Stockholm headquarters to achieve a uniform concept—it is said that a sweater featured in a window display in London will be featured in exactly the same way in Reykjavik and all other H&M stores. Such control over its image has enabled H&M to build a consistent brand appeal throughout the wholly company-owned chain. H&M’s low-debt, cash-rich position enables it to respond quickly to developing trends. New clothing products are introduced on a near-daily basis—breaking the traditional seasonal stock rotation found in the retail clothing industry. Clothing items rarely remain on H&M’s shelves for more than a month; this rotation encourages repeat shopping.

H&M also controls the fashions featured in its stores: almost all of its clothing sales fall under the company’s own range of brand designs. The company employs a staff of more than 50 designers, who create the designs for such H&M brands as Hennes (which means “hers” in Swedish), Woman Collection, and LOGG, for women; Uptown; LOGG, and Contemporary for men; Rocky, Rocky Girl, and Impuls for teenagers; and Baby Baby, LOGG, Rocky, and C-Dept for children. The company also sells cosmetics under the H&M Cosmetics, FOB (Face of Beauty), ResQ, Steele, Magnum, and Basic Spa brand names. H&M does not manufacture its own clothing but instead works with some 1,600 suppliers, principally in Europe and Asia, under strict quality and other human resource standards. H&M continues to be majority controlled by the founding Persson family, who own some 70 percent of the company’s stock. In 1998, however, chief architect of the company’s expansion Stefan Persson was named the company’s executive chairman. In his stead as managing director, the company has placed Fabian Mansson, former buying director.

Forming a Fashion Empire in the 1940s

H&M was founded as Hennes in 1947 by Erling Persson. A former salesman and founder of another company, Pen-nspecialisten, in Vásterás, Sweden, Persson had discovered a new retail clothing store concept during a trip to the United States. Persson decided to import this retail concept—that of high turnover produced by low prices—to Sweden. From the first Hennes store, which featured exclusively women’s clothing, opened in Vasteras, Hennes expanded throughout Sweden, covering much of the country through the 1960s.

Hennes also began to export its low-price clothing concept, beginning with neighbor Norway in 1964, and joined by Denmark in 1967. By the end of the 1960s, Hennes looked to extend its range beyond women’s clothing. The company also sought further expansion in Stockholm. These two goals were fulfilled with the purchase, in 1968, of Mauritz Widforss, a hunting and gun shop on Stockholm’s Sergelgatan. As part of the purchase, Hennes also received a large stock of men’s—primarily sportswear—clothing items.

These were quickly added to the company’s retail offering; the company’s name was changed to Hennes & Mauritz to reflect its expanded product range. At the same time, Hennes & Mauritz added a line of children’s clothing to its stores, so that, by 1970, the company offered clothing for much of the family (two more segments, teenagers and babies, were added in 1976 and 1978, respectively). The Mauritz addition did more than add its name and expand the company’s clothing range. It helped transform the company’s product offering itself. The introduction of sportswear led the company to develop clothing that better reflected the spirit of the times, as a new generation of youth clamored for clothing that allowed them to express their individuality. H&M began to develop the casual, down-to-earth yet fashionable image that proved a success in its later expansion.

Seeking further growth, the company made a new acquisition in 1973, buying up fellow Swedish company Bekladnadskompaniet. In the next year, as H&M prepared further foreign growth, the company went public with a listing on the Stockholm stock exchange. The Persson family, however, retained the largest share of the company stock, leaving control securely in the family’s hands.

During the 1970s, H&M began to look beyond its Scandinavian base. In 1976 the company entered the British market—to mixed results. While H&M’s British growth long remained limited, reaching just 25 in the late 1990s, the company posted better results on the European continent. At home, the company acquired the Rowells mail-order company, which became the base for H&M Rowells, the company’s mail-order subsidiary.

The next move for H&M was to Switzerland, where the company’s stores quickly became a mainstay in that country’s major cities. Switzerland became one of H&M’s principal foreign markets. In 1980 H&M launched its first German store. The H&M concept somewhat revolutionized the German clothing retail market, which was described as having remained rather stodgy. H&M’s informality also raised some ripples in Germany, as employees were more than encouraged to drop the formal “Sie” form in their conversations with other employees. Nevertheless, the H&M concept caught on well with the German consumer at a time when few other retail brands existed on the German retail scene.

“Global Fashion” for the 1990s

A new generation took the lead of H&M when Erling Persson turned over the company’s managing director position to his son Stefan Persson. Under the younger Persson, H&M continued its international expansion, while retaining tight control of the H&M image. H&M continued to expand its presence in its existing markets throughout the 1980s, steadily opening new stores. By the 1990s, H&M would grow to become one of the largest retailers in Sweden and that country’s fifth largest company.

In the late 1980s, H&M attempted to diversify its brand line by opening the Galne Gunnar (Crazy Gunnar) chain of cut-price stores. After expanding the chain to 18 stores in Sweden, the company decided to abandon the concept after ten years, redeveloping the existing Galne Gunnar stores as H&M stores. Sticking with the H&M name appeared to be the most profitable future for the company. Growth of the H&M chain, particularly in foreign expansion, stepped up dramatically in the 1990s.

Company Perspectives:

H&M’s business concept is “Fashion and quality at the best price.” H&M has a design and buying department which creates H&M’s collections, making it possible to offer the latest fashions. H&M can ensure the best price by: having few middlemen; buying large volumes; having depth and breadth of knowledge within every aspect of textile production; buying the right goods from the right market; being cost-conscious at every stage; efficient distribution. A number of measures have been introduced to secure and raise the quality of the goods, and by tightening the quality standards, H&M has also succeeded in developing and improving its suppliers. H&M also has the resources to carry out careful and effective quality controls. In addition to good quality products, the quality concept also requires that the garments are manufactured without the use of environmentally hazardous chemicals or harmful substances and that they are produced under good working conditions.

The time was ripe for what Stefan Persson described as “global fashion.” Persson had been quick to recognize the emergence of fashions and trends—born of MTV, Hollywood, Madison Avenue advertising, and the Internet—that transcended national borders to become fads among youth and other age groups across the world. H&M, with its emphasis on uniformity among its stores, was well-positioned to appeal to this new generation of consumers. As a nod perhaps to the times, the company also created a new line of clothes, under the BiB (Big is Beautiful) brand name.

The company’s international expansion stepped up in earnest. After opening in the Netherlands in 1989, the company moved into Belgium (1992), Austria (1994), and Luxembourg (1996). By 1994, the company’s sales had topped SKr 13.5 billion; more than 70 percent of sales came from beyond Sweden. That same year the company’s German stores overtook Sweden to become H&M’s largest single market. By the end of the decade, Germany would represent more than double the company’s Swedish sales—despite H&M’s barely two percent of the German market.

International expansion continued in the second half of the 1990s, as the company opened some 60 or more stores per year. Finland was the next market to be tapped, in 1997; the following year, France became the company’s new frontier. In 1998 six H&M stores appeared in France, primarily in Paris and surrounding areas. Some analysts wondered whether H&M’s low-priced fashion concept would appeal to the more snobbish French clothing shopper, and questioned whether the company’s success among Northern European countries would translate to the southern European markets.

Indeed, H&M had remained notably absent from Italy and Spain, two of the most important European retail clothing markets—perhaps the company had sought to avoid head-to-head battles with similar concept brands Zara, of Spain, and Benetton, of Italy. Nonetheless, in April 1999, the company announced its intention to enter the Spanish market by the end of the year, with two or three as a start. At the same time, the company announced its intention to reinvigorate its struggling British operation, with calls for opening a large number of new stores and to update a number of its existing locations.

Throughout its history, H&M had remained entirely in its European base. In 1999, however, the company judged the time auspicious for a U.S. entry, with the first stores expected to open in early 2000. It remained to be seen if the company could successfully re-import the formula of low-priced, quality fashions that had provided the inspiration for its own beginnings more than 50 years before.

H&M Rowells.