H&M may crowned the king of “fast fashion,” but changes in certain markets means the group is being pushed into the slow lane by competitors such as Spain’s Zara. With competition hot on its heels H&M may face tough trading in markets such as Germany, where value-added tax rose to 19% on January 1st. Germany currently accounts for more than a quarter of H&M’s global sales. Analysts are uncertain how German consumers will react, but H&M is already experiencing a slowdown in trading. Sales in Germany fell by 4% in 2006 as more competitors moved in on H&M’s fast fashion territory. And prices are likely to go up due to the VAT change, further affecting demand. Some market watchers say H&M can prosper in Germany if it sticks to its core strategy of providing hip clothing coveted by young people and quickly reacting to trends it sees elsewhere.
While rivals may be closing in, H&M has a canny way of entering new markets and reacting to change.? Expansion in Asia will make up for potential troubles in in the European market, hence the company is aggressively expanding elsewhere. The company is planning to open stores in China and Hong Kong this year and in Tokyo in fall, 2008. “Japan is an exciting market for H&M, with fashion-conscious consumers with great spending power,” Chief Executive Rolf Eriksen said in a statement. “We see great opportunities for expansion in this part of the world.”
The company is also moving upscale. It is opening a new chain of stores with higher-end offerings this spring. And it is teaming up with pop singer Madonna to create a new range of clothing and accessories, called “M by Madonna,” to be available in all its stores this spring. Analysts remain cautious; most have had neutral recommendations on H&M stock for months. But the company’s share price has been inching up, from $41.68 in early October to $51.28 on Jan. 2. Sales for the first nine months of 2006 rose 11% to $7.2 billion.
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