The fashion giant’s plan for a new premium fascia will open the door to a broader customer base.

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H&M’s revelation that it is to launch a new fascia prompted the sort of excitement in fashion normally reserved for the latest catwalk sensations.

The Swedish fashion giant has remained tight-lipped about its exact plans but confirmed the chain would be called & Other Stories. There was subsequently a flood of speculation about just what it would be - accessories, eco-fashion, plus size? The only sure thing is that H&M will have another string to its ever-impressive bow.

H&M has been expanding and segmenting over the past few years as it chases continued growth. It first deviated from the core H&M format in 2007 with the launch of Cos, or Collection of Style, an upmarket fascia which made its debut on London’s Regent Street.

Cos, which has proved popular with both fashion critics and customers, opened the doors to a new, more mature audience for H&M, whose core customer is aged between 18 and 30. Cos is now 50-stores strong and was the retailer’s star performer last year. H&M chief executive Karl-Johan Persson revealed it had exceeded both sales and profit expectations over the year.

More sub-brands arrived when in 2010 H&M bought fashion group Fabric Scandinavien, owner of young fashion brands Monki, Weekday and Cheap Monday. The brands serve a fashion-savvy audience that consumes fashion through indie stores, rather than big multiples.

Both Monki and Cheap Monday made their UK debut on Carnaby Street in February. Monki chief executive Lars Karlsson is still on the hunt for an east London store as he thinks the location is a good fit for the kooky brand. UBS analyst Adam Cochrane believes H&M’s & Other Stories will follow suit and enable the well-established retail group to serve a new demographic.

“H&M has made the move to enable a deeper penetration of some of its markets. It’s effectively running out of space for its existing format,” he says. “It can increase its size and penetration into more cities where it doesn’t need another H&M.”

Segmented approach

H&M’s segmentation has been a recent development but echoes the business model of other global fashion giants such as Inditex, which has eight brands including Zara, Pull & Bear and Massimo Dutti, and Gap, which has five brands including Banana Republic and Old Navy.

“The clothing market is much more fragmented than it used to be,” says Neil Saunders, managing director of consultancy Conlumino. “If you want to be big you need to take a segmented approach. It’s very difficult for single brands to serve a large section of the market.”

He points out that single-brand chains, such as Marks & Spencer and Bhs, have struggled in their aim of capturing a wide section of the market in recent times.

“That volume merchant model that was commonplace 20 years ago is outdated,” Saunders maintains “The one-size-fits-all retail model has severe limitations and one-dimensional brands are finding growth tough.”

Cochrane agrees that creating an all-encompassing brand is very difficult, adding: “No one wants to buy clothes in the same shop as their mother.”

Saunders says the rationale is true outside fashion, too, and highlights the difficulty global grocery powerhouse Walmart has had conquering markets such as Japan and Germany.

The multi-branded approach is one the luxury market has long adopted. Saunders says: “LVMH and Richemont have lots of strings to their bow. They realise that different brands have a different feel and attract a different part of the market.”

Adding new brands to a stable the size of H&M’s also makes financial sense according to Verdict lead retail analyst Sarah Peters. She says: “It’s a sensible strategy. Adding new, complementary brands broadens its customer base and it can maximise its existing global operations.”

Brand distinction

H&M’s directional fashion and clear price point precludes it from reaching other, more upmarket parts of the market, despite its frequent designer collaborations, according to Saunders.

“It can’t do it under the H&M banner,” he says. “That stands for young, fast fashion and value for money.”

He points out the difficulty that Marks & Spencer has trying to reach a wide audience through a vast array of internal brands.

“It’s difficult to do in one store. They all feel a bit samey,” he says.

He believes having different chains for different customers enables H&M to retain the purity of its core brand.

H&M has so far successfully created new formats with distinct signatures and target audiences that do not overlap with any other of its other brands.

“Successful sub-branding relies on having independent businesses. Brands need clear identities and individual signatures,” says Saunders.

Although H&M’s brands clearly benefit from group economies of scale in terms of joint services, Saunders says that, importantly, they have their own separate design teams. “Otherwise there will inevitably be convergence and, before you know it, you’re competing for the same customer,” he observes.

Cochrane says H&M has managed to separate its brands well so far, and better than its rival Inditex. He says some of the latter’s sub-brands will inevitably be in competition for the same spend.

Going for growth

H&M has developed its latest fascia to provide further room for growth, but the fast-fashion giant still has scope for expansion of its eponymous brand. The retailer plans to add 275 stores to its 2,500-strong network this year.

Although geographical expansion forms part of its growth strategy - it opened in Romania, Croatia, Singapore, Morocco and Jordan last year - it is still opening stores in its more established markets.

The UK, in fact, is still one of the fashion giant’s largest expansion targets - H&M is even considering launching & Other Stories in the UK, much like it did with Cos. It has opened 20 to 25 stores per annum over the past few years and is still achieving great growth in this country. Sales soared 21% to SEK2.36bn (£224.1m) in the first quarter to February 29.

Saunders says: “There are still growth opportunities but these will start to diminish. By launching new fascias H&M is future-proofing the business.”

Along with launching new chains, H&M has also been extending the range carried by the eponymous business.

It expanded into homewares in 2010, stocked in selected stores and online.

It has opened a handful of standalone homewares stores in Scandinavia and the Netherlands.

Cochrane says the move into homewares was a logical extension for any big fashion player. However, if H&M wants to develop the home offer into a standalone chain as Next has, it needs to bring in more expertise.

He says: “It has a relatively fashion-focused homewares offering. But for it to be a chain, it needs a wider offer - there’s only so much space that tea towels can take up. It’s clearly used its existing skills in fashion and procurement but would need to bring in additional skills if it is to make it a venture like Next.”

Cochrane believes it will be harder for H&M to conquer homewares than for Next or Zara. “It’s easier to identify a Next or Zara customer and bring their fashion style into their home,” he says.

The retailer has also extended its cosmetics and beauty offer, which includes everything from mascara to moisturiser.

Saunders sees scope for range expansion, but wonders how many opportunities remain. “It has already built in-roads into the most obvious, natural extensions of the brand - footwear, accessories and beauty,” he reasons.

However, H&M boss Persson clearly has some cards up his sleeves. He said last week that the group had “many different projects in progress” alongside & Other Stories and there was “considerable potential for further initiatives”. Could & Other Stories just be the start of H&M’s multi-branded story as it vies to take Inditex’s throne as the world’s largest fashion retailer?

Cochrane does not see much scope for further fascias, however. He says: “Once it’s got value and upmarket, and perhaps a standalone accessories store, there’s not a lot more it can do.” He does admit, though, that the Swedish giant has become “more dynamic” in recent times so more fascias cannot be entirely ruled out.

However, Saunders is more sceptical. He says: “You can’t add brands ad infinitum. Ideally you want the smallest number of brands to cover the maximum amount of the market.”

For the time being at least, however, H&M sees ongoing potential in an expanded brand stable.

& Other Stories: a new retail tale

Although little is known about & Other Stories, H&M has confirmed to Retail Week that carry with higher price points than H&M, but is not a luxury business.

Conlumino’s Saunders says: “It makes sense. H&M has the value end of the market sewn up and high street premium is a growing area, which is lucrative if executed well. A lot of the growth is coming from older customers, which is why we’re seeing good growth from the likes of Hobbs and Phase Eight.”

UBS’s Cochrane agrees. He says: “The Cos customer base is more insulated to current financial downturn, so I can see broadly why it is moving into that area.”

The new fascia will be different from Cos. Cochrane says: “H&M will have identified a niche in the market that it doesn’t already offer. I heard it could be an accessories format. It does have accessories already, but it’s not a significant part of its offer. However, I wouldn’t put it past it to create an eco-chain.” The retailer already stocks a sustainable range, Conscious, and is devoted to the use of organic materials.

It has vowed that all its cotton will come from sustainable sources by 2020 as part of H&M Conscious, the retailer’s sustainability plan.

UK boss Magnus Olsson says its customers are becoming increasingly interested in ethical sourcing and that using organic materials can drive sales and stimulate commercial success.