Byline: Anne D’Innocenzio

NEW YORK — Will it be a big bonanza, triggering the fiercest price wars ever seen in Manhattan? Or will it become the latest fashion victim?
That’s the key question that retail, fashion and real estate sources are asking, as Hennes & Mauritz, the Swedish purveyor of disposable chic, launches its assault on U.S. soil, starting with Friday’s opening of its three-level, 35,000-square-foot flagship at 640 Fifth Avenue.
And that’s only the start of the big blitz for the $3.9 billion retailer, which operates 700 stores in 12 other countries. On Thursday, H&M is set to open a 35,000-square-foot store at Palisades Mall in West Nyack, N.Y., and a 14,000-square-foot store is set to open April 13 at Garden Sate Plaza in Paramus, N.J.
Future sites include a 40,000-square-foot unit on West 34th Street, between Fifth and Sixth Avenues, and a 35,000-square-foot store in the former Alexander’s site on Lexington Avenue and 58th Street.
While company officials declined to give projections, sources believe that H&M plans to open several hundred stores in the U.S. over the next couple of years.
Judging from the feeding frenzy at its flagship this past weekend, where throngs of shoppers snatched up bargains like $3.50 cotton tanks with embroidered trim, $5 lipsticks and $44 nylon trenchcoats, H&M clearly has a good shot at shaking up the American retail landscape. In fact, with such sharp prices and trendy fashions, retailers ranging from the Gap and Old Navy to Ann Taylor and department stores like Macy’s and Bloomingdale’s should be nervous, according to some observers.
After months of teaser advertising, H&M’s doors on Fifth Avenue finally opened on Friday at 12:10 p.m. to the public, many of whom had lined up two hours earlier. Within 13 minutes of the store opening, officials had to temporarily close the store, which was already packed with 2,000 customers. It seemed that H&M was racing to keep pace — a truck full of merchandise, from dirty denim jeans to floral tops, was parked outside, with employees running back and forth to replenish the racks.
H&M’s opening party on Thursday met with similar success, attracting 1,700 people. Within three hours, the store sold about 6,500 items — more than 10 percent of its inventory — according to a store official. H&M, which stocks about 60,000 items in the store, had its staff working throughout the night to replenish the merchandise for opening day.
“This looks pretty promising,” said H&M’s chairman Stefan Persson, who was standing outside Friday afternoon, watching the crowds.
H&M’s landing in the U.S. comes at a difficult time for the retailer, whose stock has been on somewhat shaky ground since it announced an anticipated 12 percent dip in profits for its first quarter. Final first-quarter figures will be reported on April 13. The company’s stock price last week dropped 31 percent to $26.83 on the Stockholm Stock Exchange. Shares on Friday were up $2.30, to $27.74. Dollar figures are converted from the Swedish krona at the current exchange rate.
While Persson dismissed the profit decline as the result of currency fluctuations and exorbitant costs with opening up stores in the U.S. and Spain, where the company plans to expand this month, some analysts believe that H&M’s woes may run deeper.
“H&M is clearly not sticking its toe in the water,” said Richard B. Hodos, president of HGCD Retail Services LLC. “The problem is that the customer reaction has to be really wonderful. If it isn’t, it will have been a very expensive experiment.”
According to real estate sources, H&M’s Fifth Avenue flagship cost about $23 million to build, and with rent estimated at about $5.5 million, H&M needs to generate about $50 million to $60 million in sales per year to make it profitable.
“I am concerned that expenses are too high, or they are not selling enough stuff, and that gross margins may be too low,” said retail consultant Kurt Barnard. “They need to sell a lot of stuff. Moving into New York is an expensive proposition. They may not be prepared for the harsh economic realities of U.S. retailing.”
“H&M will keep everyone on their toes, but don’t underestimate the power of the Gap,” said Dorothy Lakner, an analyst at CIBC, an investment firm. “H&M is an unknown quantity, and some of the foreign retailers that have come to this country have had to struggle a bit. H&M is clearly going to be very aggressive here, but I am not sure if that is the wisest strategy.”
Then there is also the lingering question of sizing, and whether consumers will take to a unified merchandising approach. H&M’s Persson, noting an increasing trend toward globalization, said that the retailer doesn’t plan to change the merchandise. H&M has kept the sizing the same for the American market, which is known to be fuller-figured than Europeans. Persson countered that if sizing is a problem, it will be quick to fix.
Nevertheless, most industry followers agree that when it comes to fashion at a price, H&M, which offers a wide range of products from teen clothing to plus sizes and cosmetics under 20 different labels, could soon be eating its competitors’ lunch. Take, for example, the basic cotton T-shirt: H&M was selling it for $9. Express’s version is $19.50, while the Gap’s T is priced at $16.50. The H&M store heavily featured hippie chic styles, from $25 fringe skirts to $9 paisley print tops. Leather was a bestseller, and H&M’s Clothes, its women’s contemporary collection, was one of the biggest hits, according to a store official.
“H&M is a live demonstration of effective retail globalization and a challenging signal to American specialty stores that the Atlantic Ocean is a two-way street available to savvy European operators like H&M,” said Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates, who stopped by to take a look at the crowds on Friday afternoon.”They are sharp. They have fast fashion.”
Said Barnard, who also popped into the store on Friday: “If they are able to continue to maintain these low price levels, this will trigger the most heated market-share battles in New York. There is going to definitely be a price war out there. H&M is out to do one thing: to capture as much market share from rivals as possible.”
“H&M proves beyond a shadow of doubt that fashion apparel is still in demand, so long as the price is low,” he added.
And the bargain-hungry crowds surely came, from the likes of a retired Connecticut woman to a fashion student at FIT, all making price comparisons with the Gap, Banana Republic and department stores. Many of them didn’t know much about H&M, but over the last couple of days had seen the advertising and wanted to see what disposable chic was all about. Others knew about H&M from traveling in Europe.
“The Gap is too middle America, and Banana Republic can be too expensive,” said Arlene Gonzales, a 30-year-old TV producer who lives in Manhattan. “This is all about cheap chic.”
Another shopper, a 27-year-old marketing consultant, noted she would definitely turn to H&M for quick, impulse buys.
“I wouldn’t build my career wardrobe here. But H&M will give me an extra kick,” she said. “That’s what’s it’s all about.”