H&M HITS HOT HERALD SQUARE AREA

Byline: Shirliey Fung

NEW YORK — The normally busy sidewalks of West 34th Street and Herald Square will surely be overflowing at noontime on Friday when Hennes & Mauritz opens its second store in Manhattan in the shadow of Macy’s, adding its cult-like following to the mix of what has become one of the hottest retail strips in the city.
The Swedish purveyor of cheap chic made a big splash in New York’s intense retail scene seven months ago when it opened its 640 Fifth Avenue location, where there has been nonstop customer traffic ever since.
The new three-story, 40,000-square-foot store near the southeast corner of 34th Street and Sixth Avenue will offer a similar selection of labels and items as its 35,000-square-foot sister unit, such as Hennes brand strapless pink leather tops for $39, suede brown pants for $69 and form-fitting silk polyester fuchsia tops for $35. Other labels include L.O.G.G., BiB, a plus-size line, and Clothes, a trendy line geared at younger audiences.
The new store — situated near competitors including a Gap that is known to be among the chain’s best performers, a Banana Republic, an Express and a Zara — will attempt to jump right into the competition by easing straight into its 9 a.m.-11 p.m. holiday hours. The rest of the year the store will close at 9 p.m.
Shoppers will find women’s and men’s wear on the first floor, and cosmetics, accessories and lingerie on the second floor. The third floor will house Mama, a maternity line, and Chiboogi and Baby Baby, respectively the children and infant lines. These three lines are not offered in the Fifth Avenue store.
Par Darj, country manager for the U.S., hopes the new store will “take a little bit of the weight from the Fifth Avenue store.” The overwhelming popularity of the first store — Darj estimated 2,500 customers traffic the store each day — has lead to long cash register and fitting room lines.
“We’re happy with the customer flow, not happy with the customer service,” he admitted. The retailer has tried to address the service problem by adding five cash registers to the existing 24 at the Fifth Avenue store, and the 34th Street store will have a total of 34 registers. Also, customers are now limited to 10 items for each fitting room visit.
Although the Herald Square location is within a mile of the first store, that’s a long way in Manhattan, and Darj expects to attract a different type of customer.
“It will be the more normal H&M customer,” he said. “I expect whole families, kids, after-work shoppers, people with more average incomes. The Fifth Avenue store has more tourists and more high-rent customers.”
Next up in Manhattan for the $3.9 billion retailer is a foray into the heart of downtown: A 14,000-square-foot SoHo location at 558 Broadway between Prince and Spring Streets is planned for next spring.
“We have a great opportunity for younger sales,” said Darj.
A 40,000-square-foot unit next to Bloomingdale’s at the former Alexander’s site on Lexington Avenue and 59th Street is slated for fall 2002.
Darj said the company, which has 620 stores in 14 countries, is eventually planning for 75 units in the Northeast region of the U.S.
Blaming slowed growth in Europe, Hennes & Mauritz AB reported a 31 percent drop in profits, after special financial items, to $81.4 million for the third quarter ended Aug. 31 on a 4.1 percent rise in sales to $833.5 million, as reported. This compared with profits after financial items of $118.1 million on sales of $800.9 million for same period a year earlier.
It was the third successive quarter in which H&M reported a downturn in profits, all of it attributable to its European operations. The U.S. stores continue to perform strongly, the company indicated.
The latest drop resulted from a poor reception to its spring-summer collections in Europe, which forced H&M to take larger-than-normal markdowns of $38.2 million in the quarter to clear inventories. The company also said it continued to be hit by the high costs associated with its store-opening programs in the U.S. and Spain.
In the nine-month period, H&M reported an 18.6 percent drop in profits, after financial items, to $266 million from $326.7 million on an 8 percent rise in sales to $2.59 billion from $2.39 billion. Currency conversions were made at the dollar-kroner exchange rate of 9.82 at the time they were reported. With 85 percent of H&M’s business now transacted outside of Sweden, unfavorable currency translations affected the financial picture and remain a concern going forward, the company said.
The company’s stock has also taken a beating on the Swedish Stock Exchange. On Wednesday it was at $18.50, a drop of 44 percent from its peak of $33.20 in March. Figures are based on the latest exchange rate between Swedish krona and American dollars.
Within the last month, the retailer has opened stores in Barcelona and Madrid. The Herald Square location will be the ninth U.S. store. Currently there are outposts in Syracuse and Albany, N.Y., Holyoke, Mass. and Paramus, N.J.
As of now, there are no plans for expansion to the West Coast or most of the Midwest, although Detroit and Chicago are possibilities.
“We feel the Northeast part of the United States is close to Europe,” Darj said. “The logistics and merchandising is more efficient. We wanted to start with this high-density area.”
He pointed out that the store’s merchandise, which is the same for the most part in all stores across all countries, may not be suitable for warmer areas such as the South. Darj said that Canada is also being scouted out for locales.
Citing population statistics, Darj added that H&M still has enormous growth potential.
“There are 100 stores in Sweden where the population is nine million,” he said. “There are 20 million people two hours away from Manhattan.”

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