NEW YORK — For Hennes & Mauritz, it’s no longer quite the cakewalk.
As a new millennium dawned, developers eagerly served up leases and shoppers crammed the stores on opening days. Now, however, H&M — with a new manager overseeing its U.S. business — has less heady growth objectives, as its three-year-old U.S. expansion progresses and hurdles arise.
Among the challenges for the Stockholm-based chain are developing a strategy for stocking stores for warmer U.S. climates and more suburban, conservative audiences; coping with an employee turnover rate in the U.S. that’s far higher than what H&M experiences in Europe, and competing against specialty stores that are more nimble and more familiar with H&M’s ways.
Since the first U.S. H&M debuted on Fifth Avenue and 51st Street three years ago, 59 more stores have opened stateside. In January 2001, H&M chairman Stefan Persso projected about 75 U.S. stores by the end of 2003, and said the Swedish chain, specializing in “disposable chic” fashion, could make its U.S. business profitable in about two years, or around the end of 2002. Falling a bit short of those goals, there’s now a more restrained outlook.
“We are opening about 20 stores this year and have done 15 already,” Sanna Lindberg, H&M’s country manager for the U.S., said in an exclusive interview with WWD. “The tempo will be the same, 15 to 20 new stores for next year and the next couple of years, though it may be possible that we decide to increase [the pace]. There is nothing that is decided.”
Asked if there is a ceiling on a U.S. store count, she replied, “This country is huge. It is difficult to say. We have 210 shops in Germany with its population of 80 million, and we are still expanding in Germany a lot.”
She described the firm as “very optimistic” about the U.S.: “Our first shops are excellent, but you have to be realistic. What we have now [planned for expansion] is a good tempo.”
Though the Swedish fashion chain only extends as far west as Chicago, there’s already speculation among real estate executives that California is on the radar screen, as well as southeastern states including Florida. “No, not right now,” responded Lindberg. “California might be in the future, sooner or later.” Asked about expanding south from Washington D.C., Lindberg said, “It’s the same answer — sooner or later. We want to be a bit more stable where we are.”
H&M is feeling the growing pains and still losing money in the U.S., largely due to start-up costs. Still, for its first half ended May 31, H&M shaved its U.S. losses and raised the possibility that it might break even by the end of the year, with the majority of the stores already making money. First-half sales in the U.S increased 38 percent to $159.9 million, and rose 12 percent after adjusting for currency factors. In the second quarter, sales increased 42 percent to $91.1 million, or 15 percent after currency exchange. Comparable-store sales were slightly down, suggesting a tougher competitive climate.
“H&M no longer has the same element of surprise as when they first entered the U.S. The impact was tremendous,” said Isaac Lagnado, president of Tactical.org, a marketing and consulting firm. “A lot of competitors were caught flat-footed. They couldn’t believe H&M could bring in that merchandise at that price. It’s fashionable, fresh merchandise without being edgy and nicely presented in depth.
“But at this point there has been a lot of adjustment by immediate competitors. The Gap has its act together, Victoria’s Secret and Express are stronger, and overall mainstream mall-based specialty groups are in much better shape. H&M came in at an historically low point of specialty store marketing.”
Facing intensified competition, Lindberg brings a sense of caution to H&M, which was less restrained in its initial expansion phase here. She came to the U.S in February 2003, went through about a six-month transition, and took the helm of the U.S. operation two months ago. The 45-year-old former physical training instructor joined H&M in 1986, in Stockholm, spent two months in sales and then managed the Jakobsberg store outside Stockholm. She became a buyer at the head office in Stockholm, shifted to England as a merchandiser, became a sales manager in Switzerland, and in the mid-to-late Nineties worked on expanding the chain in Germany and launching it in France. She became country manager for Switzerland in 2001, before arriving here.
“I am a generalist, and I’m very much a hands-on person,” she said. “That’s why I have been sent here.”
Her wide skill set reflects the extent of the growth issues confronting H&M. During the interview, foremost on her mind was recruitment and retention of employees. Even with this nation’s high unemployment, retail turnover is a continuing problem, unlike Europe, where store employees generally stay on the job longer. “People tend to change jobs more often so that is our challenge, to try to make them stay longer,” Lindberg said. “Hopefully, our open-door policy, which for us is very important, will help them feel that if they have something to talk to us about — they can meet with a store manager, or an area manager, or even me. We have a flat organization. There is no hierarchy. We hope they appreciate our flat organization and feel you can tell anyone your ideas. We think this brings kind of an ownership feeling.”
But if anything, U.S. workers view retailing as a short-term stint. “At the entry level, with the typical 19-year-old working 25 to 30 hours a week, you are not going to get tremendous loyalty and there is not a lot of training,” Lagnado noted. “The average tenure of a nonmanager is going to be in the six-to-nine-month range. Unfortunately in this country, an entry-level retail job is only a slight upgrade from working at McDonald’s.
“But in Europe, even with a young workforce, you have a different attitude that is sort of imbued in society. It’s much harder to hire and fire anybody, and it’s much more worker friendly. Sweden is a socialist country, where retail workers get a good sense of empowerment and retailers get a much higher caliber of help. H&M is a viewed as hip job with growth potential. In the U.S., aside from longer opening hours and more shifts in schedules, there’s a different attitude,” he said.
Aside from dealing with worker turnover, Lindberg wants the chain’s limited service to be stepped up a notch. “The customer focus has to be stronger,” she said. “We try now to train our staff a little differently, on how to reach the customer, how to behave when they are in the stores. I don’t say that we have more service. We are self-service, but there are occasions when the customers meets staff, and needs to interact, such as at fitting rooms or at entrances where they ask for help.
“At those meeting points, we have to have friendly staff. This is a challenge to train everyone.”
On the real estate front, H&M has made some curious choices, opening in secondary markets such as Syracuse, N.Y., before even filling in surer urban markets, and on occasion, placing stores within a block or two in denser urban venues.
Lindberg, however, said there has been nothing haphazard in the selection. “We always do an investigation, of good malls and good downtown shops, because in the U.S. you have less [opportunities for city locations] than malls compared to Europe,” she said. “In the U.S, sometimes the mall is more important than the city itself.”
On 34th Street, there’s a store near Sixth Avenue, yet just over a block west, there’s another on Seventh Avenue, near Penn Station. “Penn Station is a bit more higher fashion and more trendy,” servicing a different market, she said. Also, there’s a store at 558 Broadway in SoHo, and another will open a block away at 515 Broadway, in late October. Those stores will be merchandised with different lines for different ages, according to a spokeswoman.
Though H&M is headed south and west, it does not have a separate strategy for warmer climates. “We don’t have a specific format,” Lindberg acknowledged.
But even without one, Lindberg said shops operate successfully from Finland to the south of Spain, and in the warmer climates, “We already have been taking away the heavier [garments] such as the heavy knits or heavy jackets.”
In the U.S., expansion entails “learning by doing,” but she stressed that the company can adapt because of its broad range of merchandise: “We are a company with a big variety. There is something for everyone in our shops.”
With a strategy of uniformly merchandising, from door to door, rather than regionalizing, the Chicago store opened earlier this month with essentially the same garments as the Fifth Avenue flagship, she said. “We have the same mix [in Chicago] as everywhere else. It’s a little bit different, a little less of the high-fashion things.
Sometimes a mall [store] can be very upgraded. Wherever you live, you have all kinds of people. We have a big variety, kids’ wear, young fashion, ladies’ wear, maternity, basics, accessories. We can offer to whomever.”
The smallest size is four, and no petites are offered. “We haven’t seen that as necessary, but if that is the future, we will have to add that.”
One category where H&M is said to do particularly well is accessories, which tend to be scattered in several parts of the store. Much of it is in Wal-Mart price points, under $10, but trendier, with such items as wide belts with grommets for $9.50, bright green earrings for $4.50, though prices go up to $39 for leather handbags.
“It’s a very strong business for them,” observed Karen Brellantoni, senior managing director of real estate firm Robert K. Futterman & Assoc. LLC.
Seasonally, said Brellantoni, “the spring-summer business is always so strong in juniors,” which seems to be H&M’s primary audience. “But when you go into H&M, they appear stronger for back-to-school and holiday,” with sportswear generally $20 to $50, coats priced up to $100, short ski jackets, $50, and “extreme” flared jeans and cargo pants priced at $39.
“Their urban environments are more successful than the mall strategy,” Brellantoni added. “They are very trendy, very cutting edge, which is not to say it doesn’t translate to the malls, but the volume will be more significant in an urban setting.”
But the urban landscape is getting increasingly competitive, she said, with Mexx (see story, page 12), a division of Liz Claiborne, expected to come on strong, and Forever 21 gathering momentum. Mexx this week opened its first U.S. store on Fifth Avenue and 52nd Street, a block north of H&M’s first U.S. store on Fifth and 51st, and Forever 21 is moving onto 34th Street near Sixth Avenue with a 21,000-square-foot box, next to Gap and across the street from H&M. “The competition is already there. With everyone building these big stores, it’s going to be overkill in retail,” Brellantoni said.
However, she thinks H&M’s doubling up on certain venues, such as 34th Street, as well as in SoHo where a second store will open this year, is a good maneuver. Toward Seventh Avenue, there is more commuter traffic, while between Fifth and Sixth Avenue, it’s more tourist based.
“Most retailers on 34th feel it’s a two-store market, and I don’t think H&M will have a problem in SoHo,” Brellantoni pointed out. “The one SoHo store, with 10,000 square feet, is not big enough” for the breadth of merchandise within.
The other store will be 12,000 square feet.