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H&M Examining Latin America, Australia for Openings

None of H&M’s 2,000 stores are south of the equator
Hennes & Mauritz AB chief executive officer Karl-Johan Persson. Photographer: Casper Hedberg/Bloomberg

Hennes & Mauritz AB, Europe’s second-largest clothing retailer, is looking at opening its first store in the southern hemisphere to tap emerging-market growth and catch up with larger rival Inditex SA.

“Brazil and Argentina are very interesting,” Chief Executive Officer Karl-Johan Persson, 35, said in an interview at his Stockholm office, adding that he’s also looked at Australia. The company wants to enter the region at some point after making “sure we can handle it.”

None of H&M’s 2,000 stores are south of the equator, as seasonal differences make it more complex to organize supply logistics. Inditex entered Brazil in 1999 and has about twice the outlets globally as H&M. Retail sales grew 15.7 percent in March in Latin America’s biggest economy, more than five times the pace of growth in Germany, H&M’s largest market.

The Swedish retailer, which has sold lines designed by Karl Lagerfeld and offers bikini tops for less than $5, has added stores at a rate of about 14 percent over the past five years and can meet its 10 to 15 percent growth goal without entering the southern hemisphere, said Persson, who took the helm of his family’s firm in July and is the youngest CEO in the Swedish benchmark index.

The company may also make more acquisitions, following the March 2008 purchase of fashion company Fabric Scandinavien AB, the first takeover in H&M’s history. H&M introduced the higher-priced COS chain in 2007 and its first H&M Home store last year.

Fast Retailing

“We are keeping our eyes open, but don’t have any immediate plans” to make an acquisition, the CEO said, adding that the company has the financial resources to do so. H&M isn’t looking at Fast Retailing Co., Japan’s biggest clothing retailer, or its Uniqlo business, he said.

Inditex, the world’s No. 1 clothing retailer, owns eight store formats including Zara and Bershka. Gap Inc., the second-largest retailer, operates Banana Republic and Old Navy chains. H&M fell 14.60 kronor, or 3.2 percent, to 442.50 kronor in Stockholm trading today. The shares have risen 11 percent this year, giving the company a market value of 366 billion kronor ($47.2 billion), while Inditex’s advanced 3.4 percent.

First-quarter profit at H&M advanced more than 40 percent, beating analysts’ estimates, as a weaker dollar reduced purchasing costs. H&M buys its goods from about 700 independent suppliers, mostly in Asia and Europe, and may add more in the southern hemisphere when it expands there, Persson said. The retailer is targeting positive sales growth at stores open at least a year in 2010, the CEO said.

Cutting Prices

“My guess is that 2010 will be better year than 2009 for retailers,” said Persson, a father of two. “If that’s right, the prices for raw materials and transport will go up and spare capacity down at suppliers. Not our prices, we are looking to improve the offer.”

Store expansion this year may be more difficult than in 2009, Persson said, as an improving economy lifts demand for existing real estate and as some projects were halted during the recession. The clothier last year opened 250 stores, surpassing its own goal of 225 outlets, and this year targets 240.

The company, founded in 1947 by Persson’s grandfather Erling, aims to reduce its reliance on Germany, which now accounts for about a quarter of sales. The U.S., Japan and China will be the main focus for expansion, he said.

“There’s still a lot to do in Germany, but looking at countries like the U.S., Japan, China and a lot of markets we haven’t entered yet, the growth potential there is obviously bigger,” Persson said.

India Opportunities

H&M has no immediate plans to enter India because of operational restrictions on foreign ownership, he said. The company would like to enter the market “at some point.”

India is “growing like crazy,” he said. “There will be great possibilities, it is still young in terms of fashion retail.”

The company opened its first store in Seoul and entered Israel this year. It sells clothes on the Internet in seven countries, and will offer fashions online in the U.K. later this year.

Persson is the son of H&M chairman and largest shareholder Stefan Persson. A competitive tennis player as a teenager who will hit with former world No. 1 tennis player Stefan Edberg next week, the CEO graduated in 2000 from the European Business School in London and joined the company board in 2006.

H&M shares have risen about 34 percent since his appointment in February 2009. The CEO said he has bought shares since taking the position.

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