Jan. 31 (Bloomberg) -- Hennes & Mauritz AB Chief Executive Officer Karl-Johan Persson sees China overtaking Germany as the company’s largest market as the fashion retailer opens stores there at a faster pace than anywhere else.
China’s economy is “growing rapidly,” the CEO said, declining to give a time frame for when the country will be the Swedish company’s top market. Persson, 37, also said H&M would consider opening outlets in India as well as in Brazil, Colombia and Argentina as European demand struggles to recover.
“The economic situation in Europe is tougher,” said Persson, the grandson of founder Erling Persson. It is “extremely tough” for Greece, Spain, Italy and Portugal while it is “a little bit tougher” than in the previous year in countries such as Germany, the Netherlands and Switzerland, he said in an interview yesterday at the company’s headquarters in Stockholm. “That is affecting the private consumption.”
The world’s second-biggest clothing retailer makes most of its revenue from the euro-area, where governments are cutting spending and the jobless rate is at a record 11.8 percent as the region’s economy continues to suffer in the aftermath of the sovereign-debt crisis. While Germany remains its biggest single market with 406 stores, the company opened 52 locations out of last year’s record 339-outlet expansion in China. H&M opened 22 stores in Germany in the fiscal year ended Nov. 30 and closed 10.
The CEO said the company is still expanding by opening stores in southern Europe, including Greece and Spain. Persson said H&M isn’t “downsizing any market.”
The CEO said the company can hold to its 10 percent to 15 percent annual store expansion “for many years” even as it develops business online. The introduction of “& Other Stories” can lead to “lots of opportunities” to open branches. H&M confirmed yesterday that it will introduce the brand in the spring, adding a sixth label to its portfolio. H&M said this month it will start the brand, which focuses on women’s shoes, bags and accessories, in stores and online in 10 European countries.
The brand will be based around four styles: “industrial, minimalistic, glamorous and bohemian,” the CEO said in the interview.
The Swedish retailer, which also owns the COS chain, is diversifying after falling behind Inditex SA in the race for the price-sensitive fashionista’s euro. Inditex, the world’s largest clothing retailer, has been pushing online business for brands including Zara. Arteixo, Spain-based Inditex also owns the Massimo Dutti and Bershka brands.
H&M reported a third straight drop in fourth-quarter profit after investments to open stores bruised margins and said freezing weather hurt sales this month. Net income slid 1.3 percent to 5.29 billion kronor in the three months ended Nov. 30, beating the 5.2 billion-kronor average estimate of 16 analysts compiled by Bloomberg.
H&M shares closed up 0.5 percent to 236 kronor at 5:30 p.m. in the Swedish capital yesterday, giving the retailer a market value of 389 billion kronor. The stock has added 6.9 percent over the last year, compared with an increase of 58 percent for Inditex.
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