(Adds share prices in sixth paragraph and Persson comment
on Australia in 14th paragraph.)
By David Fickling and Liza Lin
April 3 (Bloomberg) -- Hennes & Mauritz AB, Europe’s
second-biggest clothing retailer, is expanding into China’s
smaller cities to woo more customers as retail competition
The company, based in Stockholm, is also looking at having
clothes made in Myanmar, Ethiopia and Kenya as rising wages in
China, its biggest supply market, put pressure on profit
margins, Chief Executive Officer Karl-Johan Persson said today
in a telephone interview from Melbourne, where the company is
opening its first Australian store.
Global apparel companies Inditex SA and H&M are expanding
into China’s less developed regions as competition intensifies
in the largest cities in the Asian nation. Fast Retailing Co.
and Gap Inc. are also adding stores and introducing new brands
to tap rising incomes in China, where a measure of consumer
confidence rose to a 10-month high in February.
“The whole country is definitely getting more
competitive,” Persson said, acknowledging new rivals and
international retailers that are improving and expanding in the
country. “We’ve tested second tier-cities and third-tier cities
in China and found the concept is working well.”
The retailer will open more stores in China this year than
in any other market, with between 80 and 90 new outlets planned.
Consumers in the smaller cities beyond Beijing, Shanghai and
Guangzhou were receptive to H&M’s concepts, and that “opens up
a lot of expansion opportunities,” he said.
The stock fell 0.3 percent to 278.6 kronor as of 11:06 a.m.
in Stockholm, widening this year’s losses to 5.9 percent.
H&M already has stores in smaller Chinese cities such as
Meishan, Daqing, Weifang, Baicheng, and Zhangjiajie, according
to the company’s website. It will open a store later this year
in Zhuhai, a third-tier city bordering Macau, Trish Varker-
Miles, an external spokeswoman for the company at the Trish
Nicol Agency in Sydney, said by e-mail.
“It’s a reflection of the strong competition in bigger
cities and also a reflection of the opportunity to be had in the
smaller cities,” said Matthew Crabbe, head of Asia Pacific
research for industry researcher Mintel Group. “More companies
are coming in and the pie is getting sliced more thinly.”
The chain hadn’t been affected by a government austerity
drive that’s hurt luxury-goods makers such as Prada SpA and LVMH
Moet Hennessy Vuitton SA, and sales growth has been strong in
2013 and the start of 2014, Persson said.
Global fashion companies have introduced new brands into
the larger metropolises such as Shanghai and Beijing over last
year, heightening competition in the industry. Zara-owner
Inditex will increase its store numbers to more than 500 stores
this year from about 450 now.
Gap, the biggest U.S. specialty-clothing retailer, opened
its first Old Navy store in China in Shanghai last month. The
San Francisco-based clothing maker, which had 81 stores in China
in the last fiscal year to February, plans to open about 30 Gap
stores and five Old Navy outlets in the current fiscal year, it
said in February.
Uniqlo-owner Fast Retailing opened the first Chinese
outlets for its GU and Princesse tam.tam brands in Shanghai last
September and expects to have 305 stores by August. Abercrombie
& Fitch Co. is opening its Shanghai flagship store, while Cotton
On Group, an Australian clothing chain, said it is looking for a
partner in China to open stores as part of moves to ramp up
Asos Plc, the U.K.’s biggest online-only fashion store,
said start-up costs in China of about 4 million pounds ($6.6
million) were one of the main reasons for a 22 percent decline
in first-half profits announced yesterday.
In Australia, where a 12 percent fall in the local currency
over the past year has put pressure on overseas retailers,
Persson said the chain would cut its profit margins rather than
lose its position at the value end of the market.
“We will not raise prices to cover certain external
costs,” he said. “We want to get the customers in Australia
the same fantastic deal, that’s the most important things.”
Consumer spending on the websites of overseas fashion stores
fell 3 percent in the 12 months to January, Andrew McLennan, an
analyst at Commonwealth Bank of Australia in Sydney, wrote in a
March 31 note, even as sales by their local rivals rose 36
H&M doesn’t have a timeframe for opening an online store in
Australia and hasn’t committed to a fixed number of physical
stores in the country. It’s opening its first outlet under the
H&M brand this week and is planning another location in
Melbourne for its higher-end COS brand.
Rising salaries in China as well as in Bangladesh -- where
H&M agreed to improve work safety inspection standards for
garment workers -- were putting pressure on costs, Persson said.
The company had been testing whether African countries including
Kenya and Ethiopia, as well as Myanmar, were able to act as
suppliers to the group.
Cost inflation in China and Bangladesh was “obviously
affecting our sourcing,” he said. “Transport costs are up a
bit as well.”
For Related News and Information:
H&M Profit Growth Is Held Back by Cost of Online Investment NSN
Inditex Climbs as Sales Advance in First Six Weeks of Year
H&M Joins GAP Saying Cold Weather Reduced Store Traffic in U.S.
H&M Financial Analysis: HMB SS FA
Top Retail Stories: TOP CON
To contact the reporters on this story:
David Fickling in Sydney at +61-2-9777-8652 or
Liza Lin in Shanghai at +86-21-6104-3047 or
To contact the editors responsible for this story:
Stephanie Wong at +852-2977-6036 or