H&M: Bringing Haute To The Hoi Polloi

The pioneer of cheap chic is scoring by selling designer lines at mass-market prices

Stella McCartney is one of the hottest names in fashion. Known for her sharp tailoring, sleek silhouettes, and rock-chick pedigree (she's the daughter of former Beatle Paul), her designs are coveted by many. But only a privileged few can afford them -- Madonna and Gwyneth Paltrow are fans.

But come November, women everywhere will have a chance to snag a Stella McCartney original. That's when the 33-year-old launches a one-time, 40-piece collection for Swedish retailer H&M Hennes & Mauritz. Europe's biggest fashion retailer hopes to woo thrifty but style-conscious shoppers with the new line of clothing and accessories, expected to carry price tags of $10 to $170. That's a steal considering that a T-shirt from McCartney's signature line, a joint venture with Gucci Group (GUC ), retails for upwards of $120. "This is about bringing high fashion to normal people," says H&M marketing chief Jörgen Andersson.

H&M is hoping for a repeat of the retail coup it scored last fall with its collaboration with Chanel design chief Karl Lagerfeld. Recognizing that "the closest most women got to Chanel was owning a bottle of the perfume," Andersson persuaded Lagerfeld to design a limited edition collection. "We told him that we didn't want haute couture," Andersson says. "It had to be commercially viable."

Was it ever. The day the Lagerfeld collection hit the shops, hordes of bargain-conscious fashion fiends flocked to H&M stores. Many items, such as a $99 black Chanel-inspired cocktail dress, sold out within hours. Perusing the racks at H&M's store on Boulevard Haussmann in Paris one May afternoon, Emilie Yansaud, 28, says she made a beeline for H&M the day the Lagerfeld line went on sale, but "all the good stuff had already gone."

STROKE OF GENIUS

Lagerfeld himself was amazed by the response: "Everything sold in three days, even the most expensive items." For H&M, too, the results were surprising: Same-store sales soared by 12% the month the collection launched.

It was a stroke of genius for the pioneer of cheap chic. H&M's strength is its ability to quickly translate trends into merchandise for the masses. That formula has transformed H&M from a niche Nordic player into a global powerhouse with 1,200 stores and fueled growth in operating profits of 21% a year over the past decade.

H&M knows that to keep up that momentum, it needs constantly to find new ways to lure customers into stores. "By adding designers, they're adding a little bit of spice to the mix," says Richard Hyman, chairman of London retail consultancy Verdict Research. If the Stella McCartney collaboration is anywhere near as successful as the Lagerfeld line, it will give H&M a sizable boost. Stockholm investment bank ABG Sundal Collier figures sales will rise 13% this year, to over $8 billion, with profits of $1.3 billion.

It's not just H&M that's set to gain from the arrangement. Despite accolades from fashion critics, McCartney's four-year old signature label has yet to turn a profit, and Gucci has given the designer a deadline of 2007 to break even. Although H&M will not reveal details of the deal, McCartney's collaboration with the ubiquitous retailer should at least boost the profile of her own label and the line of sports clothes she designs for Adidas (ADDDY ).

H&M's marketing chief is hoping to snag other big names in fashion. "Tom Ford, Marc Jacobs, every designer that has been admired on the same kind of international scale is on our wish list," he says. Fashion devotees better be ready to rumble.

By Kerry Capell in London, with Constance Faivre d'Arcier in Paris

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