Fueling rumors that the company is expanding beyond its signature low-cost apparel, Hennes & Mauritz AB leaked the news that they are planning to open a new chain of stores in 2013. The stores are expected to broaden its offering, which many sources have interpreted to mean that the company is moving into the luxury market. The company has built a business model around “cheap and chic,” or fast fashion, but, like many retailers, they recognize that there are higher profits to be found at the top end of the income scale. They announced today that the new chain of stores will be called “& Other Stories.”
The company has grown increasingly conscious of the prominence of its designers in recent years. Collaborations with designers such as Donatello Versace have wet the public’s appetite for H&M to feature more cutting edge fashion. Versace’s collection was completely sold out by the end of the first day it was offered. H&M has also developed a red carpet “Exclusive Conscious” collection crafted from environmentally friendly materials. The company is leveraging eco-consciousness to build a reputation for attention to detail and high value add, as well as building awareness among sustainably inclined celebrities. Amanda Seyfriend and Michelle Williams have both been spotted in “Exclusive Conscious” pieces when strutting the carpet.
They are capitalizing on strong momentum which saw sales increase in Q1 by 13%, on a gross margin of 55.8%, according to their recently released 3-month report. They have seen local sales rise by 22% over the last year, despite an ongoing crisis in the Euro zone and fluctuating demand. However, CEO Karl-Johan Persson expressed that purchasing costs have been rising, partly due to higher cotton prices at the time of sourcing for the previous year, and also due to long-term investments in increased capacity.
A shift to higher-end goods carries with it the prospect of higher margins, and less vulnerability to commodities and labor costs. The total share of the cost of inputs drops as the price of a garment rises, above a certain price point. The same is true of labor. This has been seen in the strong sales posted by H&M subsidiary Cos., which sells higher priced goods targeting less cost conscious buyers. The addition of another high-end brand would speak to H&M’s strong prospectus for the economic recovery, as incomes continue to rise among wealthy consumers.