H&M: Strong Expansion Plans Will Fuel Revenue Growth In 2015

Summary

• H&M opened its first store in the Philippines on October 17, 2014.
• In 2015, H&M will open in India, South Africa, Peru, Taiwan and Macau.
• H&M upscale brands COS and & Other Stories opens online and offline in the US.

International expansion

In the Philippines, where I recently visited, North American and European brands reign whether it's fashion or food. Brands such as Inditex Zara, Forever 21, Topshop, etc. have been in the country for year. On October 17, 2014, H&M (OTCPK:HNNMY) finally opened its first store - a 3,000 square meter and three-storey space - and is set to open 4 more stores in Metro Manila within the next year.

Meanwhile, store openings in India, which were originally set for November 2015 has been moved to spring 2015 in Delhi and Mumbai. According to the company's latest nine-month report, it also plans to open stores in South Africa, Peru, Taiwan and Macau in 2015.

Upscale brands expansion in the US

Despite its premium and conscious collections, H&M has been mostly perceived as cheap clothing that you can wear once or twice. Every once in a while, the company builds hype with its designer collaborations such as the most recent collaboration with premium designer Alexander Wang on November 6, 2014.

The market of professional women in the US who appreciate trends and fashionable details on relatively well-made and reasonably-priced clothes usually flock to Inditex' Zara or Uniqlo. H&M's sister brands, COS and & Other Stories are set to change that.

COS (Collection of Style) classic and minimal style was launched in 2007 in Europe and has only recently entered the US market. The store's e-commerce shop for the US launched on May 2013 and the first brick-and-mortar store opened in LA on October 30, 2014. Another COS store is set to open in New York within the next few months.

& Other Stories, which also plays to a classic, minimal style but with a touch of whimsy, was launched in March 2013 in Europe. It launched its online store in the US on October 15, 2014 and opened its first physical store in New York two days after.

E-commerce expansion

Compared to competitors in the US, H&M is relatively late to the e-commerce game, opening the H&M online store only on August 2013. Even then, the company had to work out a few kinks in logistics in order to attract a market that is used to free shipping and free/easy returns. In its Q1 2014, the company announced a 12% sales increase, attributing to new stores and its online expansion. H&M plans to open 8-10 new online markets in 2015.

Currently, H&M (the main brand) online shopping is available in the following countries and the launch date:

• Asia Pacific: China (September 2014)
• North and South America: United States (August 2013)
• Europe: Austria (July 2007), Denmark (1999), Finland (1999), France (March 2014), Germany (July 2007), Italy (August 2014), Netherlands (Autumn 2006), Norway (2001), Spain (August 2014), Sweden (March 1998), UK (September 2010)

Upscale brands expansion, increasing online presence mean a strong 2015 for H&M

Non-capitalized costs (training, advertising) related to the company's expansion online and offline have been affecting H&M's short term results. Furthermore, the company's drive of cleaning up its supply chain downstream, i.e. more "responsible" sourcing on the wake of tragedies like the one in Bangladesh, will further lower profit margins.

However, as H&M stabilizes its upfront costs, 2015 looks to be a good year for the company. US expansion (H&M's second largest market in terms of sales after Germany) online and offline of the H&M brand as well as the more upscale brands will help the company capture some of the market share from Forever 21, Topshop, Zara and Uniqlo. On the international front, the Swedish retailer is a welcome addition for emerging market shoppers who want on-trend clothes for affordable prices, further driving H&M's revenues in 2015.

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