The launch of H&M's new retail chain COS, set to debut on London's Regent Street on March 16, signals a whole new era for the Swedish fashion retailer.
COS, which stands for Collection of Style, is pitching itself firmly away from its lower-priced sibling H&M. The core chain has now grown to 116 stores in the UK thanks to young shoppers' voracious appetite for throwaway fashion.
Billed as "a modern, stylish mix of essentials, classic pieces and the latest trends", COS is the retailer's attempt to capture a more grown-up segment of the market, and will feature no reference to the H&M brand. As a standalone operation, COS will not benefit from any of the newly-won designer credentials that H&M has earned with its high-profile collaborations.
H&M has been experimenting with more premium-level product for several years, offering better-quality higher-priced items such as Italian fabric suits and merino wool knits in larger stores.
The group also says its designer tie-ups with Viktor & Rolf, Karl Lagerfeld and Stella McCartney have broken targets. "We've been trying to upgrade for a while and our design collaborations show that we can operate at that level and higher," says H&M investor relations manager Nils Vinge. "If you try to stretch the prices too far for H&M, it will confuse customers.
"There are a lot of customers that don't shop at H&M for whatever reason, and we want them. They are likely to be shopping across the designer and high street sectors. COS will benefit from logistics and economies of scale so we can keep our costs low."
Italian wool suits will sell for about EUR250, shirts at between EUR35 and EUR45 and dresses at about EUR99. In the UK, prices are likely to be above the currency exchange rate, placing dresses at about £79 and suits at £200. The men's and women's collections will be tailoring-based, but there will also be casualwear, with a focus on quality fabrics.
Industry observers believe the time is right for a move upmarket. Edward Whitefield, chairman of retail consultancy Management Horizons Europe, says this could be just the start for H&M. "There are several retail groups that have lots of fascias across different sectors, such as Inditex, MaxMara, Gruppo Vestebene and IC Companys. COS is likely to be the start of H&M's expansion.
"Even if it does become associated with H&M, the retailer has already established its designer credentials in the minds of the public through its collaborations. COS could take market share from Karen Millen, Zara, Jigsaw and Selfridges, through to M&S and Next."
Spanish fast fashion group Inditex is enjoying success with its Massimo Dutti chain, which is priced at about 20% to 25% higher than sister chain Zara. Its sales are understood to be looking increasingly healthy and plans are in place to grow beyond its current eight UK stores.
Inditex managing director Mike Shearwood says there are now more opportunities for retailers to broaden their customer base. "Inditex has more formats and appeals to a wider customer base than H&M, which makes it easier to expand. If H&M targets the right customer it will increase its customer base. Five years ago there were distinct customer groups, but the lines between them are blurring and shoppers buy from both value and designer."
H&M has one of the most highly regarded supply chains in fashion retail, but this will inevitably need to be tweaked for the new concept. Nick Jones, managing director of supply chain specialist Redfern International, says: "The difference between a £30 jacket and a £55 one is often a question of branding and marketing. H&M is definitely moving in the direction that manufacturers want. Price levels from China aren't sustainable and there is more pressure on manufacturers to deliver better quality rather than just cheaper prices. The last thing they want is another discount retailer."
H&M sources about 60% of its product from Asia, half of which comes from China. But Vinge says a higher proportion of COS's stock will be sourced from Europe.
"One reason is because of the shorter lead times, but fast fashion is not a goal as such," says Vinge. "It is more because there are more suppliers in Europe that can offer the quality of fabrics and tailoring we want. There will be new deliveries every day."
COS will be run from the same London offices as H&M, but will be headed by Karl-Johan Persson, son of H&M chairman Stefan Persson. He has been assembling a team of designers and buyers who will run the European operation.
The aim is to open 10 COS stores across H&M markets to trial the concept. However, it is understood that negotiations for a second London store in Brompton Road have fallen through, although H&M is still scouting for more locations in the UK.
H&M's mixture of well-priced fashionable casual and formalwear has boosted UK sales by 10% to SEK6.77 billion (£492 million) for the year to November 2006. And according to Vinge, COS is not an indication that H&M's cheap-and-cheerful approach is losing favour with shoppers. "We still only have 1% of the market in the UK, so there's plenty of room for us to grow here; it depends on where the opportunities occur," he says. "We are opening a big H&M flagship on Regent Street this spring. But COS will enable us to go out and capture a whole new sector of the market."