Source: Financial Times, Friday January 26, 2007
Gap takes on H&M in race for upmarket growth areas
H&M profits soar on improving sales
By Elizabeth Rigby in London
H&M yesterday beat profit expectations on the back of improving sales and tight cost control, writes Elizabeth Rigby.
After a weak start to 2006, it reported a 12 per cent rise in turnover to SKr68.4bn ($9.8bn) over the year on the back of a strong second half.
Pre-tax profits 17 per cent to SKr15.8bn in the year to the end of November, against analysts' consensus of SKr4.94bn. The positive trend continued in December, with sales up 16 per cent.
H&M, which is now Europe's second-largest fashion retailer after losing the top spot to Inditex at the beginning of last year, said operating margins rose to 22.4 per cent, from 21.5 per cent last year, after switching sourcing to cheaper locations.
Gap will open its first Banana Republic store on the UK high street next year, as it joins rival Hennes & Mauritz in bringing more upmarket stores to London in a quest by the global fashion chains to find new avenues of growth.
Sweden's H&M, which already has 112 stores dotted through the UK, said it was planning to open its first store under its new premium brand COS – Collection of Style – in Regent Street in March, with 10 more in the pipeline across the UK, Germany, the Netherlands and Belgium.
Meanwhile, Gap, the struggling US retailer which this week announced the departure of its chief executive, said it was planning to bring its more exclusive Banana Republic brand to the UK, with a new store – also in Regent Street – in 2008.
The decision by H&M, Europe's second largest fashion retailer behind Zara owner Inditex, and Gap, the US's biggest speciality clothing chain, comes at a testing time for fashion retailers in the UK. A number, such as Next and Debenhams, had a difficult Christmas faced with a resurgent Marks and Spencer.
Gather further information on H&M and Gap and compare the respective strategies through the concepts of portfolio analysis.
What type(s) of diversification does H&M have in its portfolio? Compare this with Gap.
Characterize the strategies of Gap and H&M in terms of strategic options the combine in their respective overall strategies.
What difference do you see?
What are their experiences in different countries and markets when positioning themselves.