is betting outlets such as COS can help for two-thirds of Inditex revenue, it expand its appeal beyond budget- comprises just one-third of the com• conscious young shoppers. The plan pany's 7,300 stores. H&M, by contrast, is to add 80 stores from the company's only started diversifying in 2007, when half-dozen smaller brands this year, vs. it created COS-or Collection of Style. 350 more H&M outlets. That includes a It added three more youth-oriented new concept called Arket, a higher-end concepts in 2008 with the purchase of shop with clothing, home goods, and a Scandinavian retail group, then intro• a cafe serving Scandinavian-inspired duced the premium women's wear line dishes. The first Arket store-the name & Other Stories in 2013. Those brands means "sheet of paper" in Swedish, today make up less than 10 percent of a reference to starting with a blank the company's almost 4,400 stores. slate-is scheduled to open this fall on While H&M doesn't break out its London's Regent Street, followed by revenue, Bryan, Gamier & Co. analyst branches in Brussels, Copenhagen, and Cédric Rossi says sales from the smaller Fashion Munich. "This isn't like anything else brands account for about 5 percent of we have," says H&M Chief Executive the total. The Taming of a Officer Karl-Johan Persson. "It's a com• The new concepts aren't a bad idea, Teen Emporium pletely different expression." Rossi says, but it's more important to fix The push beyond the flagship brand the flagship brand. He says Zara is more comes as H&M's margins have been fashion-focused, and with factories in • Seeking a broader customer narrowing. Goods from Asian suppliers, or near Europe, Inditex can respond base, H&M is creating brands priced in the strengthening U.S. dollar, faster to runway trends than H&M, • Hitting "a point where it becomes have become more expensive, pushing which ships most of its goods from challenging to keep up growth" net profit down to 9.5 percent of sales Asia. "What's absolutely necessary is to today, vs. almost 26 percent in 2007. return to growth in existing locations At the H&M store on Boulevard And with increasing competition, H&M at H&M," Rossi says. "Without this, the Haussmann in Paris, teens comb racks has had to resort to deeper discounts business isn't sustainable." packed with velour tank tops as tourists to clear its shelves. The company's H&M says it's working to reduce lead load up on cheap jeans to a soundtrack shares in March fell to their lowest times so fresh products get to stores of bouncy pop music. While the bustle level in four years after H&M reported more quickly. And it says it's automat• and bargains once appealed to Pierrick inventory levels were up 30 percent ing warehouses and improving data col• Beringer, at age 35 he prefers quality to year-on-year. "When you've got a very lection so shortages and overruns can quantity, so these days he's more likely mature brand, you reach a point where be addressed more quickly-reducing to turn the corner to a store called COS, it becomes challenging to keep up the need for margin-busting mark- where the pace is far calmer. "I like growth," says Maureen . „„ , downs. "We haven't been as precise, 0 J the shape," the hairstylist says, pulling ' A COS store, more exact, and flexible as we could have Hinton, an analyst minimalist than a thick-cotton T-shirt from a display. been" in logistics, says CEO Persson. at GlobalData VVAfi H&M and targeting a "And it's less well-known, so you don't "We see big improvement potential." London. " Wve got to ditferent niche see it everywhere." Longer-term, though, it's smart to find new niarkets and new customers." For H&M, that's not a problem, also find a broader customer base, That has spurred the multibrand because both establishments are says Anne Critchlow, an analyst at effort/which largely emulates a strat• creations of Hennes & Mauritz AB. Société Générale SA in London. With egy the world's No. 1 fashion retailer, Faced with falling profit amid com• COS, & Other Stories, and now Arket, Inditex SA, has pursued since 1991. petition from rivals such as Zara and the company can target different The Spanish company owns Zara Primark Stores Ltd., as well as online niches at the top end-where custom• and seven other brands including the players like Amazon.com Inc., the ers have more resources and prices Ita ian-themed Massimo Dutti, teen- Swedish retailing juggernaut is beefing are higher, she says. Dresses at COS focused Bershka, and Oysho lingerie up its portfolio of niche brands. H&M start at €55 ($59), compared with €10 stoies. While Zara continues to account at H&M, while the cheapest jeans at COS are €69, vs. €20 at H&M. "Young value fashion has become extremely crowded," Critchlow says. "Lifestyle retailers have less competition." —Robert Williams, with Anna Molin The bottom line As competition heats up and margins narrow, H&M is emulating the multibrand store strategy of its rival Inditex. £^ Edited by James E. Ellis and David Rocks Bloomberg.com .