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Last Updated: Friday, 16 March 2007, 00:28 GMT
H&M heads back to basics
By Clare Matheson
Business reporter, BBC News, Regent Street, London

COS womenswear
COS believes it has a unique sense of style - in store and on the shelf

Fashion retailer Hennes & Mauritz (H&M) is trying on a new concept for size.

The group has just opened the first shop in its new COS - collection of style - chain on London's Regent Street, which is currently being given an upmarket facelift by Crown Estates.

Gone are the jumbled rails, crammed with colourful trendy items familiar to teenagers and trend watchers alike who regularly thumb through the clothes at its H&M shops.

In its place is a more sedate offering - all modernist wood and metals designed by William Russell, whose clients include fashion designer Alexander McQueen - filled with neutral tones and styles.

New look

COS aims to go back to basics, creating a classic wardrobe for the mid-market consumer who wants "designer quality at High Street prices".

"We wanted to make a different store to H&M, a different store experience," H&M chief executive Rolf Eriksen tells the BBC News website.

"We're looking at another target group, creating completely different interest.

We're in a unique field with a unique store and look, we believe there's a lot of opportunities
Karl-Johan Persson, H&M

Verdict's senior retail analyst Maureen Hinton says the market segment COS is targeting is far from new, though she does believe that H&M has picked up on a trend for consumers to trade-up.

"What's been happening is that price has been the main driver, consumers have become saturated with low-cost products and can get their hands on whatever they want," she says.

Rather than heading for cheap chic stores like Primark, shoppers now want better quality items that last.

"From H&M's point of view - as a global power that's expanded over many, many years - it is looking for new growth opportunities," Ms Hinton says.

"It's moving upmarket, not into the same arena [as its existing label] - rather like the Inditex model which has many brands that can expand in different arenas."

And COS seems to be doing just that.

Its prices range from 5 for a pair of knickers to 150 for a soft leather coat.

Expansion eyed

Looking ahead, the group remains tight-lipped on what it hopes to achieve in future.

"Targets we can't talk about," says H&M's head of expansion and business development, Karl-Johan Persson.

"But we are within our expansion budget for the year."

COS entrance to store
COS is a more serene offering compared to its sister H&M stores

H&M plans to roll out another 10 COS shops this year.

By the end of the month there will be five open in Germany, one in the Hague and one in Brussels.

But with High Street fashion retailers weathering turbulent times at the moment, is it such a good idea?

Earlier this week, French Connection, one of COS's neighbours on Regent Street, announced that its pre-tax profits had sunk to 4m from 12.2m a year earlier.

Like-for-like sales at Next fell 7.5% during the last five months of the year.

And recent Office for National Statistics figures showed poor clothing sales drove down overall consumer sales in January.

Market worries

In contrast, H&M seems to have shrugged off the problems.

Its full year pre-tax profits rose 17% to 15.8bn Swedish kronor ($2.25bn; 1.16bn) to 30 November 2006, while underlying sales grew 12% to 68.4bn kronor.

But all is not rosy in the H&M garden.

In its biggest market Germany, which accounts for more than a quarter of its business, sales fell 4% in 2006.

Some experts predict the situation could get worse after value added tax was raised to 19% in the country, a development many forecast would weigh on consumer spending.

What matters is whether or not the punters like it
David Stoddard, Teather & Greenwood

Meanwhile, competition is getting fiercer as more names muscle in on its territory.

H&M's main rival Zara - owned by Spain's Inditex - overtook H&M in terms of sales last year.

The Spanish retailer has also been more aggressive in China.

Many experts view H&M's latest innovations - the COS chain, development of a homewares line and push into Asia - as a direct bid for the firm to regain its crown from Zara.

But Mr Eriksen suggests the COS move is merely a natural progression for the group.

Mr Persson in charge of expansion at the group adds: "We can see the opposition but we have to be better.

"We're in a unique field with a unique store and look, we believe there's a lot of opportunity, but it's up to the customer to judge."

Secret of success

Keeping the customer at the heart of the business will be key to COS's success.

The shop already appears to be taking this to heart with the conversational signs dotted around the shop - including "Stop! If you're male you may want to turn left" and "Come and try it out for size over here" rather than the usual Fitting Rooms.

COS menswear department
H&M plans to open another 10 COS stores this year

"What matters is whether or not the punters like it," says Teather & Greenwood analyst David Stoddard.

"H&M's position is nothing new - its offered by Inditex, Baugur and Mosaic. They have to trial things to see if they work.

"Once it's open you can guarantee some things will work really well, some won't at all, and some will fall in the middle. What they have to do is build on things that work."

Verdict's Ms Hinton agrees that the customer is key.

"I think the retailers that haven't been doing well are the ones that have lost the plot and are stuck in a rut," she says.

"They've forgotten about their customers. Next kept to a standard offer and their customers moved on leaving it behind.

"Hobbes is doing incredibly well, it's in tune with what people want. River Island is still successful.

"I think the one's that are winning are the retailers that are demand-led and not supply led."

And Mr Eriksen is unlikely to forget the mantra that the customer is king.

"Give us a little time, we're at the beginning of something here. We hope to see you in the store soon."

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