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H&M Goes Upmarket With a New Brand

Shoppers Inside H&M During The Grand Opening Of New Flagship Store on Fifth AvenueShoppers Inside H&M During The Grand Opening Of New Flagship Store on Fifth Avenue
H&M's margins have come under pressure from competition in online fast-fashion. Photograph by Victor J. Blue — Bloomberg via Getty Images

Swedish retailer Hennes & Mauritz is launching its first new brand in three years as it tries to escape the crushing pressure on margins from competition in fast-fashion.

The company said it will launch Arket as a premium concept that will offer “a broad yet selected range of essentials for men, women and children, as well as a smaller, curated assortment for the home,” according to CEO Karl-Johan Persson.

“The brand DNA is timeless, crisp, quality, and warmth,” Ulrika Bernhardtz, Arket’s creative director, told the website Business of Fashion. “Timeless is style beyond trend. And crisp is the counterpart to that: to be always relevant, modern and fresh. Quality is not only the feel of garments; it’s also how they are produced. Warmth is about being genuine and personal.”

Where space permits, Arket stores will also include cafés serving ‘new Nordic’ cuisine, a nod to the need to include features that make a store visit more of an experience than buying stuff online (‘New Nordic’s stress on quality ingredients and healthy living also plays to one of the other hot trends in retail). But that doesn’t mean Arket won’t distribute online – it will launch in 18 European markets soon after the flagship store opens in London’s Regent Street in the fall.

H&M didn’t announce any plans for a U.S. opening Thursday, either physical or virtual. It has already tried the premium concept with Cos, but that brand’s physical presence is largely limited to New York and Los Angeles in the U.S.

The company said earlier this year it would slow the pace of store openings as e-commerce makes the retail space more and more challenging (something reflected in its first monthly sales drop in four years in February). Instead, Persson said H&M would concentrate on getting more revenue out of each store. Going upmarket is the obvious way of doing that.

In doing so, it’s hoping to reverse a 34% drop in its share price over the last 18 months. Its biggest rival, Zara owner Inditex, has eked out a modest gain in that period.

The stock market didn’t like H&M’s news, which also included an announcement that it will have to spend more to bring its supply chain up to speed. Unsold inventory was up 30% year-on-year in March, suggesting it may have to start offering bigger discounts, which would hit its margins. Its shares in Sweden fell over 4.5%.