M&S used to be the biggest initials on the high street. Then came FCUK. And the new No 1? Make way for H&M

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The Independent Online

It started as a small dress shop and a gun store in a Stockholm suburb, inspired by cheap post-war American fashion. Almost 50 years later, the fashion company H&M is poised to overtake Marks & Spencer as Europe's largest clothing retailer.

It started as a small dress shop and a gun store in a Stockholm suburb, inspired by cheap post-war American fashion. Almost 50 years later, the fashion company H&M is poised to overtake Marks & Spencer as Europe's largest clothing retailer.

It is all a far cry from 1947 when a humble salesman called Erling Persson went to America and was impressed by the low-cost clothing stores he saw there. He returned to Sweden and opened a shop called Hennes (meaning "hers" in Swedish) in the Stockholm suburb, with the slogan "fashion and quality at the best price".

Persson also bought a hunting and shooting shop called Mauritz Widforss and changed it into a men's clothing store to widen his range. And Hennes and Mauritz was born.

The company grew slowly through the 1960s and opened its first store in Britain in 1978. It had a reputation for providing good, cheap, if slightly unadventurous, high street fashion. But in 1998, Mr Persson handed control of the company over to his son Stefan, and suddenly the profile of H&M began to rise through word of mouth and increased mentions on the fashion pages of glossy magazines.

Stefan Persson cut supply costs and introduced a huge team of more than 100 designers, mostly female, to revamp the clothes. The brand was also expanded to include children's clothes, sportswear, larger sizes and a luxury range, all of which have broadened its appeal beyond its staple of teenage fashion victims.

Under his control, the family-owned firm's sales have soared over the past five years and the number of stores has doubled, while beleaguered M&S has been hit by falling profits.

A report by market analyst experts Mintel predicts that this year H&M will knock M&S off the European top spot for the first time in two decades. It has more than 1,000 stores in 30 countries; recent closures have left M&S with just 530 shops in the UK and abroad. This year, H&M will launch 140 more stores and open up in countries from Slovenia and Hungary to Ireland. Sales at M&S fell by 2.8 per cent between 1999 and 2003, to €5.2bn (£3.65bn); sales at H&M rose by 73 per cent to €4.9bn.

The canny use of top supermodels and photographers to sell H&M's cut-price copies of catwalk fashions within weeks of the haute couture shows has been a key ingredient of the firm's phenomenal success, the report says. Richard Perks, the director of retail research at Mintel, said: "The real success of H&M has been that it is absolutely in tune with the needs of its target customer market, which is teenagers and young women. It is fast fashion; it gives people the latest trends that are of acceptable quality for the length of time that they expect to wear them for. They are not top-quality but they get the designs from the catwalk to the store very quickly and that is what young customers want.

"They aspire to look like supermodels, and with H&M they can see someone like Kate Moss wearing the clothes in the adverts, then go to the store and buy the same outfit for a Saturday night out."

Moss, Johnny Depp, Sophie Dahl and Pamela Anderson are among those who have been the faces of H&M in recent years.Celebrities such as Victoria Beckham, Claudia Schiffer and Britney Spears are self-confessed fans. The celebrated photographer Richard Avedon has shot advertising campaigns for the company which have only added to its highly successful mix of cheap and cheerful clothes with the couture cachet.

Last week, the legendary haute couture designer Karl Lagerfeld launched his capsule collection for H&M supermodel Erin O'Connor, adding to the company's chic appeal. He said: "H&M's quality is remarkable for price, and this will bring designer fashion to the mass market in a chic way. That's what's truly modern about this exercise. It's very today."

The company sells more than 500 million items of clothing a year, and flagship stores such as the shop in Paris need a daily delivery of three truckloads of garments to satisfy demand. Within the retail industry, H&M is revered for the lightning speed with which latest trends can hit the shops. A garment can move from the design page to a hanger in Oxford Street in just 20 days, compared with Gap, where that takes three months. Only Zara, the other retail success of recent years, has a faster turnaround, at just 14 days, but their prices are 30 per cent to 50 per cent higher than at H&M.

Every H&M shop is restocked every day and clothes rarely stay in store for more than a few weeks. Each shop will stock only two sizes of each item at a time, meaning some items become a fashion "must have" because of their limited-edition appeal.

Nick Budd, a retailing analyst, said: "When you compare H&M with M&S, what you notice is the difference in the stores. The M&S stores look tired. You see the same clothes in the same dated setting. With H&M, the stores look different each week and clothes only stay there for a few weeks. It's called speak-to marketing: H&M speaks to its customers in a way that M&S doesn't."

Yesterday a spokeswoman for M&S would say only that the company could not comment on the speculative nature of the Mintel report. Liv Asarnoj, from H&M head office in Stockholm, said: "I think we are so successful because of the belief our customers have in our clothes. We are very unbureaucratic and we have designers who know what people want."

The designers at the company work in small, nuclear units that specialise in a particular product group. While direct copying of a catwalk garment is strictly forbidden, the designers have become adept at spotting which of the couture trends will translate easily to the high street. The company also claims to have a strong sense of social responsibility. It will not work with PVC because "it's a poison", and has refused to bow to recent trends for T-shirts with offensive, sexist or religious statements printed on them.

The runaway success of H&M has led to serious wealth for the Persson family. They own a controlling 33 per cent stake in the company, which went public in 1974. Stefan Persson, who is 56 and married with three children, is worth £4.7bn, according to The Sunday Times Rich List, making him the 39th wealthiest person in the world.

But there is also a darker side behind the soaring profits at H&M. Campaigners claim that the company manages to keep its prices down by using low-paid workers in Asian sweatshops. The lobby group No Sweat, claims more than 500 workers in an Indonesian factory producing H&M clothes went on strike last year in protest at their illegally low wages. Some workers were earning less than $1 a day for a 60-hour week. Four years ago, after opening stores in the US, H&M was fined by the American Occupational Safety and Health Administration for "serious violations" of workplace safety regulations.

Campaigners say the company has been reluctant to recognise unions and pays extremely low rates to its 40,000 employees. A spokesman for No Sweat said: "The company wants low-priced clothes with a quick turnaround, and, unfortunately, that means you end up with low-paid workers, often having to do forced overtime in poor conditions. Customers should realise that these cheap fashions may not cost them much but people on the other side of the world do suffer as a result." The company has now signed a code of conduct to ensure workers have decent pay and conditions but there are continuing concerns that the guidelines are violated.

And analysts warned that H&M cannot rest on its laurels. Supermarkets such as Tesco and Asda have started encroaching on H&M's core market of fashionable clothes at cheap prices, and rising production costs could hit profits. Mr Perks said: "The real challenge for H&M will be for it not to grow old with its customers. That's what Laura Ashley did, and where it went wrong. You have to keep appealing to that young, fickle market and work out what it is that they want."

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