Inside The H&M Fashion Machine

To remedy a cold, Juliette Bonk recommends aspirin and a new pair of jeans. That's what brings the 24-year-old to the H&M flagship store in Paris on her way home from work one recent evening. Around her, a group of teenage girls trolls for emergency club gear; three Russian tourists buy lingerie; and a shopper misplaces her Louis Vuitton handbag. A gruff female voice breaks through the pop sound track to discourage standing in line for the fitting rooms: "You have 30 days to change your mind and return purchases."

Bonk doesn't bother to try on anything. She doesn't buy the jeans she came for either. "Once again I've been had. But I'm happy," she says, showing off her new beige pullover, a fringed top, chalk-striped pants, a T shirt and three hair accessories. Total cost: $133. If all goes well, Bonk's boyfriend will pay for her goodies, and she'll be back, she says, in less than a month.

By then H&M will have changed its windows, and there will be hundreds of new $13 T shirts splashed with retro sports logos, alongside bulky acrylic turtlenecks and cropped, V-necked varsity sweaters, each for about $19. That's the Swedish company's specialty: serving up a never-ending stream of must-have new looks at prices none of its European competitors can match.

In an age of fast fashion, when every street corner in every city offers the latest look for under $100, H&M is the fastest and cheapest source for trends. And yet it is surprisingly stealthy, based in a modest brick building in central Stockholm and run by a large group of mostly Swedish designers who cull the hippest looks from the multitude of styles emitted by TV, music videos, the street and the runway. With annual sales of about $6 billion, H&M is smaller than Gap Inc. (sales top $15 billion, and the Gap brand represents 46% of that) but bigger than its closest rival, Zara, which reports annual sales of just over $4 billion, nearly three-quarters of its parent Inditex's total.

H&M founder Erling Persson could never have envisioned a future with 900 H&M stores in 18 countries back in 1947, when he opened a dress shop called Hennes (hers, in Swedish) in a suburb of Stockholm. But from the start, he was confident that his idea of stylish but inexpensive fashion--inspired by American high-volume, low-cost clothing stores--could have appeal well beyond Sweden.

In the past three years the company has opened 65 U.S. stores, and according to analysts, is planning to open an additional 35 by 2005. In each market, the stores offer both basic and fashion-forward lines for women, men, teens and children. In every European market it has entered, H&M has put pressure on local retailers, says Francoise Sackrider, a retail specialist at the Institut Francais de la Mode, in Paris. "The high level of goods and the sophisticated environment at these stores wiped out any complexes shoppers had about less expensive stores."