August 5, 2012

Lessons learned from the times when H&M was a startup



The above videos shows what happened when the retail-clothing company H&M opened a store in Toulouse, France. You may think that this is extreme, but this happens every time H&M opens a new store somewhere in the world. When the first H&M store opened in Japan, people lined up at 6 in the morning, and waited for hours before they could get inside. One may think that H&M is a short-lived fashion trend - but H&M was founded in 1947 by the Swedish founder Erling Persson. Here are some lessons learned from the times when H&M was a small company - not the huge company it is today. You can now find 2300 stores in 43 countries.

Lesson 1. Learn how to sell
As many other entrepreneurs, such as Ingvar Kamprad who founded IKEA and Warren Buffett, Erling Persson was a busy young man. He sold meat, he sold Christmas magazines and other smaller products such as pens, and he also sold merchandise to his army buddies. Sweden used to have a mandatory military service, and almost everyone were recruited, including future billionaires such as Ingvar Kamprad and Erling Persson.

Lesson 2. Move to a large city
Erling Persson moved in 1938 from the small town Västerås to Stockholm, the capital of Sweden. The reason was that he thought he would have more possibilities in a larger city. This is the opposite to Ingvar Kamprad who founded IKEA from Elmtaryd. Elmtaryd is no city at all - its a ranch hours away from civilization. Erling Persson's father said when his son left for Stockholm: "Go away son, you will soon come back." Nine years later, his father had to sell his store in Västerås and move to Stockholm to help Erling Persson with H&M.

Lesson 3. No fear
Before Erling Persson founded H&M, he imported pens from Germany, and once he had to fly down to Hamburg to discuss an issue with the supplier. This was in 1942 and in the middle of the Second World War. Sweden was a neutral country, so it was business as usual with Germany. During the night, the allied bombers flew in over Hamburg, and Erling Persson had to run down into the basement, where he and the other hotel guests drank whiskey. The next morning, he realized that the building next door had been bombed beyond recognition. In the 1980s, H&M opened the first German store very close to this hotel - hotel Vier Jahreszeiten.

Lesson 4. Find inspiration from another culture
Erling Persson traveled in 1947 on a road-trip through USA. It was during this trip, when he visited the retail chain Lerner (New York & Company today), he found the idea to found H&M. Shoes in the US were 75 percent cheaper compared with shoes in Sweden. Why were they so expensive in Sweden? He also found inspiration from the dutch retail chain C&A. The basic business idea behind H&M was to sell fashion cheaper and faster compared with the competitors.

Lesson 5. Make sure to test the idea before the big launch
The first H&M store opened 1947 in Västerås - not in the larger city Stockholm. Erling Persson picked the smaller city because if the idea failed, his reputation in Stockholm would be damaged. He said:
"No-one will notice if everything goes to h*ll, but if everything goes as planned, we open another store."
The name of the company was now "Hennes" - not Hennes & Mauritz (H&M) as it is today. Erling Persson found inspiration for the design of the logotype from Harrods in London.

Lesson 6. Accept ups and downs, and learn something from it
One year after the first H&M store opened, a fashion designer in Paris designed a new skirt. This skirt was longer compared with the skirts Hennes sold in Västerås. The trend with longer skirts spread to Sweden, so the entire warehouse with skirts Hennes had became outdated. Erling Persson managed to survive this crisis, and the next Hennes store opened in 1949. He learned a couple of important lessons from this crisis:
  • Never grow too fast - 15-20 percent a year is enough - "hastening slowly" is the philosophy. It took H&M 50 years before they decided to open the first store in the US
  • You need to have a financial strength - H&M has to make money before H&M can spend the money
  • Purchase the products several times during the year - not once a year to minimize the risk of being on the wrong side of a fashion trend. "We shall follow the fashion - not create it"
  • Minimize the products in the warehouse - each day a product is unsold, it costs money  

Lesson 7. You don't have to be a public company
H&M is today a public company you may invest in on your own. The decision to go public was based on the theory that the money H&M made on their own was not enough to build a global company. This proved to be an incorrect theory, since H&M could have become a global company with their own money. One other reasons was to minimize the taxes that had to be paid when the owner of the company passed away. In total, you had to pay - at this time in Sweden - about 300 percent in taxes when the owner passed away. The decision to go public is today a decision H&M regrets. Too many people have had too many unqualified opinions about the company, and the founders family have paid too much taxes on the dividends. It is today too late to make the company private again - the valuation is way too high.

Lesson 8. Stick to what you can become the best in the world at
This is similar to the findings from the book Good to Great by Jim Collins. The book says that you should focus on one thing only - the thing you can become the best in the world at - if you want to build a great company. The profits decreased in the 1970s because H&M became too ambitious since they wanted to compete with more expensive and luxurious fashion retail stores. But you can't compete with the more expensive stores in the same way you compete with the cheaper stores. The philosophy today is to stick to the basic idea - and "tune it" a little bit while moving forward.

Lesson 9. Practice is more important than theory
Erling Persson loved a quote by a Norwegian professor:
"If you take all the economists in the world and one after each other lies them at the Equator - then that's a very good idea"
H&M needs economists and academic theories - but everything has to be tested against the reality. It is the reality that decides how H&M should be managed. Computers can't forecast everything, and computers can't replace what H&M believes is the most important knowledge: "the common sense."

Erling Persson - founder of H&M. Source: Näringslivshistoria

Source: Handelsmännen (book only available in Swedish), Wikipedia

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