STOCKHOLM Budget fashion chain Hennes & Mauritz(HMb.ST) is applying to open stores in India, joining a rush of international retailers looking to expand in Asia's third-biggest economy on the back of government liberalisation measures.
The Indian government has been pushing through controversial economic reforms which relax rules on store opening by foreign retailers, arguing these measures would help revive the economy, and H&M said it was preparing to apply to start wholly-owned subsidiaries in the country.
Like Swedish furniture maker IKEA, which is waiting for final approval of its own application, H&M hopes to cater to a growing urban middle-class with a strong demand for western-lifestyle products.
H&M Chief Executive Karl-Johan Persson said after presenting H&M's India plans to Trade Minister Anand Sharma in New Delhi on Tuesday that the Indian market had huge potential.
"We will start with a few stores ... and we will see if everything (goes) as we hope, then we will expand heavily from there," he said in a statement released by the Indian government.
H&M, the world's second-largest apparel retailer after Zara-owner Inditex(ITX.MC), has the bulk of its business in Europe, where demand has been hit by the region's debt crisis.
"India represent a significant opportunity for clothing chains and it makes sense for a global player like H&M to seek to expand there. There is no reason the fast-fashion, value- oriented model should not work in India," Neil Saunders at retail consultancy Conlumino said.
India last year opened up to full foreign ownership of single-brand retail firms. Foreign retailers wanting to invest in India beyond the previous cap of 51 percent will need to source 30 percent of their goods locally and Persson said H&M would increase its sourcing in the country.
Inditex, which entered India in 2010 through a joint venture with Tata Group-owned Trent Ltd(TREN.NS), has said it has no plans to change the way it opens stores there.
India's bid to open up to foreign retailers such as supermarkets has stirred criticism from some local traders, who say it will wipe out small, family-run neighbourhood stores and trigger mass unemployment.
Yet Sanford Bernstein analyst Jamie Merriman said it made sense for H&M to aim for India as it was an attractive, albeit complicated, market for retailers.
"Although, if you think about how long it takes H&M to build up scale in most markets, it's probably going to be a while before that would happen in India," she said.
(Aditional reporting by Matthias Williams in New Delhi and Sarah Morris in Madrid; Editing by Alistair Scrutton and David Holmes)