Business: How H&M Is Remaking U.S. Fashion

Even on a soggy spring morning, H&M is causing a commotion outside its newest store in suburban Chicago. Madonna and Beyoncé blast from giant speakers as workers hand out gift cards to dozens of shoppers lining up before the doors open to the Bolingbrook, Ill., store. These shivering shoppers are attracted by the two things H&M creates best: discount designer duds and get-it-now buzz. "It's, like, the only store I go into at the mall," says 23-year-old Sabrina Biziarek, while clutching her gift card and waiting for the doors to open.

Since its first U.S. store opened in 2000, H&M has transformed the calculus of cheap chic. With an in-house staff of 120 designers and a nimble network of Asian and European factories, the Swedish retailer can move the latest look from runway to rack in three weeks. And H&M sells high style at crazy-low prices ($3.90 necklaces, $29.90 minidresses). America has become H&M's fastest-growing market, ringing up $231 million in sales this year, up 30 percent over last year. Analysts believe H&M's 129 U.S. outlets could eventually grow to 1,000 stores. "It's in-and-out fashion," says retail analyst Candace Corlett. "They're raising shoppers' expectations for fast, furious, new."

Other European fast-fashion chains are hot on H&M's high heels. Spain's Zara has already set up shop in the United States, while Britain's Topshop arrives next year. Even discount retailer Steve & Barry's is trying to get in on the action with its new line of low-priced basics designed by "Sex and the City" 's Sarah Jessica Parker. But doing quick knockoffs of top designers can lead to trouble. Forever 21 is being sued by designer Diane von Furstenberg for copying her couture. Instead of fighting H&M, though, many of the fashion elite are joining it. Stella McCartney knocked off herself for H&M with a line that included $79.90 sweaters that looked like the $1,665 versions from her Gucci Group collection.

How does H&M get designers on its side? It is careful not to directly rip off their looks. "We don't copy the catwalks," says H&M chief designer Margareta van den Bosch. "We take inspiration from what's happening in the culture, with celebrities and on the catwalks." H&M is ramping up its celebrity hookups. This spring, its Madonna line—a $59.90 "naughty secretary" dress; a $34.90 black corset belt—was a sellout, and now it's rolling out a beachwear collection by Australian pop singer Kylie Minogue. Karl Lagerfeld and Dutch designers Viktor & Rolf have also created cut-rate couture for H&M. The hook: their collections are in stores for only a few weeks.

For decades, Hennes & Mauritz has clothed the "hip & modish" in Europe. Its fast-fashion formula puts a twist—like a different color or fabric—into a look first seen in Milan or Paris. It also mixes street with runway. If five kids come into an H&M store asking for a new hip-hop print, their request gets e-mailed to Sweden, where designers go to work on it. To see how all this translates, NEWSWEEK went shopping with Faran Krentcil, editor of, at H&M's Fifth Avenue store in New York. "I'm freaking out; this is fabulous," Krentcil raves as she finds a $39.90 gray bohemian shift dress. Chloé offered a similar frock on its spring 2007 runways, but the designer version had a smocking front layered with gold and turquoise. "H&M has taken away all the embellishments, kept it a monochrome color and replaced its crazy gold embroidery with peasant lace. If you wear this, nobody will know where it came from."

As H&M moves into the heartland, though, there are fewer fashionistas up on the latest look from Miu Miu. "It has taken a bit longer to get adopted in the Midwest," admits H&M U.S. president Sanna Lindberg. So H&M took out ads in local papers to explain its frugal fashions. "It's great to know that if I see something in a magazine or on TV," says Cleveland sales rep Nancy Caspell, 27, "I can find it at H&M without having to cash in my 401(k)." Apparently bargain hunters are fast-fashion learners.