Good morning and a warm welcome to today. We are delighted to see you all here and to have this fantastic opportunity to tell you more about our business and our future plans. This is, of course, increasingly important considering the transformation that our industry is going through at the moment. This transformation is creating challenges, but we look upon it as it's also creating great opportunities. There are about 100 different opinions about where the industry is going at the moment.
But there is one common opinion, and that is the combination of brick and mortar and an efficient digital operation, and that is the way to success. And that is where we are positioned at the moment. In preparing for this day, it has been important to listen to you in the financial markets and in the media and what you wish to know about our business and what we have for plans for the future. We know that there are some uncertainties about where the H&M Group stands, and there are a few aspects and doubts. We're here today to straighten those out and correct any potential misunderstandings.
We understand the need to be more transparent and to provide additional information in light of the shift in the industry, especially since we have had a challenging year also where we have underperformed both against our own plans and, of course, market expectations. Considering our new brands and their financial performance, we may have perceived as not being forthcoming with disclosing information externally. But the reason for this has been that we want these brands to develop and grow without too much pressure from the financial markets and the quarterly focus. That can sometimes lead to some short term thinking, and that is not good for when you start a business. But today, we will tell you about the sales and the profitability for our unit new business as a whole and of costs particularly.
Now when costs has grown to become a solid, stable and a well known brand, it is a good time to open up and tell you more about it. And the same goes, of course, for our online business. We hope today that we will meet your expectations by giving you more information about H and M as a group and by putting more facts and numbers to the pictures that we have painted to you before. Our ambition is to guide you through the day in a clear and, I hope, inspiring way, starting from our current status, taking you through to where the group is going and heading and how we plan to get there. To be able to do this, we have gathered some of our colleagues from different parts of our group, Karl Johan Persson and Jyrki Tervonen will start by giving you a brief overview of our group and our actions, where our main focus is to get the sales development for the H and M stores back on track, which your team also from the H and M brand will tell you more about.
This will be followed by a presentation about our newer and the latest brands. And also, we will have a presentation about our sustainability work. In addition to this, you will also have the opportunity to ask questions throughout the day. And we look forward to seeing you all during a lunch break when you will have the opportunity to mingle with our teams in our pop ups. Mingle in our pop ups, that's a good sentence.
Where we will show and tell you more about our brands and the digital development of our business. And after the presentations, we will end the day with another opportunity to mingle and to answer any questions that you may still have. Well, we have a full program. So again, a warm welcome here today. And now let's get started.
Good morning, everyone, and welcome to H and M's inaugural Capital Markets Day. It's an absolute pleasure to be here today as your host and moderator for the duration. My name is Rachel Arthur, and I am a journalist by background and today the Chief Intelligence Officer of an innovation firm called The Current. Throughout my career, I've always been heavily focused on how fashion and retail are being affected by evolving consumer behavior at the hands of technology and consequently the enormous transformation that the digital era has brought about alongside. When I began on a news desk there was no Twitter, there was no Instagram and there certainly weren't any clothes being sold online.
Of course, things have radically evolved since then and what we've witnessed is a huge shift for our industry as a result. That makes for an enormous challenge for big businesses looking to keep up with how their version of reality has fundamentally changed. But it's also an incredibly exciting one laden with opportunity for the likes of H and M to evolve forward and become ever more successful. So to follow-up on what Stephane said some general information about the day before we get going. If you haven't already, do make sure you download the event app that's available where you'll be able to find the full program for the day as well as contact information and a map detailing the brand pop ups and the tech meetup exhibition areas that we have here on-site.
Later on, you will also be able to find copies of all the presentations we have on stage on the app and on the website once the day is over. The day will also be webcast and available on the website from tomorrow. We will also have an in house photographer and pictures will be uploaded on the site throughout the duration. Now as we know we are all here to get an overview of the H and M Group's strategy and development and how they're looking to drive future growth. Throughout the day, there will be presentations focused on this given by the CEO, the CFO and representatives of the H and M brand, new business, COZ, H and M Home and Sustainability.
We think a lot of your questions will be answered by these individuals throughout the day. Thus, we will finish this afternoon with a Q and A session. I kindly ask you therefore to save all your questions until then when we've purposely left quite a big chunk of time to make sure we can answer everything that you want to know. Outside of that, however, we will also have a long lunch session to give you plenty of time to visit all the brand pop ups and the tech meetups that will be displayed. And there you will be able to meet with representatives to learn more about the brands and the tech features being focused on.
And then once the program is over, we will all meet to mingle in the foyer. So again, lots of additional time for you to ask any questions that you might have. So given that we have quite a long stretch ahead of us, let's jump right into the program. To begin, let me hand over to CEO, Karl Johan Persson and CFO, Jyrki Turvinen. Thank you.
Hello, and a warm welcome to what we hope will be a great and informative day. We have a very intensive program ahead of us. Jyrki and I will start to give an overview of our view of the market. We will talk a little bit more about our group. We will talk you through our strategic action areas, and then we'll end with some comments on the financials for 2018 and the U.
S. From 2019 to 2022. This presentation, the first presentation from us here, I hope, will set the scene well for the rest of the day when more colleagues will go more in detail in specific areas. So I think it's worth flagging already now that you will probably have a lot of questions during the first presentation, wanting more details and so on. So bear with us.
I think many of those questions will be answered during the day. And if not, we hope to be able to answer it during the Q and A session. If we start to look at the just a few words about the market. As most people know, the apparel industry is a huge industry. It's the 2nd biggest only behind food.
It's an industry that has grown the last 5 years. In constant prices, it has grown by 6%. And I think we can be fairly confident in saying that clothes and fashion will always be relevant. It's also an industry that is expected to grow by 10% for the coming 5 years in constant prices. And as you'd expect, most of that growth is coming from online sales that will grow rapidly.
The online penetration went from approximately 7 percent in 2012, and it's expected to go up to in the range of 20% to 25% by 2020 year 2022. So rapid online growth and that we all know. Many people then assume that with online growth, store sales will rapidly decline. In many markets, yes, that's the case. We see store traffic declining to many shopping centers and to many store locations around the world.
But in total, store sales is expected remain flat or maybe even show a slight increase. So it's a large market. It's growing. It's relevant. And the H and M Group that although we are big, we're a big company, we only have 1.7% market share.
So there's plenty of room for growth. But it's also a market in a big transformation. It is the transformation is happening fast, and it is challenging everyone. And the catalyst for this transformation is technology innovation that is driving changing customer behaviors and changing the competitive landscape. And it's not only one technology, it's a set of technologies.
And you know this, it's about AI, AR, robotics, Internet of Things and many, many more. The most important thing being that most people have more and more people have access to mobile phones and digital commerce is growing rapidly. And of course, also the fact that prices for these innovations are rapidly declining and at the same time, the performance is rapidly increasing. So more companies, big and small individuals around the world now have access to these innovations. So what we're seeing is a change in customer behavior as a result of this and also the customers are expecting more and more from all companies.
They are expecting more in terms of they want a more personalized offering, more curated and tailored offering when it comes to the assortment, how we set up our stores, physical and online stores, how we communicate with our customers. They want a hassle free shopping experience when it comes to finding products, payments, deliveries and of course, to be able to shop anywhere, anytime. Also increased expectations when it comes to sustainability. We'll come back to this later during the day. And probably the most important part, more and more demanding when it comes to the core, the products, wanting even better design, higher quality and better prices.
And with the transparency that comes with the mobile phone, the easiness of comparing different product offerings from companies, This is a very important part that I will come back to. We also see a changing competitive landscape. Just a few words on this. It has changed quite a bit over the last 10 years. And just to mention a few areas, we know about the big online platforms, and I'm thinking about Amazon and Alibaba affecting our industry as they are affecting all industries.
And they have a size and growth I don't think no one has ever seen before, constantly reinvesting cash and generating new growth in the areas that they are in and taking steps into new areas. So really impressive and this will just continue. And then we have a whole bunch of new business models popping up, small and big companies. Many are backed by venture capitalist firms growing at rapid with rapid rates, many acquiring a lot of that growth and many are making losses as well. So a lot of good companies in this field, new business models, but also competing in new ways.
And then we have a lot of smaller pure online players, niche online players. And with low barriers to entry into the market, the possibility to connect globally, there are a lot of new companies popping up, taking a small of the market, limited product offering, but doing that particular part really well. And normally quite small in size, but there are many of them. So as a joint force, it's definitely a force to be reckoned with as well. And then we have the fact also that we're seeing declining traffic to many store traffic to many store locations around the world.
And this is obviously putting a lot of pressure on many companies, leading to price pressure. We see a lot of deals and discounts around the world. And all companies are in different phases of adapting to this new market. And I think I mean, we all need to invest to transform, and there are many companies maybe lacking the resources to do the necessary investments in this transformation. So I think we will see more store closures in the years to come, and the market will definitely there will definitely be a lot of uncertainty.
But the H and M Group, we're well positioned. We believe, as you heard earlier, that an omni channel model is a winning model with profitability, not only in the store channel, but in the online channel as well, with direct control of the brand experience and direct control of the customer relationships. So that was a short overview of the market. If we look at the group, it's not only one brand today, it's not only H and M. We have a portfolio of brands.
Today, we are 9 brands, each run by a separate team. You will meet some of them later today. They have their own unique business idea, their own unique identity. All the brands, they have proven business models, online and offline. They are globally scalable, and there is plenty of room for growth ahead.
So we have a tremendous asset in this portfolio of brands with all the growth opportunities that we have. And then we also have a lot of shared group assets that we have built up over the years. Shared assets that help the existing brands to improve and help us to launch new business ideas and the brands successfully. And just to mention a few, we're talking about our supply chain. We're talking about all the data that we have in the group and the AI power that comes that's connected to that.
We're talking about the whole tech foundation, our sourcing capabilities, our store network, the online platforms and all the skills and support from all the multi brand functions and the country organizations. So we have a tremendous asset in these shared group assets as well. Later this year, we will launch the 9th brand, Afound. You will hear more about that from Peter. It's a very exciting initiative.
It's the first time we as a group really have opened up to the external brands to collaborate more with them to create what we believe will be a really exciting offering in the off price market, and the off price market is huge. And then I think it's worth mentioning also that quite recently, we set up a small investment arm. It's called Colab. We have done 10 investments so far, quite small. We have invested SEK 230,000,000.
We obviously believe that this amount will be worth more in a number of years, and we will keep you informed about the progress for this initiative. But we are looking to invest in companies in specific areas with a strategic fit to our group, where we feel that we can help these companies and to develop and where we can develop as a group as well. And obviously, we're aiming to generate good financial returns. Another thing I wanted to touch on is something we call our way. It's our business philosophy.
It's based around 4 areas. It's important to talk you through briefly in order to understand as well how we think about business. The first part is we are a customer focused company. We have a customer first approach, and that has been with us since 1947. And that maybe sounds obvious, but it's very central to our business.
We always put the customers at the center of everything we do, constantly try to understand our customers, their behaviors and expectations and make sure that we have the best offering and the best experience for them. In order to do that well, we must start with the desired state first and to do what it takes to get there, including be prepared to change our internal processes and ways of working. And we must constantly reinvest to improve our product offering. That's the first part. The second part is our culture.
Our culture has also been with us since 1947. It's based on 7 values. I'm not
going to talk you through all
of them, but it's a unique and strong company culture that we have. It's been a very crucial part in our successful journey since 1947. It's also been a crucial part in the years where we haven't performed up to our expectations in bouncing back from that, and it will be a crucial part this time around also. Thirdly, it's about sustainability. It's something that is deeply integrated into all parts of the business.
All functions, all brands, all countries have sustainability goals. It is deeply integrated because we believe it is the right thing to do to take a wider responsibility, and it's also deeply integrated because we believe it makes perfect business sense. As I said earlier, customers demand more when it comes to sustainability, and colleagues do as The final part here is to have a long term view. And this, we have spoken about a lot. It's a very, very important part, especially being listed a listed company.
The stock market can be a bit short sighted at times, and it's especially important during turbulent times to remember this. And what it is about? It's about we believe there are good profits and bad profits. Good profits are based on making great things for customers, treating colleagues well, making sure that colleagues are motivated and about good sustainability work. It's also about investing for the future, investing in the existing brands we have and also investing in new growth engines.
So
it's about
the long term view, but it's important to point out, of course, also that it's we also need to deliver good results in the short term. And that we haven't done well enough the last couple of years, below our expectations, disappointing ourselves and below your expectations, and I know disappointing many others as well. So this is something that we're working hard to get back to a better level, and we'll explain more about this during the day.
Okay. Okay. Good morning, everyone, and Happy Valentine's Day. I'm Jyrki Tervanen, and thank you all for joining us here today. Karl Johan just gave an overview of the market and also our group.
I'll continue to have a high level financial overview. I'll start with a snapshot of the sales and profits for the year ended November 2017. After that, I'll continue with a short overview of the performance over the last 10 years. I will divide it in the group total, the H and M brand, new business and also divided per sales channel, that's store and online. Finally, I'll take you through our strategical growth investments, also what they have given us so far, but also what we expect from them in the future.
I'll always also go through the investments for 2018. So let's start. The group total for 2017 ended up with sales including VAT SEK232 1,000,000,000. The store channel contributed with over SEK200 1,000,000,000 and online with SEK29 1,000,000,000. The share of online, 12.5 percent on a total level.
Moving to our biggest and most established brand, H&M. It contributed with SEK215 1,000,000,000, online SEK26 1,000,000,000, a share of 12%. And finally, our new business group, which is the 7 newer brands like Kos, Other Stories, etcetera, They had a total top line of SEK 17,300,000,000 store side above SEK 14,000,000,000 and online SEK 3,000,000,000 a share of 17%. Let's have a look at the profit for the group and the H and M brand and the new business group and also excluding or showing costs specifically. We choose to give it in reason for choosing this is simply that we think it's giving a better view of the operational efficiency, especially when comparing newer brands, which still are in a start up phase.
So even though we exclude the administrative expenses, they have an organization, sales organization, which is catering for much more stores and much more selling. So we try to make them more comparable. That's the reason. Okay. The retail profit for the group was about 18%, the store side 17.5% and the online was 22.6%.
As you all can see, the online channel is very profitable for all our brands. And one important factor behind that is, of course, our strong store network, which helps us a lot when entering a new market. It drives our profitable online growth. As you can see, also new business has a lower retail profit, but the reason is simply that there are a lot of brands which are in the start up phase. For instance, Afound, we haven't yet sold anything, but we have, of course, a lot of cost already.
Looking at the costs. Even though we started the opened the first stores in 2007, it's still in an early stage. We see a huge potential many years ahead to grow that brand to something really amazing. But we are already at a good profit level when comparing costs. It's already 18.4 percent and the store side 17.6 percent and online almost 30% margin.
So our new brands, they have a really strong online offering as well. During the last 10 years, we have more than doubled our turnover, sales including VAT to SEK232 1,000,000,000. It's a growth of 140%, meaning that we achieved more sales during the last 10 years than we did during our 1st 60 years of existence. So it's a huge increase in turnover. It's happening a lot during that period.
In these 10 years, we more or less went from being a single brand company to a multi brand company. Today, with 8 brands, soon to be 9 when we launch Afound, you will hear more about those brands from Pieter Ekevera later today. In 2,007, we were present in 29 markets with approximately 1500 stores. On 8 markets, we have an online offering. Today, we have more than 4,700 stores in 69 markets, giving us a strong and unique store network across 6 continents.
Opening up new stores, it's a good business case for us. It's very strong. We are having a payback time, which is less than 17 months from opening up the stores. We also have expanded heavily with our online store. At the end of 2017, we were present in 43 markets.
Let's have a look at the sales development in the different sales channels. Looking at the graph, let's see if I'm right to the right, you can see that the sales development for online is during this period over 700%, giving an annual average growth rate of +25. In stores, the corresponding increase is 118% during this 10 year period, giving an 8% growth in average. Growth for online accelerated in 2013 when we launched our new online platform. Today, as mentioned earlier, online share is 12.5% on a total level, but of course, there are big differences in different markets.
So let's have a look how it seems when looking at the global online network. Countries which were opened before 2012, it's mainly the Nordic countries, U. K, Holland of the Netherlands, Germany. They have a share which is much higher than the average 12.5%. It's from 19% to 27 percent.
For instance, the Netherlands has a share of 27%, Germany 26%. Percent. Countries like Finland, Austria and Sweden, they are all above 20% as a share. Looking at our newer markets, they are from 1 or probably from 0 because we have opened them very late in 2017. I think it was Cyprus and some other country, I can't remember.
But for instance, Poland already today have a share of 13% and the U. S. 12%. Our online expansion has been really successful. And we see, as I mentioned before, that the combination of stores and online is a winning concept.
Thanks to the fact that we already have a store network in those countries where we enter with our online store, that gives us a lot. We are a well known brand, appreciated amongst the customers. We know our customers. This gives us a really strong entering possibility when we enter. We will get the profitability up really quick and the payback entering a new online market is often between 3 12 months.
As mentioned earlier, we have more than doubled our top line to SEK232,000,000,000 during this 10 year period. Until 2015, we had an annual average growth rate of 10%, which we are pleased with. However, we are not pleased with the performance the last 2 years, which has been far below our own plans, as you hear in the beginning. However, our online sales and new business, they have continued to perform very strongly in 2016 2017. The part that has had a weaker performance is the comparable sales within the H and M brand.
This is partly due to the fast and accelerated shift in the industry, but also to the fact that we haven't improved our customer offering and our shopping experience enough during the last few years. Then we also made some own mistakes during 2017, which resulted in that our composition in the assortment was a little bit imbalanced and that had quite negative effects on quarter 4 selling and results 2017. The weak selling has also resulted in a high stock in trade level. It's far too high. It's tying up too much capital and that's something we will take actions on.
You will hear about that later today as well, what kind of actions. Stocking trade at the year end 2017 was 16.9% of our net sales. As I said, it's far too high. Our target is to come back to the levels we had before 2016 at our target level 12% to 14%. Our ambition is that during this year, we will come in a better position, but we are not sure that we will reach our target this year.
But for 2019 and beyond, we should be within our target range again. To achieve this, we, of course, have to increase our sales, but also accelerate our initiatives within our customer driven supply chain. You will hear more about that from Daniel Klassen in his presentation later today, what actions we are taking. EBIT. Up to 2016, our EBIT increased 38%, giving an average 5% increase yearly.
5% increase per year is a stable growth, considering that we have invested heavily during these years. We have invested in new brands, as mentioned before, 7 soon 8 other brands than H&M. Our backbone, our store network and online and our key enablers to respond to the big shift the industry is having right now. Let's have a look at the profit development for stores and online. The correlation between sales development and profit level is, of course, very strong.
That is very clear looking at the last 2 years' sales performance and the results. The underperformance in sales comes entirely from comparable stores within the HFM brand. As mentioned, it has resulted in a high stock in trade level, high cost for markdowns. The markdowns has gone up during the last 2 years quite a lot. And it also has led to a negative leverage on our costs, even though we have had a good cost control within the company.
Our online, on the other hand, has had a tremendous development also during these two years. The increase is more than 700% given an average of 30% yearly. We see that our investments in the digital area has really paid off. We have a good development both on our more established online markets as well as our newer online markets. Finally, let's look into our strategic growth investments.
As mentioned before, we have invested heavily during this period. In 2013, our digital investments were intensified when we started to build our new online platform, which, as I mentioned, enabled our strong expansion with online. In 2017, our digital investment represented 45% of our total investments. For 2018, we will continue with our investments in the digital area. That is the online and key enablers.
44% will still be invested in the store network, mainly in emerging markets. Looking at the split in the digital part, the majority will be invested in online. That will, for instance, be that we will invest in 4 new highly automated warehouses for online, of which 3 will open during 2018 and the 4th one in spring 2019. Let's go back and have a look at some examples of what our investments have given us so far. They have given us a scalable world class backbone, a scalable online platform enabling a strong development for online growth, highly automated online warehouses, a strong store network with updated technology, a portfolio of brands with big potential.
And the best thing is that we will be able to capitalize on these investments for many years to come. Let's summarize. We clearly have some areas for improvements on which we already are taking actions on. For instance, our comparable sales development within the H and M stores. We had to turn the curve.
Our markdowns, as mentioned before, they have increased the last 2 years. We should come back to the same levels as in 20 15 and the years before that. The stock level, too high, tying up too much capital. We have a good plan. We have initiatives to take care of that as well.
And finally, I would like to point out and highlight some of our strengths, just some. Okay. We have a strong online sales growth, as you hear now many times. Profitable and scalable online business, as mentioned, quick payback often within 3 to 12 months. Good sales performance in new stores, including HSM's new stores, payback within less than 17 months from the opening of the store.
Big potential for our newer brands, costs already at a good profit level and finally, strategic growth investments to capitalize on for in many areas and for many years to come. So thank you for listening, and I hand back to you now, Karl Johan. Thank you.
Thank you. We have a clear strategy how to and it's headlined how to drive profitable growth. It's based on 3 areas. 1 is restlessly develop our existing brands. 2nd part being to accelerate our key enablers.
Third one is new growth. So if we start with the first part, it is the most important thing we have. We have And we're talking about the core. We're talking about the products, the physical stores and the online stores and connecting the channels well. As I said earlier, a very important part of our group, and this naturally goes for all the brands, is to have a clear target definition, to really understand those the customers, their behaviors and expectations and make sure that we deliver the best offering and experience for them.
The most important part, of course, is the products, the assortment. This is where we have this is where the main focus has to be for all the brands. And as you heard earlier, customers are demanding more and more when it comes to design, quality, price and relevance. And we know, although we are at a good level, being at the same level as last year is not enough, especially with the shift in the market with declining traffic to store, then we will get roughly what that market gives us. So we must improve all the time, be better when it comes to design, even more on trend, improving quality, raise the quality levels and get better price and the same price or better prices.
So constantly improve and improve in terms of relevance as well. Fashion is global, but we are present in many markets, and we see big differences between markets as well. So we can be differences when it comes to buying power. There's a big difference between, say, London and a 4th tier city in China. There's difference big differences when it comes to climate, Northern Europe or Northern Canada compared to countries around the equator.
There are big differences in fashion preferences. So we see a big opportunity and the focus is to cater to these local differences in a better way. If we look specifically at the H and M brand, where we haven't in the last couple of years performed up to our expectations in the physical stores, I get a lot of questions about this from people outside, and that's natural, asking many things, but asking if H and M has lost its position, its appeal with customers and so on. And that's not the case, not at all. We have a very strong position with H and M brand, and you will hear more about it later.
But what we haven't done, we haven't improved quickly enough. We are roughly at the same level as we were a couple of years back when it comes to fashion, quality, prices and sustainability. And although we are at a good level, it's not enough. So a big focus will be to improve these areas. On top of that, as Jyrki said earlier, we made some mistakes in the assortment mix during the second half last year.
And we have a target group for all our brands, same for H and M, we lost a little bit focus on that. And we didn't cater well enough for the core customers at the H and M brand, resulting in not only that we have the declining traffic to many stores, but we also lost in conversion. So less some of the people who came we converted less visitors into buying customers. So we did some mistakes, but the good part is we know what it is and we know how to improve it and that obviously we're working hard to improve now. So the products and assortment is the most important part of this, but it's also really important that we also develop the physical stores.
The especially when it comes to the H and M brand again, where we haven't we need to take a big step. We need to take a big step in terms of making sure that the store experience is more inspiring, that it's more convenient and that it is more relevant. And we are piloting a lot of new things that we're testing out around the world to get good receipts customers, to get good feedback on the shopping experience, the inspiration, convenience, the relevance and so on. And also, we don't only want good feedback in that sense, but we also want to see good selling receipts, obviously. So and the exciting thing is we have a lot of interesting tests showing exactly that, great customer feedback and good selling receipts.
The next step now is to take these tests, develop them, test in more locations throughout 2018 to verify that. If it all looks good, which we hope and believe, then we have a great opportunity to really scale up these new concepts during second half twenty nineteen. And then we're elaborating with new store formats. We are testing we're trying to figure out and experimenting a lot what the flagship store of the future will be, testing smaller store formats. And then we also have a great strength in the whole store network we have, 4,500 stores around the world and the proximity to customers that comes with that.
So we will also elaborate on express speedy deliveries, 1, 2 hour deliveries to people in areas close to stores. So a really strong asset we have there. And then it's with online sales, it's not naturally a central part of our strategy as to continuously develop the online stores for all the brands. The teams are constantly A and B testing different things to find improvements for customers and rolling out these improvements. And it's not only about the 2 channels, it's also about connecting the channels in a good way.
You will hear more about this during the day, but it's about more faster, more accurate deliveries. It's about easier payments, more payment options and many other omni features that we will talk about. So if we look at the second strategic area, it's to accelerate our key enablers. And it's the first part, it's to improve our supply chain from planning and designing to sourcing, distribution into the hands of the customers. And the H and M Group world is quite complex today.
As I said, we're present in 70 markets. We have launched 8 brands. We have stores, omni channel, and we have used we have worked with internal experts and external experts to really look at all the garment flows, optimizing the sourcing network and the logistic network for our omni world and multi brand world. So that work is done, which is great. And when it's implemented, all other things equal, to it will lead to that we can reach our expansion goals, of course, but it will also mean that we can increase comparable sales, lower reductions and have lower stock in relation to net sales.
So it's not only a mapping. We obviously are investing like Jyrki said. We're investing a lot in new delivery centers, and we will continue to do so for the years to come. So not only new centers, but also in digitalization, automation and AI. So a very exciting and important area that will help our existing brands and help new ones to be launched successfully.
The second part in this strategic area is to work more with advanced analytics and advanced analytics and AI to continuously throughout the year to roll out new capabilities that we have successfully piloted during this year. The group has and generates enormous amounts of data. And if connected with AI powers, this data can be turned into really valuable actions. And we have looked and invested a lot in 4 different areas. We have invested a lot in trend detection.
We have looked at invested in quantification and allocation, price management and personalization. And we have a strong and growing hub of data scientists working with us, and the aim is to speed up the use of AI across the group for the coming years. And then we have the 3rd area of our enablers that we are focusing in Extron, our tech foundation. We have invested heavily in our backbone through a number of years. So now we have a robust and scalable backbone that will benefit the group for many years to come.
It will help the existing brands and new brands. And now the focus is to, I mean, continue to roll this out, but in parallel to that, to make sure that we become even quicker when it comes to customer facing technologies and to be innovative with tech wherever the customers are, if it's in the stores or the mobile or social media. So that will be a big focus for the years to come. And the whole strategy is based on cloud. It's based on APIs, microservices.
And we're also investing a lot in 3 d and RFID, which will help us improve as well. And the 3rd area, new growth. We how do we generate new growth or aim to generate new growth on top of what we will generate through the actions in the other areas. Of course, we're aiming for online growth for all our existing brands. We will enter new markets.
We have many markets to enter, which is great. For the H and M brand this year, we will open up 4 markets. It will be in India. It will be in Mexico, UAE and Saudi. We will also widen the assortment for all the brands.
We see a great opportunity in growing by widening the assortment for all our brands. And then we're also evaluating different partnerships around the world. We will take the step with Tmall in China for the H and M brand. That's one example. We are evaluating other partnerships, and we're also looking a lot into the field of social commerce, where we believe a lot of things will happen in the years to come.
But it's not only about online growth, it's also about store growth. We still believe we have a big potential in growing with stores for all our brands. As Jyrki said, the stores we open up are profitable. The payback is short. We will so we will continue to open stores, but we will not open stores at the same pace as we have done in the past.
And then we also see growth opportunities in launching new concepts for our existing brands, and you will hear a little bit more about that later during the day. So that's how we plan to grow with the existing brands. If we look at new initiatives, we have some exciting things. You saw this picture before with Effound and our CoLab, it was the first time really we opened up the group to external brands and companies. We have 2 new initiatives that will take this a step further.
Really exciting initiatives, one team working to extend collaborations with external brands and companies, not only for the off price market, but for the full price market as well. We will tell you it's an exciting just as a teaser. We will tell you more about this later during the year. A second team is working on to leverage on some of the group assets that we have. And in doing that, to offer services to other brands and companies, and we see a big demand for this.
So these are, I mean, 2 separate initiatives, really exciting. We want to tell you about it because it fits our long term strategic plan. So we have a well thought out plan for the future. And it's also important to point out that although these initiatives have a huge potential, they're run by separate teams, so there's no risk of losing focus on the most prioritized areas, and the most prioritized area is to develop and improve H and M. The investments are also small and limited in size.
So that's worth pointing out as well. If we so those were the strategic action areas. If we just comment a little bit on the selling for the future. If we start with the easy part or not easy part, it's tricky to do, but we feel with H and M brand, if we feel confident that we can grow online sales by more than 25% with all the improvements that we have for 2018, and we feel confident that we can grow our online sales by more than 20% from the years 2019 to 2022. We're also good at estimating what new stores will generate.
The new stores that we open are good, and we will not open stores at the same rate as we have done before. As I said, we will open approximately 220 new stores net for 2018. We believe that the stores we open will add sales of approximately 4% for 2018. And for the years 2019 to 2022, it's hard to estimate, but in the range of 1% to 3 percent added sales per year from new stores. The tricky part is estimating the selling in H and M's comparable stores.
This is where we have a negative trend. There is a shift in the market, as we have spoken about several times, with less traffic to stores. We believe we'll see and we have done some mistakes also that is affecting quarter 4, it's affecting quarter 1, and we believe that the first half will be weak, but that will see a gradual improvement throughout the year. And so it will be negative for 2018. It's hard to say and put an exact number on that.
But with all the improvements that we have, so even though there is a shift in the market, we believe we have good chances of getting back to plus numbers again from 2019 to 2022. And then we have the new business portfolio. We have a really strong portfolio of brands, and they are at an early stage. So we feel confident in saying that we see more than 25% growth for 2018 and from the years from 2019 to 2022 per year. So that was a little bit some and then we have the new initiatives.
We'll not add anything for 2018, and it's very hard to say anything from 2019 to '22. So we'll leave that blank. But these were just some comments on the selling for the years up to 2022.
Okay. And on the cost side, markdowns, as we have discussed earlier today, they are on the too high level today. For 2018, we estimate that they will be flattish, maybe a slight increase versus 2017. From 2019 and beyond, we think that we will see a considerable improvement in our markdown levels. SG and A.
As mentioned, we have had a negative leverage during 2,007. For 'eighteen, we estimate that they will increase in local currencies somewhere between 4% 5%.
Yes. And if we look at the profit development, we as we said, weak quarter 1, We believe in a gradual improvement for the year. First half will be lower than first half twenty seventeen. We believe that the second half for twenty eighteen will be stronger than second half twenty seventeen. We believe we have a good and a good chance of seeing a moderate increase for 2018 versus 2017.
And then it's hard to say anything about the future, but with the sales scenario we have, we see we expect to see good yearly increases from 2019 to 2022.
And then stock in trade, as mentioned, it's on a too high level today. We have the ambition, of course, to lower it during this year with the initiatives we had, but we still believe that we will end up above the target range of 12% to 14%. But from 2019 and beyond, we should be within the target range.
Yes. So that was just some comments on financials for the coming years. And so just a short summary, a few words. It's a we are present in a big market. It's growing.
It's going through a transformation as well, and there is a lot of uncertainty. But we believe that the model we have, an omnichannel model, and it's important to point out good profitability in both channels with full brand control and direct customer relationship that this is a winning model. We have 8 brands, soon 9, globally scalable with most growth yet ahead. And then we have a real strength in all the shared group assets that we have that can help our existing brands and help new brands be launched as well. If we look back at the past performance, we have a lot of good things.
Online sales has been really good. New business sales has been really good. The new stores that we have opened have been good. But the big part of the company, H and M's comparable selling, has not been up to our own expectations and has not been good. And this is something that we are working hard to correct.
As I said earlier, we know why and we know how to improve. We have a clear and focused plan that we're executing on with full speed. It's headlined how to drive profitable growth around the three areas I mentioned to restlessly develop our brands, to accelerate the key enablers and to add new growth. And you will hear more about these areas during the day. But we are convinced that it will lead to many successful years for the group ahead.
Thank you very much. Thank you.
Now we're going to hear from the H and M brand. There has been a slight change in the program since last night. Unfortunately, both Frederik Olsen and Madeleine Persson have been taken unwell. So instead, we have the pleasure of hearing from Daniel Harman, Head of Marketing and Communications and Daniel Claassen, Head of Business Development.
Okay. I was obviously not the first choice. Madeline was. I was not the 2nd choice either. That was Fredrik.
I'm not sure I was the 3rd, but I took the chance when I got it last night. Perhaps this is not the best preparations, but I love this company and I love a challenge. My name is Daniel. I've been with this company for 15 years. So in a way, it feels like I'm raised within H and M.
I worked with different things. I worked with merchandising in North America and in Central Europe for a while. And since 5 years, I worked with marketing and communications for online and for our stores. This part continues to focus on the priorities for the H&M brand, and we will talk briefly about who we are, where we stand today, our challenges, our strengths and, of course, the plan going forward. Karl Johan already spoke about our core offering based on our fantastic business idea, fashion and quality at the best price in a sustainable way.
It's proven successful over and over again for many decades. And this great business idea has generated great interest both from customers and colleagues for many years, and we have a large and growing customer base. Last year alone, H and M had 5,000,000,000 visits, physical and digital. And we're working hard to grow our relationships in our social channels. And today, we have more than 100,000,000 fans along all markets where we're present.
This is a strong position compared to our competitors and, of course, amazing assets to build the future on. All these interests, visits and followings have generated 800,000,000 transactions last year in different parts of the world, proving the business idea once again. It's also 800,000,000 possibilities for us to connect with our customers and to understand and collect insights to improve our customer offer going forward. And of course, last but not least, giving them a great experience of H and M. We have a lot of interactions and transactions, but we also have a really strong global brand.
This brand is complemented with strong local teams in 69 markets today. This gives us a unique edge over many of our competitors when it comes to understanding the capabilities and opportunities in each market. I would like to show a short film showing H and M when we do both what we do best and also what we love doing, serving happy customers with great products with an engaged staff. And yes, it's showing a physical experience, and we all know that the consumer is shifting. And of course, it is just as exciting expanding online and meeting our customers in the digital world.
Nevertheless, this shows a real connection between us and our consumer, and it's something that, at least for me, is close to my heart. Before going into our plan for the future, I would like to recap our current situation. We're pleased with our strong sales and profit development in our online channels. We see continued strong performance in our new stores, and we see strong sales and profit development in emerging markets. But we are far from pleased with the development in our comparable physical stores in developed economies.
Our customer offer needs to be stronger, connecting back to what Karl Johan spoke about earlier, and our shopping experience needs to improve faster given the rapid transformation in the retail industry today. Today, it's not meeting our customers' expectations. This next chapter is about giving you insights to our plan of how to address our challenges and simply create the shopping experience for the future. Our ambition is to do this by being inspiring, relevant and convenient. And I will now hand over to Dana Claasson, Head of Business Development for the H&M brand, to talk you through this plan and the enablers to make this happen.
Thank you. Good to be here. To make it easy for you, my name is also Daniel. Has been within the company for 10 years, truly love this company, worked for 5 years with selling in our physical store and then 5 years with selling in our online channel and is now heading our business development department. I have a lot of things to share with you today.
So let's start and dig into our customer experience. The customer experience at H and M will be inspiring and engaging, relevant and personalized, and it will be convenient and frictionless, independent of where the customer meets us if it's online, in physical store or Zimmels. Let's go into the first part, inspiration and engagement. With the rapid change in the customer behavior, there's a need for us to upgrade our experience in our physical store quicker than ever. While tolerance of friction is getting lower and lower, but the demand for experiences is getting higher and higher.
The store needs to be something else that it was before. And just removing friction will not be enough. We will develop our stores into a more emotional place where you really can feel the brand, and we will build on the strengths a physical store has. And this will be done through an enhanced visual presentation, both in store and in our windows, by having less articles in the store, making it easier to navigate the store and easier to find what you are looking for. We will also bring in a warmer feeling in our stores through reviewing our interior programs.
And we will enhance the experience in the store through add on services like different events. For example, our club already today have events turning the store into something beyond transactions. As Karl Johard mentioned, we are having a number of different test stores where we are testing new concepts, new formats and all these new ideas. We see great results in selling, not only in that physical store, but what's interesting to see is that we also see that the customer who gets a better experience in the physical stores also buy more online. We are right now verifying the results from this test.
We will continue testing a lot this year. And during late next year, we will be able to scale up a new store format. Next part is about rich product content. We are investing right now in a new photo studio here in Stockholm. And by doing so, we will be able to produce much more, much faster content.
And we know that content, better content, drives conversion online and traffic to our physical stores. So the content we are producing will enhance the experience of our communication and will enrich the experience in our digital store and in our physical stores through our app. In addition to our own content, we are also working a lot with user generated content, content that our customers produce. It makes it possible for our customers to share and to inspire each other, and it will also add value as add on content on our own product pages online. And thereby, we will bring more information to the customer about how you can style your products and see how others have styled theirs.
This will bring value, of course, in the online channel, but also to our physical stores through our app. So far, what we see is that we have higher conversion on visits that interact with user generated content compared with average. Next part, relevant and personalized. A relevant offer is about being local and personalized. In the physical world, this means that we need to curate our assortment to every single location.
With that, we mean that each store need to be set up based on the customer demand in that catchment area. This will give us a more relevant assortment in the store and will improve the presentation in the store. We are testing right now, and we are building ways to scale this as we see positive results. In the online channel, personalization is about taking our largest store into your store. And this we will do through personalized presentations, personalized recommendations and segmented content.
We will also during next year take big steps towards personalized and relevant communication in all our channels. Already this spring, we will introduce personalized e mails and personalized push messages. And we will also add on more segmentation in our social channels. During last year, we also tested personalized offers, seeing great results from that both in terms of customer behavior, but also on customer lifetime value. We will gradually scale this to more markets as we learn more.
Last area, convenience and frictionless. Convenience is about reducing friction in the whole shopping journey, and it starts with making it easy to find what you are looking for or find something you didn't knew that you were looking for. In the long term, we are planning for making it obsolete with search with what we talked about earlier with personalization. What you're looking for is just there. But here now, I would like to highlight 3 features.
Those together makes it easier to find what you are looking for. First one is what we call find in store, meaning that if you have found something online that you really like, you can easily see which store close to you where that product is available in your size. Next one is what we call scan and buy, meaning that if you are in a physical store and you find something you like, you use your app and your smartphone, you scan the barcode and then you can see if that product is available in any other store, nearby your store or online. And the last one is what we call image search. You now have the possibility to search by a picture in our app, meaning that if you find something you like on the street, in our store or in any other stores, you take a photo, you upload it to the app, and you get back suggestions of similar items in our assortment.
It also needs to be easy to pay and check out, both in stores and online. And the checkout will in a couple of years happening in the background without us as customer even noticing it. But today, payment preferences are highly local. We already offer the most important payment options in all our markets, but we continue to add on new payment options over time. In our online checkout, we are making a lot of small changes as a result of AB testing in order to reduce the number of clicks and make it easier for the customers to check out.
One way of bringing us closer to one click checkout is the buy now, pay later option that we already today offer in 8 markets online. And we are looking into how we can expand this to more markets and also into the store channel. Regarding deliveries, our ambition is simple, get things delivered anywhere, anytime. Since a couple of weeks, we offer free delivery and free return always for our club members. It has been highly appreciated so far.
During last year, we introduced next day delivery in our major markets, and we will during next year start to offer same day deliveries to key cities in Europe. We are also upgrading the convenience dimension in our deliveries, not only making it faster. We are offering nominated time deliveries, meaning that you as a customer can choose when you would like to get that package home to you. And we are also adding Click and Collect and giving the customer the opportunity to return garments bought online in stores, of course, bringing a lot of convenience to the customers, but that way we also utilize our store network. Lastly, I would like to highlight a really interesting part.
We see a big potential in empowering our customers in store. Customers are today used to shop with all the opportunities online shopping is bringing to them with search possibilities, product recommendations and the possibility of saving favorite items in a wish list. We will bring all this from the online channel into the physical store via what we call an in store mode of our app, meaning that you can search the assortment in that physical store where you are. You can get recommendation based on what's available in the store you're in or in nearby stores. And you can see which of your favorite marked items that are available in the store you pass us by home from work.
We will also make it possible to customer through the in store mode to get access to the full online assortment in every store. This will, over time, have a large impact on our selling. This will be tested during 2018 and roll out during fall 'eighteen and early 'nineteen. To make all of this in the customer experience possible in all our markets in a local and relevant way. We are, as Karl Johan said earlier, working on 3 key enablers: a customer driven supply chain, our advanced analytics capabilities and our tech foundation.
Let's start with the supply chain. We are changing our supply chain quite a lot. This will increase the relevance of our assortment. It will increase the availability for the customers, and it will make it possible for us to increase the speed in how fast we get products from an idea to the customers on the parts of the assortment where that is important. We will take a number of different actions to make this happen.
Firstly, we will increase the flexibility in the supply chain, make it and by that, making it impossible to increase the speed from idea to the customer. This will be done through using 3 d sampling to a higher extent, a closer collaboration with our suppliers and by pre booking components to a higher extent than today. We are also starting to using advanced analytics in our quantification and allocation processes. This will lead to more relevant products in each and every store on size level. We are piloting right now in 2 different countries and see great effects both in terms of growth, but also in terms of better shopping experience, meaning that we get the relevant products to each store.
We will gradually scale this the coming seasons, market by market, concept by concept and season by season. Next big point. By pooling our stock, we will increase availability for the customers, but this will also be one of the key things that will make it possible for us to decrease stock in trade. The first concrete step here will be taken in just a number of months when we will start pooling stock in many different warehouses towards our online customer. The end goal is, of course, to pool all of our stock, making it available for the customer independent of where it sits.
This will increase size availability, but it will also increase efficiency in our supply chain by bringing the opportunity in of carrying parts of our assortment in just a few number of warehouses. We are also working hard on increasing the accuracy and the visibility of our stock. This will happen through the rollout of RFID, and that will be a key enabler for comp store growth going forward. The rollout started already last year, and it shows great effect on top line so far. During this year, we will roll out RFID to 1800 stores.
That's more than a third of our portfolio. And next year, 80% of our stores will be powered with RFID. It will give us better accuracy in our allocation. It will increase sales on concepts where size availability is crucial, and it will also make many of our seamless features like find in store even better. We are also investing heavily in our delivery speed.
With investments in automation in our warehouses, we will be able to cut our internal lead time in the warehouse with more than 80%. Together with all the nodes we have in our network, this means that we can offer next day delivery of our full assortment to 90% of the European population in a year from now. We are also starting, as I said before, with offering same deliveries, and we are also testing on our delivery from our we will build 3 new highly automated warehouses that will serve Central and Northern Europe. And this will be the key for achieving the delivery option we would like to have for our customers. Next topic, advanced analytics and AI.
€5,000,000,000 visits and €800,000,000 transaction. That is an asset in a data driven world. To make the most out of it, we are now building and rolling out our advanced analytics capabilities. Advanced analytics will bring value to our product development. It will bring value, as we talked about, to the supply chain and to our customer experience.
Some example of how it will help us is detecting trend and thereby increase relevance. Our newly developed prototype shows that it can help us in detecting trends 3 to 8 months in advance. Advanced analytics will also help us in increasing relevance of the assortment in every store, as we talked about during the supply chain section. And it will also make personalized experience and communication possible. Advanced Analytics makes a true one to one communication possible, meaning that some of our communication will still be segmented, but some will be truly personalized.
Our experience will be personalized in everything from presentation to checkout and delivery options. Personalized product recommendations are already live in our online store and will be brought into the physical store through the in store mode we talked about earlier. During the upcoming months, we'll also add personalized product recommendation in our communication via e mail and push. And this will drive traffic in both stores and online. Last part.
We are right now modernizing our tech foundation, and this will be the main carrier of what we talked about regarding customer experience, supply chain and advanced analytics. We are upgrading our online solution, our store solutions and the common backbone. The new store solution was started to be built 2013 and has firstly been used to expand online fast. That was the first move we took in being more seamless and more omni. After rolling out 35 markets, we are now in the middle of transferring our 8 more mature online markets from our old platform to the new platform.
5 of these markets has been transferred, with Sweden as the most one, transferred just a couple of weeks ago when we brought a new front end, a new back end and new fulfillment solutions to the Swedish market. And all our online markets will be on our new platform a year from now. In stores, we are rolling out a new point of sale system, a new infrastructure and new solutions for our store staff. 80% of our store business is now run on the new solution, and this is the foundation for all store tech like RFID, for example. The common backbone that will support both our channels will make our total business more efficient and it will enable a global, scalable, modern and relevant digital and physical experience.
So to sum up, what we have talked about, how we will improve the shopping experience. For us, it's key that the shopping experience in all interaction with H and M is inspiring, relevant and convenient, and we are working hard to achieve this. This will be enabled through our customer driven supply chain, through advanced analytics and AI and through our tech foundation. And this together will lead to higher sales, but also make it possible to have lower stock in trade and last but not least, a better experience for our customers. Thank you.
Thank you there to the Daniels. I would now like to introduce Anna Yeda, Head of Sustainability at H&M Group to the stage.
So thank you so much. My name is not Daniel. My name is Anna Jeder. And I've been working for the H&M Group for the past 10 years. And since 3 years back, I'm heading our sustainability work.
And as Helu Wang was mentioning earlier on, sustainability is a core to the H&M Group. And I would now like to dive a little bit deeper into what it is that we do, the ambitions that we have and also how this makes us a better and more resilient and also a more competitive business. And we often get the question of when we started working with sustainability. And just like with the customer focus that we have and the values, you can say that this goes all the way back to when H and M was founded back in 1947. Now back then, there was no such concept as sustainability, but Aling always used to say that he wanted to sleep well at night knowing that we always did the right thing.
And I think that, that ethical approach, along with the long term perspective that we always had, has been what has guided our work ever since. Now about 20 years ago, we started to formalize what is today our sustainability work, and it's now one of the most extensive and ambitious programs in the industry. It builds on the vision that we want to lead the change to a circular and renewable fashion while being a fair and equal company. And the leadership part here is really important because not only do we have the size and scale to take a leadership position, but that also helps us to be part of shaping the agenda for the industry to collaborate with the best partners and also to get early access to new solutions and innovations. The purpose with our sustainability program is really to address the key challenges, but also the main opportunities that we in the industry face and doing so in a way that, of course, creates the most possible impact, but also strengthen us as a business.
And coming to the challenges. 1 of the big challenges, not just for us and our industry, but for all industries today is, of course, how we are using resources. So we know that already in 12 years' time, we're going to be 8,500,000,000 people on this planet. And in one way, that's good news because all of them will need clothes. But on the other hand, in the way that we're consuming and using resources today, that would require us to have 2 planets.
So what we need to solve is how we can cater for the needs for all those people and doing that in a way that is within the planetary boundaries. And as a response to this, the H and M Group has had a bold ambition, and that is to become 100% circular. Now today, most of the world's resources is used in a linear way, which means that you take up the resources and then you use them and then you throw them away. Moving towards a circular system means that instead of throwing the resources away, they are kept within the system and used over and over again. And that way, it's possible to turn old products into new products and for us to continue to provide and enjoy fashion, but doing so in a way that the planet can afford.
Now for us to become 100% circular means looking at the full lifecycle of the clothes, all the way from how they are being designed how they're being used and cared for by the consumers. And a big part in this lifecycle is, of course, the materials that go into the products and making sure that these are preferably recycled or otherwise sustainably sourced. And today, 35% of all the materials that the H and M Group uses is either recycled, like recycled polyester, or sustainably sourced, like organic cotton. And we set a bold goal to reach 100% by 2,030. We will get there by maximizing the use of the good materials that are already out there, but also by identifying and supporting new innovations and materials that we see coming.
And not only does this help us to secure the future resources that we need, but also creates a competitive advantage. And one example of this is ReNuCell that we have also made an investment in. ReNuCell is a Swedish based recycling technology that makes it possible to dissolve cellulosic fibers, that is cotton and viscose, for example, into a new material. And when you do that, it's actually to take old products from cellulosic fibers and turn them into new products again, which is exactly what is needed in a circular system. And Renewcell is one of many exciting examples of new materials that we see coming.
But for this industry to become fully circular, we need to see a lot more. And that's also why the H&M Foundation set up the Global Taines Award in 2015. This is the world's largest early stage innovation challenge to close the loop profession. And each year, 5 winners get to share €1,000,000 to turn their idea on how to do this into a reality. And so far, we have seen some really great winners.
For example, orange fiber, which is a beautiful silk like material that's made from citrus waste in Sicily or last year's winners or one of last year's winners, which was grape leather, which is a vegetal leather that's made with products or byproducts from wine production. But the choice of materials and that we use good materials is not enough to create a circular system. We also need to make sure that the clothes that are being bought and used by the consumers come back into the system so that they can get a new life again. And already in 2013, H and M set up a global garment collecting program. And that means that you as a customer can go into, for example, any H and M store, you can hand in your unwanted garment, and then we work together with a collaboration partner called Aiko, who help to give these garments a new life, either by reusing or recycling them.
And this has been a really appreciated and well known initiative among our customers. And we see that the garments that we're collecting is continuously increasing. And that's, of course, great news because it means that not only do we prevent these garments from ending up as waste, but it's also a really fantastic way to engage with consumers and make them part of a solution. Connected to the use of resources, another challenge, of course, is that of climate. And we know that this is on top of the agenda for most industries today, also for us.
And we've been working with climate and its issues for the past decades, I would say. But given the need of urgency that we see in this matter, we have decided to take our work here to a new level and set a bold and ambitious goal. And that is to have a climate positive value chain by 2,040. So what this simply means is that we want to reduce more emissions than what our value chain is responsible for. And the strategy to get there is actually quite straightforward.
So to begin with, the best energy is the one that is never used. So we need to make hard to make sure that we reduce the amount of energy that is needed across the value chain and doing that for energy efficiency. They will need to make sure that whatever energy is left is as green as possible and comes from renewable sources. But despite the speed of change that we see in this area, there will most likely be some unavoidable emissions still. And this will need to be absorbed by carbon sinks, which basically means that carbon emissions are captured in either technological or natural ways.
And also here, we are engaging a lot of new technologies and innovations that we see coming. For example, looking into how carbon emissions can actually be turned into new materials, which in the future would make it possible for us to actually offer climate positive products to our customers. To reach the goal that we have set, we need to work with our own operations, of course, and that is our warehouses, it's our offices and our stores. And when it comes to energy efficiency, we have a long term goal to reduce electricity that we use in our stores with 25% by 2,030. When it comes to renewable energy, we also have a goal to only use renewable energy in our own operations.
And today, 96% of all the electricity that we use come from renewable sources like wind and solar and water. Sorry, a bit slow on that one. But our own operations represent a very small part of the actual total value chain. If we look at the value chain today, this is short of 0.5% of the total emissions that it's responsible for. Instead, the majority of the emissions happen further back in the supply chain where the materials is being produced and processed.
So of course, what's really important for us in our move towards using more recycled materials is also this, that it has a lot of positive impacts on the climate. So given the big chunk of the emissions that the supply chain stands for, we have also decided to set a sub goal, and that is in a climate neutral supply chain by 2,030. And we will get there by working together with our suppliers in energy efficiency program and also to help them transition into more renewable energy. And not only will this lead to lower costs and of course energy savings, but I think even as important as the fact that many of these suppliers are today on markets which are or will be severely hit by climate change. So by doing those investments, it will also enable our suppliers to have a more resilient supply chain.
Aside from the use of resources, another key challenge that we face today is how we can ensure fair and good working conditions on the markets that we source from. Now I think as all of you know, the textile industry is a really important driver for many markets to transition from agriculture to industrialization. And it has helped many markets, including Sweden, to grow and develop into more advanced economies. But at the same time, if we look at where these markets are, where the textile industry is present today, this is on markets where we see a lot of high risk when it comes to human rights, where we know that wages are often low or where the legal framework that is needed for good working conditions to be in place is most often not enough. So we need to work to address this and make sure that the textile industry can be a force for goods and enable these markets to transition in a way that both creates stable production markets as well as good working policies for the people who are in the supply chain.
Now to fully understand the size of this challenge, it's important to remember that the H and M Group, we don't have any factors of our own. Instead, we collaborate with around 800 suppliers all over the world, and they are the ones who employ the workers in the supply chain. And they also produce for a lot of other buyers, both within our own price range, but also above and below. So if we want to address these issues and to create big and industry wide change, we need to work together with these suppliers, and we also need to work together with other brands and other industry actors. Now our aim to improve working conditions has been at the core of our sustainability program for the past 20 years.
We know that there are still challenges left, but we can also see some improvements that have happened along the way. For example, we know that compliance is continuing to increase. We see that more suppliers are aware of and take ownership of sustainability and also that the issues that we are addressing today are much more advanced than what they were 20 years ago. So for example, back then, it was all about the basics, securing that, for example, there were fire extinguishers on the walls, whereas today, we are addressing really complex issues issues like fair living wages and harassment and discrimination. And the approach that we have spans all the way from mitigating risk to driving industry wide change.
And of course, it starts with the basics, making sure that we work only with the right collaboration partners and suppliers. And we do this by having tough entry requirements that cut out the most serious risks like child labor and forced labor. One issue that we work a lot with is how to address wages. And at this level, for example, the entry requirements that we have make sure that the workers are paid at least the minimum wage. Once we are in collaboration with our partners, we work together with them to improve their sustainability performance, and we do this by training, through capacity building and also by rewarding the suppliers who perform better on sustainability with, for example, more orders.
If we go back to the example of wages, at this level, we work together with the suppliers to implement what we call wage management systems. And these are ways that, for example, make it easy or possible for the workers to have their wages reviewed on a regular basis and also to make sure that they are paid according to their skills and experience and performance. But wages, along with many other issues, are too big for us to tackle alone and only within the factories. Instead, we need to work all over the industry and together with all actors there to make sure that we can drive wide change and thereby go beyond the factory walls. And I think coming back to the example of wages is a good example of how we do this because also here, we work together with other brands, together with our suppliers and also with government and industry association.
And one example of that is ACT, which is a coalition of 19 other brands who work together with a joint approach with our suppliers and trade unions and industry associations to have an approach for how we can drive wages in a way that both meet the needs of the workers as well as secures the competitiveness of the market. But as I said in the beginning, our program is not just about meeting the challenges that we face, but also about seizing the opportunities. And one of the biggest ones that we see is that customer care is still more important, but we can see that more consumers care about this and think more with the new generations entering the market, like the millennials and the generation sets. 73% of them say that they are willing to spend more on a product that comes from a sustainable brand compared to 66% of the older generations. And of course, it's always a discrepancy between what the consumers say that they do and what they actually do.
But even so, we can see a continuous trend that sustainability becomes more and more important for tomorrow's consumers and something that they will simply expect from brands like H and M. And with the long history that we have around sustainability, with the big ambitions that we have and our past performance, this positions us really well. And it makes it possible for us to also have a unique customer offer, where sustainability is a core component of that. And that's also why an important part of our sustainability work is to translate all the great things that we do in this area in a way that engages the consumers and also make it possible for them to make more sustainable choices. One important aspect of this is transparency, which is really about gathering sustainability information communicating that in an open and transparent way to the consumer.
That is key to build credibility and trust for the brand. But also, if consumers have more information and awareness of this, they are also able to make more sustainable choices. And that's also where we are engaging a lot in the HIG index. Now for those of you who don't know about the HIG index, this is an industry standard that's aimed at measuring the performance on sustainability for a brand on a product and also on factory level. Now this index is still under development, but H and M was actually the 1st company to start implementing and measuring our suppliers in the factories according to the HEAP Index.
And once this index is done, it means it will be a lot easier for us to translate all the great things that we do in this area in a transparent and credible way to our consumers and thereby make it easier for them to make even more sustainable choices. But already today, we do a lot to engage our customers around sustainability. All our brands have a wide assortment of sustainable fashion can be sustainable, but also that sustainability fashion can be sustainable, but also that sustainability can be fashionable. And that is where I think that we are the best at. So here is a short film that will show some examples of how we've done that.
So to sum it up, I think it's clear that sustainability to us is not cosmetics. This is part of our core and also part of the recipe of how we're going to become a more resilient, better business and also win the customers both today and tomorrow. And I think it's clear that the investments that we have done in this area gives clear returns in many ways. For example, it helps us secure these resources that we need both today and the future and make sure that we become a more resilient business. We know that it meets the expectations both of the customers today and tomorrow and helps us to create a unique customer offer.
Also helps us to create more stable, efficient production markets and also that we become top of mind for new innovations and solutions and ideas, which also gives us a 1st mover advantage. And last but not least, this is also key to make sure that we can keep and attract the talent that we need to run and grow our business. So simply put, the investments that we do around sustainability gives back both to us as a company as well as to the world around us. Thank you.
Wonderful. And to kick us off for the afternoon, I would now like to hand over to Peter Eackerberg, Acting Head of New Business.
Thank you, Rachel. Wow, it's a great pleasure to be here and to have the chance to talk about something I'm so passionate about. My name is Peter Rekkeberg. I've been with the company since 1999. And during my time with H and M, I've done various things, worked in different countries and with different markets.
About 4.5 years ago, I returned to Sweden and started to work with new business. The majority of the time, I've been working as Head of Controlling for new business, but since 2 months as acting Head of New Business. I would have loved to have my our dear colleague, Madeline Persson here presenting this together with me today because she has been the Head of New Business for the past years and made a great contribution to us. But unfortunately, she couldn't participate, so I will guide you through my presentation myself. And I hope that I will manage to go through 2 things.
1, why we have new business within the group and secondly, that we believe that there is a lot of potential out there. So a lot of opportunities, a lot of potential, it's all about seizing them. So we will, of course, then start to talk about why we And then we will go through and see how we make it happen, how we do it. And finally, I would like to share our plans moving forward with you until 2022. So let's get started.
H and M is huge. It's been growing for a long time and it will continue to grow. But as Karl Johan said, despite our huge size, we still have a relatively small market share. That means that there are a lot of customers out there which we would like to win. And we believe that we win them through offering a great customer offering and experience.
And H and M has a great offer. But by adding more concepts, widen the assortments, which are complementary to the one of the H and M brand, we believe that we can bring more choice to the market. And by doing that, we will win more customers. And when we talk about winning more customers, we talk about reaching new customers, which we have as are not customers of the age group already, but we also talk a lot about giving our existing customers a wider assortment to choose from. And we talk about the assortment, but that's not the only thing.
We also talk about the packaging of the assortment, meaning having very clear brand in ace, shopping experiences, digital experience, etcetera. And that is the way we build our portfolio. Can you imagine having in one room a couple of fashion brands gathered where we in a transparent and honest way can share benchmark figures, key learnings, key success factors with each other. We can because we do it. And by doing that, we manage to increase the level of our businesses for all our brands.
So we learn a lot from each other. And another angle of it is that in our portfolio, we have younger and smaller brands, which means that we very easily can try new things without putting too much on the stake. For instance, we launched Monke 2 years ago on Tmall, and we have learned a lot since then. And now when we add the H and M brand on Tmall, we already have 2 years of learning. That is really, really amazing.
So we believe that we in your business, if we manage our customer offering and our customer experience in a great way, we can really contribute to the growth of this group. The H and M brand is great and it's been growing through the years like a hockey stick. But as earlier communicated today, in some cities or in some markets, we have quite a deep presence already. And if we are able to complement that offer with new brands, we are able to accelerate the growth in these markets or streets or parts of cities with our new business. And within new business, we call it that we are contributing to bending the curve, securing that we can continue as the red line on my slide.
And that might be, for instance, that we penetrate these cities more. Just to give an example, Regent Street in London, Biblotiexgarten and Drottengarten here in Stockholm or Hackische Mart in Berlin, we are reaching new and existing customers. And through that, we can contribute to secure the long term growth of our company. 2,007, Kos was launched, and that was actually when H and M went from being a mono brand company to multi brand company, and that was also when the new business was born. And since then, we have been growing a lot through adding more brands, but also growing the brands we have.
And looking back at the 5 years, the past 5 years, we have seen an average annual growth rate of 36% for our portfolio. In 2017, we ended up with a turnover of SEK 17,300,000,000 and with a retail profit of 12.2% in both channels with a profit. I would now like to underline 2 things. Number 1, within new business, the new business portfolio, we see no cannibalization whatsoever between the two channels. Actually, it's the other way around.
They are feeding each other, and we believe that that comes from the fact that they are building the brand awareness. Secondly, as you have heard earlier today, we see that these two channels are merging, they are integrating and within the new business portfolio, we have this as a very prioritized area. So let's put it in a different context. Today, new business has 7% share of the total group's turnover, and that means that what we have done in 10 years in the new business portfolio to reach the turnover of SEK 17,300,000,000 took H and M 49 years, meaning 1996. How is that possible?
Well, I believe that that is too big part explained by our business model. As we mentioned, until 2007, H and M was focusing on the H and M customer all around the world. And the absolute majority part of us working for H and M were working very closely to secure that we had a great customer offering experience for the H and M customer. And we managed to do that with a great support of our support functions, meaning sourcing, IT, logistics, etcetera. Then I remember this because I was working then, 2007 something happened.
We created a new team based out of London, and we asked them to create a fantastic customer offering for a completely different target group. We became multi brand. So the team in London started to create what today is known as Kos, and they could put their full attention on securing an assortment and experience for their customer. And they managed to do so because they got a lot of support from the support functions, which now all of a sudden have became multi brand functions, which are enabling and supporting the growth of our brands. So now we have 2 brands, H and M and Kos, targeting and focusing completely on their customer.
And since then, we have added more brands to our portfolio, but actually we are working in the same way. Each brand are commercially autonomous in the decisions, but get a great support from the multi brand functions. When talking about the multi brand functions, we see huge advantages sharing them. 1 is very self explanatory. Of course, when we share multi brand functions, we get economies of scale, a lot of them, but we also get a lot of knowledge which is fitting in these functions.
On top of this, we believe that the way we cooperate, we share knowledge and experiences with each other feeded between the brands that really helps us to move on quite fast. And on top of this, we have to remember that each company is built upon people, talents. And what we are managing to do is to move talents between our brands. And in the beginning, when we went multi brand, of course, a lot of H and M people supported the new brands in combination with external people coming to these brands. But what's really nice to see that today we have a flow between the brands back from new business to H and M or from H and M to new business or between the new business brands.
And by having this flow, we also have a very natural flow of knowledge and experiences. So let's look into our portfolio a little bit and how we think. Well, we have to remember that the brands in our portfolio, they are in a completely different development stage than the big H and M brand, meaning that they are partly facing different challenges and thus also needs to be managed in a different way. And as we mentioned, we started off by launching costs and it's been up and running for 10 years. We have reached a turnover close to SEK 9,000,000,000 and the budget for this year is above SEK 10,000,000.
And even though we made a huge amount of fantastic things, we also made a lot of learnings. So when we launched And Other Stories 2013, we could really utilize on these learnings. And again, we just launched another brand called Arket this autumn, and then we could utilize the learnings from costs and stories into Arkjet. And on top of this, as I've previously explained, a big part of the team or a part of the team creating Arkjet had a previous experience from the other two brands, which helped us a lot. In our portfolio, we are also we are self financed.
It means that we are able to finance new initiatives by taking parts of the profit which KOS is doing, for instance, and finance it to the new initiatives. So we believe that this is a huge strength. And this is something which we are very proud of, but which we also believe is a great part of being a part of a big or strong organization. We talked a lot about launching new brands. So how do we think when we are taking a strategy for new initiatives?
I will try to explain it. We are mainly looking at 3 things. We are looking at the internal learnings we have done, which I previously made examples of, the external learnings from the market and the macro development learnings, meaning what is happening out in the world. And we are trying to find what we call the sweet spot here, meaning to identify the key gaps and key opportunities. And it should be commercially relevant for the customer and a good idea where we can find strong synergies in what we are already doing today.
So let me give you an example when we launched Arkjet. I already talked about the internal learnings and it can be issues like how to build an assortment, how to quantify the assortment, where to expand, when to build the team, etcetera. A lot of internal learnings. Then we look at the market. Where can we find a key gap in the market where it makes sense to dig deeper?
And finally, the macro development learnings. We talked a lot about them today. I think the movement towards a sustainable fashion is a great example where the customers are asking for more and more transparency. And this is a core in the H and M group. But when creating the strategy for Arket, we decided to be even more transparent with sourcing and suppliers to our customers.
That is just one example. We have talked a lot about the digitalization as a second example or the casualization of fashion could also be 1, but there are plenty of them. And by looking at all these three key areas when setting the strategy for a new brand, that is how we are setting up the strategy. So now we've talked a lot about the way we're working. I would like to share our plans going ahead with you.
Before doing so, I would just shortly like to let you know what kind of directions we are working with within your business. It's mainly 3. We are focusing a lot on growing existing brands. We are working with adding new brands and creating new business models. When we are working with growing existing brands, it's mainly 3 areas we are working a lot with.
First of all, the like for like growth. It means securing the best customer offer every day in both channels. Secondly, we are growing through physical expansion because we believe that we have a lot of potential there, and we can do it ourselves or together with a partner. And finally, growing within the digital field. And as we just said, it's highly prioritized and we right now are transforming our brands into a new online platform in order to have a stable foundation to move forward and meet the customer expectations of the future.
Adding new brands, ARKET is the example launched in August 2017, and I will shortly also mention and describe Afound, which we are soon to launch, which is a new business model in our portfolio. I hope all of you had the great opportunity to meet our brands in the pop ups during the launch. And I would now like to go through brand by brand and to give you our planned growth for the brands until 2022. KOS, as we said, launched 2,007. We will hear from Marie Honda, the Managing Director for KOS, very soon more details about the brand.
I think it has been an interesting journey. And looking ahead, we expect KOS to grow at least 100% until 2022 compared to the year ending 2017. 2,008, we bought MONKI. It's a brand targeting a young fashion female. And when we bought them, we started to expand them quite rapidly, but realized that the customer offer wasn't global enough.
So we paused the expansion for a while. But now we turned it around and we see a huge expansion ahead of us. We estimate until 2022. Weekday also acquired 2,008, have had a similar journey to the one as MONKI, but this brand is targeting an urban denim customer and they are still fairly small, but we estimate that they are able to grow at least 300% until 2022. Chip Monday also acquired 2,008, is a unique brand in our portfolio because it's in the wholesale business and the whole wholesale business in general is undergoing big changes and challenges.
And this is, of course, affecting Chipmunkai, but we feel we have a very stable strategy moving ahead, and we estimate the growth to be at least 100% until 2022. H and M Home started like a pure online brand 2,009 within the H and M brand, And the Managing Director, Anders Groeblom, will soon tell us more about the brand. We see huge potential here, and we estimate them to grow at least 200% until 2022. And Other Stories, founded 2013 with a huge success launched in the major fashion capitals of the world. In order to be very close to their core customers, the collection is actually designed in 3 ateliers around the world, one in Stockholm, Paris and L.
A. And they are optimizing their assortment and their offer, and we expect them to grow at least 2 50% until 2022. Arkjet, we talked about them, just launched 2017. We are now in a learning phase to see what we could do moving forward and what we should continue doing what we are doing excellent. We estimate them to have a high growth potential moving ahead.
And finally, our latest family member, Afound. So let me just shortly guide you through Afound. Afound is a multi brand, multi channel off price marketplace. And what we believe we have created is a style and deal hunting paradise, where we will offer diverse qualitative brands from our group, but also from external partners of ours. And we will offer it with a fashion filter in 2 channels, of course, the digital one and in the physical store.
And we will launch in 2018 and starting in Sweden. It's a completely new business model for us, and we are now launching, and therefore, we believe that we will be learning a lot, and then we believe that we can leverage because we believe that the found has huge potential and can contribute to our future Even though we have had a rapid growth for our portfolio up until 2017. We believe that we, moving ahead, can foresee a continued rapid growth. As we mentioned, we landed on SEK 17,300,000,000 in 2017. We believe looking ahead that we can have a growth rate average per year of at least 25%, meaning that we will end up above SEK 50,000,000,000.
And we will do this through growing existing brands, working with our new brands and new business models. So to sum it up, we would like to say that where we're standing, we believe that we have a proven business case or a business model, both the way we work within our portfolio, but also the way we collaborate within our group. We have 7 brands, which we believe are scalable and have huge potential moving forward. We have a global presence and we are just working on launching the next one which will be launched now 2018 called the found. So and looking ahead, we see the huge potential.
It's huge. And we will reach it through continuous growth for our physical store in combination with our digital expansion. And together, we are planning to see an average growth of at least 25% for our Thank you very
much.
Thank you very much, Peter. Next up we have Marie Honda, Managing Director of COS.
Hello, everyone. I don't have the loudest voice. I hope you can hear me. Maria Honda, Managing Director for KOS. Been within the company for many years and starting off around 2,000, working for the H&M brand within the buying department.
I worked for KOS since 2008 in my current role as Managing Director. I have been since 2011. Great to be here today and also thanking a lot of you that came by our pop up. A lot of good questions and conversations coming up during lunch. So also hoping that I can answer a few of those questions now.
Let's start. Our brand mission business idea, you heard from Peter Ekeberg just earlier from new business. KOS started as the 2nd brand then within the H and M Group, starting point for new business. And there was a team within H and M at that time that they saw that there was a gap in the market for a brand like Kos, that there was a customer that was really appreciating design and quality and to be able to offer that for an affordable price, Again, the starting point for new business and, of course, the launch of costs that was launched in 2007, so turning 11 next month in March. And 11 years on, we still believe that there's a market for a customer, again, that really wants design and quality for an affordable price.
Coming to our customer, we talked a lot about the customer today, but it's so important. Again, ageless, it says, and I know I talked to a few of you in the pop up earlier. But ageless, we really see that we have a broad range of a customer globally. And again, coming back to design and quality and really wanting that, it's not so much about age, we believe, and not so much where you live. It's more about the mindset, so being aware, aware and staying relevant, not only about fashion, but everything that is surrounding you, culture aware, things that happen around you, again, staying relevant all the time.
That's what we believe our customer really, really are. And they also want good service, demands good service. And wanting again with the longevity in mind, wanting a product that lasts a little bit longer, a little bit timeless beyond that season. Confidence as well. We talk a lot about that, but confidence is key here.
Again, talking about the awareness is staying relevant. Confidence, again, not only what you wear, being style conscious, but also confident what you buy into, not only fashion, but everything that how you spend the money and where. So that confidence, again, of course, is really key for us when we're really evolving the product offering and also evolving the brand. And with that awareness and confidence, again, 2 main drivers for us when continuously working on our product offering. Coming to the product and the customer offering.
CostDNA, I will explain it in a bit. But we have a clear framework at cost from the early days, from the beginning, but also a clear framework, the costDNA that not only that we're approaching towards the product, but all areas of the brand. You can see them here, timeless, modern, functional and tactile. Again, it's so important to have that clear framework, and we also believe that, that is also what makes us our product unique in that sense. And I thought I'd bring up an example as the white shirt, as you can see here, of course, a timeless piece, a very timeless piece.
And a lot of us, as I can see here today, is a timeless piece that you also it's a staple in a wardrobe today. You can wear it all over again. Sometimes you hang it back, maybe go out a little bit of date, out of fashion, and sometimes you pick it out again a few years later on. But again, a timeless piece like the white church. But coming back to the customer again about the awareness and the confidence, so important to always stay relevant and be modern.
So the modern approach is so important, even as with the timeless piece as the as a white shirt, as you can also see here. Again, fashion is changing. Everything is changing. So again, how do we cut the garment? What is the size of the color?
So important yet again to always stay modern. Tactile as well from the early days, not only for the product, but also all touch points with the brand has been key. Attention to detail, the tactileness, what type of materials do we choose for that white shirt, but not only for the product, as I said, it could be material like you see the flooring in our stores, etcetera. Technically, it's important and coming back to the customer, being very aware and confident. We need to spend a lot of time here to, again, wow the customers, really make sure that the tactfulness is there.
Functionality, also a key element. And again, a lot of people have said less is more is probably our approach as a brand, but it's just because functionality is key. So things that we add on to a garment or things that you see at cost is usually there for a reason because functionality, it's what comes first. Heading on, collaboration, also very important for us. Again, coming back to the approach to design, we have our in house creative team that are truly inspired by art and design.
And we're showcasing a few of the collaboration that we do, but many of the collaborations that we do also comes across in these fields as art and design. Again, for us, partnership with SKILL is for us, of course, engage and inspire with our existing audience, but also at the same time together with other partners to be able to reach out to a new audience that are beyond cost, beyond fashion and also finding a new audience together and engage a new customer. Some of the things we showcase here today, Kos and Salone de Mobile. If you heard it, it's an international interior fair in Milan. Soon, we are collaborating we have collaborated with different designers every year, and we also do so.
This coming April will be our 7th time, bit of that. A few different digital platforms that we worked, Mr. Porter is one of them. Cos and Hay, again, partnering up with the interior brand Hay as well as an art institution, Aasta Guggenheim. Coming into where you can find Kos today globally.
Starting off with our head office. It's based out of London, where we have the full head office with most of the key functions, such as, again, mentioned it before, but the in house creatives, pattern makers, buyers, sales team, communication team, architects and so on, all based out of London, where we have the head office. You can find our customer base today in 37 markets. And already of them, we have now 20 of them with our online channels. And as you can see before, we have also fantastic potential to grow even further here.
And ending the financial year November 2017 with 231 stores. Again, the image only showcased a selection of the cities we're in. But worth to mention, again, the early days, we focus a lot on the fashion capitals, the biggest cities, and we're very much focused on that still today. Again, looking at the cities where we believe or markets where we believe that we have a customer base for costs. Going into our physical stores.
Again, talked a lot about it today. We know the customer really cross shop in both channels, but we really feel it's important that and also feel that our stores really enhance the total experience for the customer. So really, again, working on the prime location, key locations where we believe that we have our customer base, but also work a lot with the customer experience within each and individual store. First one here to the left, launched the brand in Ridden Street in March 2007, a fantastic location, but course, a store that we are super happy with, performing wise, over the years, turning 11 next month. Again, a very character building in such.
So we work a lot within the space, obviously, to really take care of all the original features and, again, creating a great customer experience around it. So Regent Street, we work a lot within the space, but sometimes we also have the opportunity to create external spaces like this one in Toronto that you can see in the middle that we also with our in house creative team also creating facades, again making it part of the total experience. The last one, a larger space, as I call it, a house in Seoul in South Korea. We also have had the opportunity to work with a different floor plan, another layer of the store, again, that we're collaborating with a lot of local artists, book shops, etcetera, inviting another partner into our space, creating a new customer experience, again to engage, inspire an existing audience, but as well as bring another audience in the place. And as well as collaborate like this, we can also reach out beyond the store digitally and connect and engage beyond the store itself.
Online, super important for us, obviously. And here again, the cost universe should everything should be fine online, we believe. The full collection, the full product offering as well as what we mentioned before, collaboration and other things that we do engage and inspire the customer. Everything should be available in the online channels. And we will also launch a new platform this coming May, which we also heard previously about.
Of course, we look forward to that. Launching the new platform in May this year, of course, will enable us to continue develop our brand further digitally as well as enable a lot of the omnichannel developments that we want to do. Lastly, future focus. Starting with the collection, the product, it's not so much about the future focus. It always has been a focus from the beginning today, but also going forward again.
Without the product, we have not so much. It's so important that we're constantly working on the product, evolving the collection, the product offering. Again, we can broaden a lot of things still for the cost collection. Cost sharing experience is key as well as growing digitally. Developed digitally is important, again, creating a consumer journey, a seamless consumer journey, again, to be where the customers are and meet demand of the customer, again, to cater for a customer that always wants quality and design for an affordable price.
Thank you for your time.
Thank you, Marie. Now let me introduce you to Anders Schwablam, Managing Director of H and M Home.
Yes. Thank you, Rachel. So my name is Sander Schablow. I've been with HCM Group about 9 years. And today, I have the opportunity to offer you an insight into H and M Home, a quite young brand within our group, but one, like Peter said earlier, where we see a lot of potential going forward.
And for those of you who aren't familiar with H and M Home, we offer modern design driven home interior. We are selling online in 37 markets. We have 332 shop in shops, stores within in connection or within H and M stores spread over 4 to 6 markets. And since last year, we also have 2 freestanding stores that we call lab stores. And we are quite young, launched 2,009 only online, then as a part organizationally of H and M.
And online has ever since and continues to be a big focus for H and M Home. We saw very good receipts. It was very well received by the customer in 2,009. That's why in 2012, we decided to complement the online channel with also growing with the physical expansion, shop in shops with H and M stores. And our sales development, multichannel, has for the last 5 years been strong.
We've had an annual growth rate, an average annual growth rate of just below 50%, including 47% growth last year. And in 2016, the group took a strategic decision to break out H and M Home from H and M organizationally to really give it the best possible conditions to build its own strong brand to cater to the interior customer. And then why should the H and M Group be in the interior industry? Because we see a big potential moving ahead. We have with H&M Home a proven business model, strong growth.
We have a very strong team skilled at developing great design value for money, the very core of our group. But we also proven sales channels, shop in shop online and in freestanding stores in several different markets. And since 2,009, we've also been able to learn a lot about our customer and about the interior industry itself. And that's why we now feel that we are ready to take the next step where we can seize the full potential and truly leverage the H and M heritage in a new industry, the interior industry. So for the rest of my presentation, I would like to share a little bit of those learnings that we've had the last years and our plan on how to seize this potential, why we exist H and M Home, who we are, where we are going and what we believe it is that will take us there.
And as always, starting with the customer, we have analyzed and researched our own selling and our own data, of course, but maybe more importantly, we also performed thousands of interviews with customers in several different markets asking them about interior. Simultaneously, we've done deep analysis of the interior industry and the various players and actors within it. And one of the key learnings that we've had is that we see that interior is a new big key for customers to express personality and style, a job that has historically been fulfilled to a very large part by its own of fashion. But today, fashion is highly accessible, and we've seen that customer has looked for more ways to complement fashion as a way to express personality and style. The lifestyle segment per se that we talk about a lot is growing, has grown for quite some time as a token of this, where interior together with wellness, cooking, maybe traveling are main elements.
But we also believe that social media has catalyzed this development, increasing the interest in interior. Since social media has given the customers possibility, but also in some ways demanded more ways to demonstrate more dimensions of your persona where interior has come to play a big part. What we also see is that the interior customer shows quite different customer behavior. They shop at different locations, weigh different aspects into their purchase decision, seeks other type of inspiration than our fashion customer. And interestingly enough, it complements our fashion customer well.
We see that both in our digital store and our physical stores, home can be the prime destination for a customer seeking interior, but they end up shopping both interior and fashion, thus creating cross shopping. When asking customers to rank 15 different aspects of interior, what's most important to you, it was also surprising and interesting to see that the same aspects came up top in all countries: Design, value, inspiration and diversity are what's most important. And we believe it's here where we really have a strong heritage from H and M, and which is also why we see quite high interest from both traditional media in H and M Home, but also in social media where we, for example, less than 2 years ago launched an H and M Home account on Instagram and today have 1,800,000 followers and a high engagement rate. Then taking a look at the actual industry itself. We see that the interior industry is growing fragmented, and we believe it's rapidly changing right now.
It's growing and it's interestingly growing in urban areas in well developed economies with high purchase power. It's a fragmented industry. Customers today shop interior at supermarkets, the hypermarkets, department stores with pure online players, there is surprisingly few number of global interior brands or even regional strong interior brands. And the industry is far from fashion in terms of consolidation level or segmentation level. And of course, a growing industry, a fragmented and growing industry is a very interesting place to be because it provides good conditions for new players to take a strong position.
At the same time, we see this industry changing. A couple of macro trends drive change in this historically quite traditional industry with long cycles. One of them being that there are more and more households and smaller families throughout the world. Generations living together as a phenomenon is on decline, both in developed and developing economies. And more households means more families and households we need to decorate and create a personal home.
Generation rent, the coming of Generation rent and a trend towards a more nomadic lifestyle in general also we believe will change this industry. Since many rentals are furnished, we believe that it's likely that the customer will favor the purchase towards more mobile objects used to decorate and create that homey feeling rather than invest in a new couch or new bed since they might be included in your rental. And lastly, new consumerism in general. Lifestyle is growing, but also increasing demands and awareness from the customer on sustainability is and will change this industry. And last but definitely not least, technology has drastically changed the field for interior.
Social media such as Instagram or Pinterest has made an historically quite exclusive world of high end interior design suddenly available to everyone, everywhere and all the time, which has led to the increase of the interest, but also an interest with a younger customer. Then to cater to this development of customer behavior and interest and to take a position in the interior industry, our focus going forward will be to establish H and M Home as a clear and strong interior brand. And the purpose of this brand, why we exist is to make it possible for the many people or for many people to create a modern and inspiring home. And we should never compromise on any parts of this sentence, always modern and inspiring, but for many people, meaning of course affordable prices, but also a vast diversity of styles because many people have different taste. Where we're going with this is our vision to be a world class interior brand and top of mind for our core target customer.
What we believe will take us there is our brand mission or our business idea, modern design and quality at the best price in an inspiring and sustainable way. We believe that just having a really good product at the best price is not enough to make it today or in the future to be successful enough. We always need to inspire our customer in everything we do and we need to do it in a sustainable way to be relevant and winning long term. And here with H&M Home, we actually have a strong competitive advantage because building on the H&M Group's extensive sustainability work in the fashion industry puts us at the forefront in the interior industry today. To secure that we can reach our vision of being a top of mind brand for our core target customer, We put a lot of emphasis on our brand DNA that we have to secure that we are an attractive, clear and relevant brand for our customer, so we can enable customer engagement and loyalty.
H&R Home will therefore always strive to be on trend, inspiring, credible and personal. And as an example of this, our collection should always be diverse enough for our customers to be able to create their personal mix. But personal will also be our guiding word for how we think of customer service in social media, but also in physical stores. And how we think of prioritizing our online resources to increase the level of personalization and inspiration. What we offer today with H and M Home are collections of interior, obviously, in Harley Deco products and textile Deco products.
Living room, in the living room, in the kitchen, bedroom, bathroom and kids' room, 5 rooms. Everything is created by our 30 approximately 30 in house designers based here in Stockholm. And then given this position and interesting development industry, we see significant room for growth in the coming years. Peter mentioned earlier that we see in 5 years' time that we can grow at least 200%. This growth coming from 3 major elements.
The first one being comparable growth in our existing online and physical store channels by increasing traffic, by having a clearer brand, raising brand awareness and also working much more with social media, establishing H&M Home in more social media platform going forward. Then at the same time, increasing conversion by optimizing our assortment and optimizing our shopping experience. Secondly, we see great room to extend our offering, both extend offering within areas that we're already present, such as more products for your table or more for your kitchen, but also introducing completely new for us, completely new product types and new product lines. And thirdly, significant room for expansion with all channels really to grow online, opening up new markets on hn.com. This year already, we're opening up in Middle East e commerce, but also opening up in other digital platforms, such as launching now in March on Alibaba's Chinese platform, Tmall.
But we also see room to continue to grow with H and M with our shop in shops and to launch a new sales channel, our concept stores that we'll be launching this fall. And I'll have to give you just a little more information on the latter two points. This fall 2018, we will launch new product take the 1st step in launching new product ranges by, for example, introducing our first ever collections of small furniture and lamps, table stools, shelves, pendants and table lamps. At the same time, we will also introduce a new product that we call H and M Home Classic Collection, a high quality line for the bedroom, living room and bathroom, sophisticated and timeless by design to complement our offering today. Simultaneously, we will do this also in launching our concept stores.
The purpose of these concept stores are to really establish the whole interior brand H and M Home to offer credibility and clarity towards the customer and to make it possible to experience to complement our online experience with a tactile experience with an elevated level of inspiration and services, both personal services and digital services. This should, of course, also drive selling in themselves, but maybe even more importantly, drive selling in our online channels. We will, as a first step, plan to launch 7 stores in prime locations in major European cities. Going forward, we see great potential to grow beyond that with this channel, of course. Then to summarize, we have a proven business model with H&M Home with just below 50% average growth the last 5 years.
We see that the interest in interior is ever increasing with the customer and that's the fragmented and growing industry is an interesting place to be where we can take a strong position. To do so, we will focus on expanding the product offering starting this fall with small furniture lamps and classic collection. We will launch our concept stores. We will increase our presence in social media and we will raise the level of visual inspiration and personalization online. And with this, we believe we can grow and expand all channels, reaching a growth of more than 200% in the coming 5 years.
And with that, I would like to thank you very much for your