America's Favorite Foreign Retailers

As the recession deepens and consumers tighten their belts, mid-priced U.S. clothing retailers like The Gap and Ann Taylor are suffering, while European stores like H&M and Zara continue to make inroads with American buyers. On April 2, Topshop, owned by British billionaire Philip Green's Arcadia Group, will open its first U.S. store in downtown Manhattan.

Known for pushing conceptual runway trends into the mainstream, Topshop's move to the U.S. follows successful American forays by cheap-chic European retailers Zara of Spain and H&M of Sweden.

In Depth: America's Favorite Foreign Retailers

In 1989, Zara was the first to make its way across the Atlantic. Part of billionaire Amancio Ortega's Inditex conglomerate, Zara is known for its masterful approach to logistics. The company exports its goods from one distribution center in Spain where it produces most of its goods. The brand offers seasonal outfits for working women and men, priced at an average of $70 for a dress that could easily be mistaken for a Prada or a Marni by the untrained eye. Wool suits, inspired by expert tailors like Alexander McQueen or Stella McCartney, retail for $200.

Zara plans to open 10 more stores in the U.S. this year. Global sales for Inditex's third quarter of 2008 were $10 billion, up 11% from the third quarter of 2007.

H&M followed Zara in 2000. Founded in 1947, it now operates 169 stores across the U.S. For Americans obsessed with inexpensive, trendy clothes, the introduction of H&M was a seminal moment. Even less expensive than Zara, H&M offers everyone from teens to baby boomers the opportunity to wear off-the-runway inspired pieces. With women's blouses priced between $30 and $40, dresses between $30 and $50, and men's suits for just $120, new store openings routinely result in checkout lines snaking out the door.

H&M reported 2008 global sales of $10.8 billion, an 11% increase from the previous year. H&M plans to open 16 new stores in the U.S. within the next year.

Other retailers that have followed in H&M and Zara's path include Spain's Mango and Japan's Uniqlo. Mango debuted in Los Angeles in 2006 and now operates eight U.S. stores, including locations in New York, Chicago and San Francisco. Mango saw its global sales increase to $6 billion in 2008, up from $5.5 billion in 2007 and $4.7 billion in 2006. The company also says its online sales have increased by 50% since entering the U.S. market.

Uniqlo hasn't yet expanded beyond New York, but it has become a shopping destination in the city's Soho neighborhood. Best known for hip silhouettes in bright, solid colors, the company saw global sales increase to $6 billion in 2008, up from $5.5 billion in 2007 and $4.7 billion in 2006. While it doesn't break down sales by country for investors, the company does say that its U.S. store was profitable in 2008.

It is only over the last decade that European retailers started selling mid- and low-priced fashions in the U.S. Previously, European brands were associated with the luxury category. While Louis Vuitton, Chanel and Gucci have maintained a strong presence in the U.S., it's the lower-priced brands that have experienced the strongest recent growth.

Some American casual brands, like American Apparel and Urban Outfitters , are standing their ground despite the foreign influx. But other brands, including Gap , Abercrombie & Fitch and Ann Taylor , have seen their popularity wane.

Gap may be the most visible example. Its sales are hurting both at home and abroad. Favored in the 1990s for its basic T-shirts, jeans and khakis, the company lost its footing in the early part of this decade. In 2008, the Gap's sales were $14.5 billion, down from $15.8 billion in 2007 and $15.9 billion in 2004. Last August, Inditex took over Gap Inc.'s position as the world's largest retailer.

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"Foreign retailers deliver an [inexpensive] product that is not perceived as a uniform," says Marshal Cohen, chief retail analyst at the Port Washington, N.Y.-based NPD Group. "They offer what you want, when you want it, as well as self-expression through fashion."

Not every foreign import has succeeded. Kira Plastinina, owned by Russian oligarch Sergei Plastinin Sergei Plastinin , debuted to great fanfare in May 2008, opening 12 stores. Plastinin's 15-year-old daughter, Kira, served as the company's "designer" and spokeswoman, touting its sparkly pink frocks as an ideal wardrobe for Paris Hilton wannabes. However, a combination of the financial meltdown and downright ugly clothes proved deadly. Kira Plastinina filed for bankruptcy in January 2009 and closed its last U.S. store in March 2009.

In Depth: America's Favorite Foreign Retailers