H&M will launch its eighth fashion brand, Arket, on London's Regent Street in early autumn.
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It will also launch the brand online in 18 European countries. Stores in Brussels, Copenhagen and Munich are set to follow, some with cafés offering Scandinavian-style food.
The Swedish fashion company's new brand will offer essential products for men, women, children and the home. Its price bracket is expected to be slightly higher than the main H&M brand.
Arket means ‘"sheet of paper" in Swedish. Creative director Ulrika Bernhardtz said: “It both relates to our origin in the Nordic tradition of functional, long-lasting design and symbolises the blank sheet, the sense of optimism and possibility we felt creating this new brand.”
Inditex has recently overtaken H&M to become the world's largest fashion retailer.
"Retail is going through a challenging period of change in which customers' shopping behaviour and expectations are changing at a fast pace as a result of growing digitalisation," said H&M's chief executive Karl-Johan Persson.
News of the launch sent H&M’s share price down four per cent to 227.70 Swedish kronor, or £20.43 at the current exchange rate.