COPENHAGEN (Reuters) - Danish fashion niche retailer Bestseller, whose brands like Vero Moda compete with market leaders H&M (>> H & M Hennes & Mauritz AB) and Zara (>> Inditex SA), said its pre-tax profit rose 21 percent in 2013-2014 as it pared down on stores and boosted its Internet business.

Revenues rose 5 percent to 20.1 billion Danish crowns (2 billion pounds) in the 2013-14 financial year while pretax profit grew to 1.7 billion crowns, the unlisted firm said late on Thursday.

Earlier this month the company said its Bestseller Retail Europe division, which runs physical stores and accounts for about 10 percent of its total revenue, would close every 20th store after profits for that division fell by 50 percent.

"Through an increased focus on our operations and through an even closer collaboration with our partners and customers, we have managed to grow and create better results in a challenging market," Chief Executive Anders Holch Povlsen said.

Povlsen, son of the founder of Bestseller and Denmark's second richest man, said the synergies between physical stores and e-commerce has become more critical than ever.

"Our goal is that the digital options available become a larger part of Bestseller's DNA and that the link between the physical stores and our online activities becomes even more natural," Povlsen said in the annual report.

Bestseller has more than 3,000 stores across 38 markets worldwide and an online presence in 70 markets, with mid-market brands such as Vero Moda, Pieces, Mamalicious and high mid-market brands such as Selected Femme and Selected Homme.

Despite a solid revenue growth of 5 percent, the company was behind H&M and Zara, which posted growth of 9 percent and 8 percent respectively at their last annual reports.

(Reporting by Annabella Pultz Nielsen; Editing by Mark Heinrich)