9-713-512
REV: MARCH 5, 2014

JOHN R. WELLS
GALEN DANSKIN

Hennes & Mauritz, 2012
In 2012, Hennes & Mauritz (H&M) was the second-largest specialty apparel retailer in the world.
Sales for fiscal 2012 were $18.1 billion, up 11% from the previous year, and operating profits were
$3.3 billion, up 8.3%. H&M operated 2,776 stores, 93% of them outside its home base of Sweden. Over the previous decade, revenues had grown 15% per year and operating profits, 18%.
Although Gap, Inc. (Gap) began the millennium as the clear global leader in the apparel retail market with sales more than four times larger than those of H&M, H&M had grown quickly and passed Gap in 2009. However, Spain’s Inditex, with its fast-fashion chain, Zara, had done even better.
It passed H&M in sales in 2005 and, by 2011, had also become more profitable. H&M had also lagged behind Inditex in supply pipeline speed, brand diversification, online retail presence, and expansion into China. Meanwhile, the world’s leading hypermarket chains, including Wal-Mart and Tesco, were making significant headway in apparel.
In 2012, CEO Karl-Johan Persson, grandson of the company’s founder Erling Persson, promised increased expansion into underdeveloped markets, a stronger push to online retailing, and the launch of a major new retail brand. He noted, “We are looking forward to an exciting 2013 full of new opportunities. We have great respect for the macroeconomic climate and how it may affect consumption in many of our markets, but we believe strongly in our offering and are convinced that
H&M will continue to maintain its strong position.”1 Whether Persson’s plans were enough to catch up with Inditex remained to be seen.

H&M Early History
Erling Persson, a former pen salesman, opened H&M’s first store in Sweden in 1947 to provide women’s fashionable clothes at very low prices. Over the years, Erling broadened the line into men’s and children’s apparel and added stores in northern European markets. The company went public in
1974, but the family retained a controlling interest. Through H&M’s expansion, Erling’s obsession with customer value and low costs led him to pass savings onto customers rather than to increase margins and profit.
In 1982, Erling handed leadership of the company over to his son, Stefan Persson. At the time, sales were about $330 million, 32% of which were outside Sweden, and H&M operated 147 stores.2
Stefan firmly subscribed to his father’s philosophy and continued to expand aggressively while driving costs down. By the time he stepped down as CEO in 1998, he had grown sales to $2.8 billion, operating profits to $409 million, and the store count to 550. More than 70% of sales were from
________________________________________________________________________________________________________________
Professor John R. Wells and Research Associate Galen Danskin prepared this case. This case was developed from published sources. Funding for the development of this case was provided by Harvard Business School, and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2013, 2014 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-5457685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

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Hennes & Mauritz, 2012

outside Sweden, and Germany had become H&M’s largest single market.3 In the process of expansion, in 1996, H&M had passed Italy’s Benetton to become the world’s second-largest fashion retailer after Gap. 4
In 1998, director of purchasing, Fabian Mansson, took over as CEO and Persson became chairman.
A 33-year-old former skateboard champion, Mansson brought a younger perspective to the CEO role, but he left in March 2000 to join an internet start-up. Fifty-five-year-old Rolf Eriksen, head of H&M’s
Danish subsidiary, was made CEO. His appointment received a lukewarm welcome from analysts.
Shortly after, the company announced problems with its spring collection and forecast a drop-off in earnings, sending its stock price down 30%.5 At the same time, H&M moved into the U.S. and challenged Gap, the world’s largest fashion retailer with $13.6 billion in sales, on its own turf. 6
H&M’s fiscal 2000 closed with sales of $3.03 billion (-7% on the previous year), profits of $375 million
(-30%), and a store count of 682 (+11%).7

2000–2009: Rolf Eriksen
Eriksen planned to return H&M to its roots while continuing his predecessor’s aggressive expansion program. His formula was straightforward; the backbone of the line consisted of basic, low priced clothing mainly for women 15 to 35 with supplementary basic offerings for children and men; in addition H&M offered more fashionable, moderately priced styles for men, women, and children to allow customers to keep up with style shifts and to purchase new pieces for each season. Eriksen believed firmly in the globalization of fashion and held to H&M’s practice of store standardization.
He stated, “The world is becoming smaller and smaller, especially the young customers. They are the same all over.”8 In 2002, Eriksen explained that his ideal customer was a middle-class woman in her
30s with two children who shopped for the entire family at H&M.9 His goal was to increase storecount by 10%–15% each year and to continue expansion into international markets.10
By 2002, H&M had added 32 stores on the east coast of the United States and planned to double the number within five years. However, H&M’s one-size-fits-all approach to store design did not work out well. Offering the same clothes in the suburbs as in city centers proved to be a mistake, and the store design confused American consumers. H&M later increased the mix of basic items in suburban stores, retrained staff, and simplified the store layout.11 Although U.S. sales increased by
23% in 2002, profitability was still elusive. Rolf Eriksen hoped U.S. operations would break even in
2004, but he was reluctant to hold the U.S. stores to a strict timetable, noting, “We’ll see . . . we don’t want to give a prognosis.”12
Profits were higher in European markets and H&M worked to cut costs and to pass savings on to its consumers. Carl-Henric Enhorning, H&M’s finance controller, explained that the strong bottom line was “the result of several factors: continued cost consciousness, low price reductions
(markdowns), cost-efficient expansion, and also positive effects from a weaker dollar.” 13 In 2004, the average price per item of apparel was 4% lower than in 2003.14 Meanwhile, in 2003, H&M entered
Poland, the Czech Republic, Portugal and Italy for the first time. In 2004, H&M opened its 1,000th store. However, H&M’s growth failed to keep pace with Inditex which surpassed H&M in 2005 with revenues of $8.2 billion. 15
In 2004, H&M began a series of collaborations with leading designers and celebrities. The first partnership was with Karl Lagerfeld, who noted, “My dream is to do very expensive lines, like
Chanel and Fendi, and very inexpensive things. I don’t believe in anything in between. . . . today people wear T-shirts and jeans with exceptional things.”16 On the strength of Lagerfeld’s collection, fourth-quarter 2004 sales jumped by 14% and profits by 24%. H&M subsequently joint ventured with
2
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Stella McCartney, Viktor & Rolf, Madonna, Roberto Cavalli, Comme des Garçons, Matthew
Williamson, Jimmy Choo, Sonia Rykiel, Lanvin, Versace, Marni and David Beckham.17 Along with these high-fashion collaborations, H&M began to make a social splash in the New York fashion world, hosting a dramatic New York event in early 2005 with a runway show, live performances by
Kanye West and John Legend, and a celebrity-, socialite-, and fashionista-packed dinner.18
In March 2007, H&M opened its first COS store (Collection of Style) on London’s Regent Street. It offered upscale women’s and men’s collections aimed at the “modern, stylish and chic.”19 A small number of stores were subsequently opened in Europe. In the fall of 2007, H&M launched the H&M
Home range of textiles, beginning first with direct sales and then expanding into a small number of stand-alone stores.20 The range included towels, bed linens, curtains, and other home textiles in fashionable colors and prints.21 Inditex’s Zara had already offered a Zara Home range for a number of years. In 2007, H&M also launched an extended women’s shoe collection in 200 of its store locations. In 2008, H&M acquired a 60% stake in private Swedish fashion retailer, Fabric Scandinavien AB.
This stake included control of three fashion brands: Monki, Weekday, and Cheap Monday. The remaining equity was acquired in 2010.22 Monki was a trend-led women’s wear chain, with 12 stores in Sweden averaging 3,300sq ft.23 Weekday was a young fashion chain, with six stores in Sweden ranging from 8,500sq ft to 16,000sq ft.24 Cheap Monday was a denim wholesaler with 1,000 stockists around the world, including 100 in the UK. H&M intended to grow Monki quickly under its original name, maintain Weekday, and add retail outlets to Cheap Monday’s offerings.25 Rolf Eriksen remarked, “This should be seen as an addition to H&M’s growth strategy. Fabric Scandinavien will be kept separate and there will be no collaboration on buying or design. However, there are synergies on IT, production, and expansion.”26
H&M was less affected by the global recession of 2008–2009 than many fashion retailers and used the downturn to expand aggressively and to add new locations.27 Chairman Stefan Persson confidently stated, “We’ll emerge stronger out of this downturn.”28 Growth for 2009 remained strong.
Sales reached $14.5 billion (up 33% for the year), operating profit $3.0 billion (up 25%) and the total store count hit 1,988 (up 14%). However, same store sales were down 5%. Nevertheless, H&M had passed Gap’s sales of $14.1 billion (down 2.3%) and operating profits of $1.8 billion to become the world’s second largest specialist apparel retailer. Inditex remained in the lead with sales of $15.3 billion (up 15%) and operating profits of $2.4 billion (up 16%).29
In February 2009, H&M announced that Karl-Johan Persson, the 33-year-old son of the company’s majority owner and grandson of the founder, would take over as chief executive in July.30 KarlKohan joined H&M in 2005, was elected to the Board in 2006, and, in 2009, headed the company’s expansion and business-development initiatives.31 Stefan Persson said, “What’s good for shareholders is that the company will get an engaged owner as leader. That lays the ground for the company being handled responsibly long-term without the temptation of the ‘quarter-by-quarter mentality’, which is the case at so many companies nowadays.” 32

2009–2012: Karl-Johan Persson
Under Karl-Johan, H&M stuck to its policy of low prices and aggressive expansion. In 2010, raw material costs rose, but H&M refused to pass these increased costs on to customers. First quarter gross margins in 2011 fell to 57.8% compared to 61.9% the previous year. Karl-Johan commented, “If you are a public company it’s very tempting to do what’s best in the short term. It’s not a problem to pump up profits—we could easily do that—but we have to balance the short term and the long
3
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Hennes & Mauritz, 2012

term.” He went on, “Analysts have a completely different time horizon. If we let ourselves be guided by analyst expectations and by a gross margin target it would be really bad for the company in the long term.”33
Between 2010 and 2012, Persson committed to spending $2.7 billion on international expansion, brand diversification, and online development.34 China, where Inditex had already opened many
Zara outlets and where Japan’s Fast Retailing had a significant presence through its Uniqlo stores, was marked as H&M’s leading market for investment. Karl–Johan observed, “It takes a lot of commitment to succeed in China today. And the competition is quickly growing tougher as there are so many players moving there. It’s already tough today, but it will be a great deal tougher in 10 years.”35 In 2013, H&M intended to boost investment spending by 10% in order to add around 325 more stores and to expand online shopping options to ten additional European countries.36,37
At the end of 2012, H&M also announced plans to open a new concept chain, “& Other Stories”. &
Other Stories aimed to connect with current fashion blogging culture, offering women a variety of midpriced accessories, shoes, body products, and clothing with the intention of producing “diversified fashion collections with great attention to detail and quality at an affordable price.”38 In the winter of
2012, H&M released an exclusive video teaser through Vogue UK to promote its new line.
For the fiscal year ending in November 2012, sales had grown 11% to $18.1 billion and operating profits had lifted 8% to $3.3 billion. The number of stores reached 2,776 (up 12%) while comparable store sales increased by 1%. H&M’s stock price rose a “modest” 6%, sluggish compared to the 60% increase in the price of Inditex shares.39 Remarking on H&M’s competitive position, Persson stated,
“The competition compared with five years ago has clearly increased. But we’ve still delivered a better result and we see that we have strengthened our position against our competitors.”40

Hennes & Mauritz, 2012
In 2012, H&M aimed to “give the customer unbeatable value by offering fashion and quality at the best price.” Best price was assured by “having a broad, in-depth knowledge of design, fashion and textiles; buying the right products from the right markets; avoiding middlemen; and being costconscious at every stage.”41 H&M was guided by seven core values: keep it simple; straight forward and open-minded; constant improvement; entrepreneurial spirit; cost conscious; team work and belief in people.

Markets
In 2012, H&M was active in 48 different countries. Germany was H&M’s largest market, followed by the U.S., France, and the UK. 93% of stores were located outside of Sweden. China was H&M’s most rapidly expanding market, with 82 stores (up 74% from the prior year). In the 2012 Annual
Report, Karl-Johan Persson wrote, “H&M is expanding globally and will have more than 3,000 stores before the end of 2013 . . . we will effectively be opening one new store per day.”42 New markets for
2013 included: Chile, Estonia, Lithuania, Serbia, and Indonesia. Particular excitement built for the
Chile store as it would be H&M’s first expansion into South America as well as its first store in the southern hemisphere.43

Retail Structure
H&M’s head office in Stockholm managed all central functions including design, buying, shop fitting and display. The Group operated six (soon to be seven, with & Other Stories) fashion chains.
4
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Hennes & Mauritz, 2012

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The largest, H&M, accounted for an estimated 85% of sales. H&M did not report sales by brand, but reports suggested that Weekday and Monki were not profitable.44 H&M offered online shopping services in 8 of the 48 countries in which it operated. Plans had been in place to go online in the U.S. before the end of 2012, but the site had been repeatedly delayed and a firm launch date had not been set. H&M had been one of the slowest fashion retailers to embrace the web.

Design45
H&M employed over 150 designers, up from 70 in 2000, all located in Stockholm.46 They worked in teams and tapped into a wide range of sources to develop their designs, including trade fairs, fashion media, trend forecasters and customers at H&M stores. Their goal was to identify major and small trends and adapt them for the mass market.47 Designers would plan major collection pieces months in advance and then plan sub-seasons to fill in gaps and catch the latest trends. The buying department, composed of 100 buyers, then planned the range before handing responsibility over to production.48 Production49
H&M did not manufacture any of its own products. Instead, it sourced from around 800 independent suppliers, down from 900 in 2000.50 Approximately 70% was sourced from Asia, up from 50% in 2000, and 30% was sourced from Europe.51 The company maintained 22 production offices (10 each in Europe and Asia and one each in Africa and Central America) to source products.
Staffed by local people, these offices were responsible for supplier qualification and selection, product quality and delivery. They also performed a range of quality control tests to ensure that factories were up to H&M’s standards. H&M had a team of more than 80 auditors who ensured that suppliers complied with its Code of Conduct.52 In 2012, H&M conducted 2,646 supplier factory audits, an average of 3.6 per factory, and interviewed 9,815 workers at supplier factories.53 Of its relationship with suppliers, H&M noted, “We set high standard for our suppliers and regularly monitor how well they live up to them. We also need to be a good partner ourselves. We strive for long-term partnerships, providing training and support. And we reward good sustainability performance with better business.”54
High-volume basics were sourced from Asia on a six-month lead time while low-volume fashion items were sourced in Europe with a lead time closer to two weeks. A number of analysts observed that Zara had a shorter lead time to market because of its company-owned European manufacturing operations. They also expressed concern that H&M’s high dependence on Asia for sourcing might undermine its competitiveness as Asian labor costs rose.55 H&M’s offering were, on average, 60% cheaper than Zara’s due primarily to its increased sourcing to Asian markets.56

Distribution57
H&M logistics operated on the principles of simplicity, reliability and transparency. Over 90% of shipments from suppliers were via ocean, rail or road. Goods from Asia were typically transported by sea while most movements in Europe were by road or rail. Air transport was used only in exceptional cases. H&M operated a network of regional distribution centers. As soon as a product was sold, it was replenished from the local distribution center so that shops did not need to hold stock. Sophisticated information systems controlled stock movements of H&M’s 500 million pieces of clothing a year.58

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Hennes & Mauritz, 2012

Stores59
H&M operated 2,776 stores in 2012, up from 682 in 2000, and reached 48 countries. The company selected prime retail locations and rented space rather than owning it. Window displays were changed frequently and were based on guidelines from Stockholm. Stores introduced new lines daily and no line remained in a store for more than one month.60

Finance and Corporate Governance
H&M continued to be financed conservatively and had very low debt levels. In its corporate governance, H&M had long been considered “secretive and dismissive of outside opinion.”61
However, by 2012, it provided a little more information to analysts than it had traditionally offered, including comparable stores growth. Nevertheless, its lack of communication and disclosure continued to frustrate.

Sustainability
In recent years, H&M had been a leading advocate for increased sustainability and accountability in fast fashion. In 2002, the company released its first Corporate Social Responsibility Report, where it disclosed its efforts to implement its Code of Conduct, its environmental objectives, and additional details about its supply chain. By 2012, H&M had begun releasing annual detailed reports on its supply chain and its environmental work, titled Conscious Actions Sustainability Reports, as well as special edition reports focused on hot topics such as Water, Supplier Compliance, the GRI Index (a sustainability report using Global Reporting Initiative Guidelines, set in place by The United Nations
Global Compact), and Supply Chain Data.62
In 2012, H&M was the world’s leading consumer of organic cotton and 11.4% of all of its cotton used was ranked as “more sustainable” than the industry average. By 2020, H&M aimed to source all of its cotton from highly sustainable sources. Twenty-seven percent of its leather shoes were made from leather certified by the Leather Working Group. Karl-Johan Persson noted in the 2012
Sustainability Report, “Our goal is for H&M to be at the forefront of sustainability. . . . There is no way for us not to think about and invest in our sustainability, because it simply makes business sense.” In 2012, Persson met with Sheikha Hasina, the Prime Minister of Bangladesh, to express
H&M’s support for raising the minimum wage for garment workers.63

2012 Challenges
Despite H&M’s progress, Karl-Johan Persson faced a number of challenges in 2012. Analysts were quick to note that Inditex had a faster replenishment pipeline, was growing faster, and was more profitable. Moreover, Inditex’s portfolio of retail concepts was more diversified. H&M’s other retail banners contributed little to group revenues and some were estimated to be losing money. Was the distraction worth it? H&M’s late entry into the China market also prompted further concern. What would it take to make this expansion a success? What would the role of online sales be? Most of all, how could H&M challenge Inditex for the spot of the top global fashion retailer?

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This document is authorized for use only in UNSW Business Society Consulting Competition 2014 by Jennifer Harris at University of New South Wales from April 2014 to October 2014.

2003
Nov 30,
2003

H&M 10-Year Financials

$1,747
$669
$2,559
$623
$1,936
$3,412
$2,661
$2,789

$826
-$168
-$169
-$39
-$658
-$38

Gross Profit (% sales)
Selling, General, & Admin (% sales)
Operating profit (% sales)

Balance Sheet ($ millions)
Cash, securities
Inventory
Current assets
Current liabilities
Working capital
Total assets
Equity
Capital Employed (TA-CL)

Cash Flow ($ millions)
Operating cash flow from cont. opp
Purchases of property and equipment
Cash flow from investing activities

Foreign Exchange Effects
Dividends
Net Cash Flow

Source:

1,068
31.7

-$18
-$737
-$207

$1,272
-$234
-$236

$2,234
$763
$3,179
$725
$2,454
$4,175
$3,297
$3,450

57.2%
37.3%
19.9%

$7,971
$1,584
$1,080

2004
Nov 30,
2004

1,193
34.6

$101
-$820
-$162

$1,255
-$282
-$687

$2,087
$847
$3,110
$803
$2,307
$4,110
$3,211
$3,307

59.1%
37.6%
21.5%

$7,588
$1,632
$1,145

2005
Nov 30,
2005

1,345
40.4

-$58
-$1,151
-$91

$1,765
-$287
-$644

$2,727
$1,057
$4,030
$1,024
$3,005
$5,206
$4,067
$4,182

59.5%
37.1%
22.4%

$10,015
$2,240
$1,581

2006
Nov 30,
2006

1,522
47.0

$25
-$1,491
$969

$2,410
-$552
$23

$3,285
$1,249
$4,865
$1,384
$3,480
$6,539
$5,029
$5,155

61.1%
37.6%
23.5%

$12,276
$2,880
$2,129

2007
Nov 30,
2007

1,738
53.4

$191
-$1,422
$818

$2,206
-$583
-$134

$2,790
$1,044
$4,343
$1,459
$2,884
$6,292
$4,537
$4,833

61.5%
38.8%
22.7%

$10,870
$2,473
$1,878

2008
Nov 30,
2008

Casewriter chart, compiled from company data via Capital IQ, Inc., a division of Standard & Poor’s. H&M, 2002–2011 Annual Report.

Stores
Associates (‘000)

945
28.4

56.2%
37.0%
19.1%

Sales ($ millions)
Operating profit ($ million)
Net Income ($ millions)

Year End
$6,388
$1,221
$846

Fiscal Year

Exhibit 1

1,988
53.5

-$13
-$1,835
-$530

$2,572
-$788
-$1,253

$3,152
$1,465
$5,163
$1,587
$3,576
$7,779
$5,812
$6,192

61.6%
40.3%
21.3%

$14,509
$3,097
$2,345

2009
Nov 30,
2009

2,206
59.4

-$112
-$1,886
-$332

$3,111
-$686
-$1,443

$3,541
$1,637
$5,832
$1,973
$3,859
$8,432
$6,293
$6,459

62.9%
40.2%
22.7%

$15,455
$3,513
$2,661

2010
Nov 30,
2010

2,472
64.9

-$2
-$2,327
-$351

$2,578
-$755
-$600

$3,149
$2,045
$5,908
$2,184
$3,724
$8,908
$6,528
$6,724

60.1%
41.6%
18.5%

$16,281
$3,016
$2,342

2011
Nov 30,
2011

2,776
72.2

-$67
-$2,362
-$26

$2,839
-$912
-$436

$2,575
$2,285
$5,592
$2,104
$3,488
$9,038
$6,584
$6,934

59.5%
41.5%
18.0%

$18,144
$3,267
$2,533

2012
Nov 30,
2012

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Hennes & Mauritz, 2012

Exhibit 2

H&M Week End Stock Price, 2002–2012

H&M Week Close Stock Price

300

250

200

150

100

50

0
2002

Source:

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Thomson Reuters Datastream, accessed December 2012.

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Hennes & Mauritz, 2012

Exhibit 3

713-512

Leading 10 Fashion Goods Retailers Worldwide in 2011

Company (country of origin)

Sales ($ billion)

Macy’s (United States)

26.40

TJX (United States)

23.19

Kohl’s (United States)

18.80

Inditex (Spain)

18.04

J.C. Penney (United States)

17.26

H&M (Sweden)

16.28

Isetan Mitsukoshi Holdings (Japan)

14.73

Gap (United States)

14.54

LVMH (France)

11.32

Limited Bands (United States)

10.36

Source:

Casewriter chart, compiled from company data via Capital IQ, Inc., a division of Standard & Poor’s. Based on: “Global Powers of Retailing
2012,” Deloitte, January 2012, p. G27, accessed via Statista, December 2012.

Exhibit 4 in 2012

Leading 10 Most Valuable Clothing Brands Worldwide

Brand (company, country of origin)

Brand Value
($ billion)

Nike (Nike, United States)

16.30

H&M (H&M, Sweden)

13.50

Zara (Inditex, Spain)

12.60

Ralph Lauren (Ralph Lauren Corp, United States)

5.10

Adidas (Adidas, Germany)

3.90

UNIQLO (Fast Retailing, Japan)

3.70

HUGO BOSS (Hugo Boss, Germany)

3.30

Next (Next Plc, United Kingdom)

3.00

Metersbonwe (Metersbonwe, China)

1.40

Calvin Klein (Philips-Van Heusen, United States)

1.20

Source: “BrandZ- Top 100 Most Valuable Global Brands 2012,” Millward Brown
Optimor, May 2012, p. 50, accessed via Statista, December 2012.

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Uniqlo
Victoria’s Secret

Hennes & Mauritz

Gap, Inc.

Fast Retailing

L Brandsa

Abercrombie and Fitch

Next

American Eagle

Forever 21

2

3

4

5

7

6

8

9

Aéropostale

Ann Inc.

14

15

Casewriter chart, compiled from company data via Capital IQ, Inc., a division of Standard & Poor’s.

Ann Taylor, LOFT, Ann Taylor Factory, LOFT Outlet

b Benetton sales reflect the 12 months before their privatization.

a L Brands revenue excludes Bath & Body Works.

Source:

USA

Chico’s, White House/Black Market, Soma Intimates

Chicos

13
Aéropostale, P.S.

Italy

Benetton

Benettonb

USA

USA

USA

Urban Outfitters, Anthropologie, Free People, Terrain, BHLDN

Urban Outfitters

12

USA

11

Dress Barn, Justice

Ascena Retail Group

USA

USA

UK

USA

USA

Japan

USA

Sweden

Spain

Country of Origin

10

Forever 21, XXI Forever, ForLove 21

Aerie, American Eagle

Next

A&F, Abercromibe kids, Hollister Col, Gilly Hicks

Gap, Banana Republic, Old Navy, Piperlime, Athleta

H&M, COS, Monki, Weekday, Cheap Monday, and & Other Stories

Zara, Massimo Dutti, Bershka, Oysho, Pull and Bear, Stradivarius

Inditex

1

Brands

Name

Top International Specialist Apparel Retailers

Rank

Exhibit 4

Feb-02-2013

Feb-02-2013

Feb-02-2013

Mar-31-2012

Jan-31-2013

Jul-28-2012

Feb-02-2013

Feb-02-2013

Jan-27-2013

Feb-02-2013

Feb-02-2013

Aug-31-2012

Feb-02-2013

Nov-30-2012

Jan-31-2013

Fiscal Year End

$2,376

$2,386

$2,581

$2,676

$2,795

$3,353

$3,400

$3,476

$3,593

$4,511

$6,574

$11,860

$15,651

$18,144

$21,659

Sales, 2012

-10-

7.0%

3.9%

11.3%

6.8%

13.4%

10.1%

N/A

12.7%

14.9%

8.3%

18.1%

13.6%

12.5%

18.0%

19.5%

Operating
Profit Margin

713-512

Hennes & Mauritz, 2012

Exhibit 5

713-512

Top International Specialist Apparel Brands

Sales

Store
Count

Sales per Store

H&M

$14,515

2,628

5.5

Inditex

$14,315

1,925

7.4

Uniqulo

Fast Retailing

$11,859

1,632

7.3

4

Victoria’s Secret

L Brands

$6,574

1,019

6.5

5

Gap

Gap

$5,428

1,379

3.9

6

Old Navy

Gap

$5,355

1,010

5.3

7

Next

Next

$3,593

729

4.9

8

Forever 21

Forever 21

$3,400

480

7.1

9

American Eagle

American Eagle

$3,163

893

3.5

10

Banana Republic

Gap

$2,387

590

4.0

11

Aéropostale

Aéropostale

$2,386

1,084

2.2

12

Hollister

Abercrombie and Fitch

$2,314

589

3.9

13

Mango

Punto Fa, S.L.

$2,197

2,600

0.8

14

Bershka

Inditex

$2,017

885

2.3

15

Abercrombie and Fitch

Abercrombie and Fitch

$1,704

285

6.0

16

Chico’s/ Soma

Chico’s

$1,647

914

1.8

17

Massimo Dutti

Inditex

$1,540

630

2.4

18

Pull & Bear

Inditex

$1,475

816

1.8

19

LOFT

Ann Inc.

$1,430

608

2.4

20

Dress Barn

Ascena Retailing Group

$1,306

824

1.6

21

Stradivarius

Inditex

$1,305

780

1.7

22

Urban Outfitters

Urban Outfitters

$1,043

197

5.3

23

Justice

Ascena Retailing Group

$1,037

942

1.1

24

Ann Taylor

Ann Inc.

$945

376

2.5

25

Anthropologie

Urban Outfitters

$945

168

5.6

Rank

Brand

Owner

1

H&M

2

Zara

3

Source:

Casewriter chart, compiled from company data via Capital IQ, Inc., a division of Standard & Poor’s as well as
Company Annual Reports, accessed via Capital IQ.

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713-512

Hennes & Mauritz, 2012

Exhibit 6

H&M Sales by Geographic Segment (USD million)

Country

Sales in 2011

Sales in 2012

% Change

Percentage of
Total Sales

Total
Stores

Sales per Store
($ million)

Germany

3,699.8

USA

1,363.0

3,829.90

3.5%

21.1%

406

9.4

1,794.90

31.7%

9.9%

269

United Kingdom

6.7

1,172.4

1,347.00

14.9%

7.4%

226

France

6.0

1,155.3

1,252.80

8.4%

6.9%

182

6.9

Sweden

992.2

995.10

0.3%

5.5%

177

5.6

Netherlands

871.0

842.30

-3.3%

4.6%

124

6.8

Switzerland

821.9

809.40

-1.5%

4.5%

82

9.9

Spain

735.3

738.50

0.4%

4.1%

146

5.1

China

485.9

733.60

51.0%

4.0%

134

5.5

Norway

639.7

675.10

5.5%

3.7%

111

6.1

Italy

542.7

603.20

11.1%

3.3%

104

5.8

Austria

592.3

599.60

1.2%

3.3%

68

8.8

Denmark

497.6

517.30

4.0%

2.9%

94

5.5

Canada

368.7

420.90

14.2%

2.3%

61

6.9

Belgium

386.2

404.90

4.9%

2.2%

70

5.8

229.252

375.60

63.8%

2.1%

22

17.1

Poland

333.8

360.60

8.0%

2.0%

103

3.5

Russia

223.776

318.30

42.2%

1.8%

37

8.6

Finland

288.3

298.40

3.5%

1.6%

53

5.6

Portugal

108.3

105.30

-2.8%

0.6%

23

4.6

Greece

91.9

102.90

12.0%

0.6%

25

4.1

Czech Republic

89.2

96.40

8.0%

0.5%

31

3.1

Romania

48.988

95.30

94.4%

0.5%

19

5.0

Croatia

39.072

91.20

133.4%

0.5%

11

8.3

Japan

South Korea

60.68

89.10

46.8%

0.5%

11

8.1

Ireland

65.3

74.30

13.8%

0.4%

16

4.6

Hungary

58.8

73.90

25.8%

0.4%

26

2.8

Turkey

45.732

66.45

45.3%

0.4%

11

6.0

Singapore

16.428

61.35

273.4%

0.3%

2

30.7

Slovenia

62.2

60.80

-2.2%

0.3%

12

5.1

Luxembourg

51.1

56.20

10.1%

0.3%

10

5.6

Slovakia

31.4

42.40

35.1%

0.2%

13

3.3

Bulgaria

-

18.15

0.1%

4

4.5

Malaysia

-

12.60

0.1%

2

6.3

Mexico

-

7.05

0.0%

1

7.1

Latvia

-

5.40

0.0%

2

2.7

181.892

287.10

1.6%

88

3.3

Franchisea

Source:

57.8%

Casewriter chart and calculations based on data from H&M 2012 Annual Report. Exchange rate provided by Capital
IQ historical conversions.

a Franchises located in: United Arab Emirates, Kuwait, Qatar, Saudi Arabia, Egypt, Bahrain, Oman, Lebanon, Israel, Morocco,

Jordan, and Thailand.

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Hennes & Mauritz, 2012

Exhibit 7

713-512

H&M and Competitor Data, 2011
Gap, Inc.

H&M

Fast Retailing

Inditex

Benetton

Sales ($ millions)
Operating profit ($ million)

$14,549
$1,438

$16,281
$3,016

$10,724
$1,521

$18,043
$3,299

$2,640
$200

Gross Profit (% sales)
SG&A (% sales)
Operating profit (% sales)
Net Income ($ millions)

40.3%
26.4%
9.9%
$833

60.1%
41.6%
18.5%
$2,342

51.9%
35.1%
14.2%
$736

59.3%
16.2%
18.3%
$2,545

43.7%
19.5%
7.6%
$100

Balance Sheet ($ millions)
Cash, securities
Inventory
Current assets
Current liabilities
Working capital
Total assets
Long term debt
Equity

$1,891
$1,615
$4,309
$2,128
$2,181
$7,422
$1,606
$2,755

$3,149
$2,045
$5,908
$2,184
$3,724
$8,908
-$6,528

$2,642
$1,212
$4,837
$2,390
$2,446
$6,978
$179
$4,182

$4,535
$1,670
$7,113
$3,536
$3,577
$14,336
$1
$9,753

$232
$471
$2,066
$1,528
$538
$4,037
$394
$1,932

Cash Flow ($ millions)
Operating cash flow from cont. opp
Purchases of property and equipment
Cash flow from investing activities

$1,363
-$548
-$454

$2,578
-$755
-$600

$747
-$247
-$348

$3,151
-$1,415
-$1,764

$112
--$128

$17
$17
-$2,030
$236
$324

NA
-$2
--$2,327
-$351

-$38
-$41
--$279
$21

-$47
$18
--$1,141
$44

-$0
--$57
-$17

3,263
132.0

2,472
64.9

2,088
14.6

5,527
109.5

Movements in short and long term debt
Foreign Exchange Effects
Equity Issues/ Stock Repurchases
Dividends
Net Cash Flow
Stores
Associates (‘000s)

Source:

Not reported
7.8

Casewriter chart, compiled from company data via Capital IQ, Inc., a division of Standard & Poor’s.

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713-512

Hennes & Mauritz, 2012

Exhibit 8a

Sales and Operating Profit

Sales ($ m)

20,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2009

2010

2011

2012

Operating Profit ($ m)

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0
2000

Source:

2001

2002

2003

2004

2005

2006

2007

2008

Casewriter graphs based off of company financials from Capital IQ, a division of Standard & Poor’s, accessed
August 2012.

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Hennes & Mauritz, 2012

Exhibit 8b

713-512

Gross Margin (% sales) and SG&A (% sales)

Gross Margin (% sales)

64%

62%

60%

58%

56%

54%

52%

50%
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2008

2009

2010

2011

2012

SG&A (% sales)

42%

41%

40%

39%

38%

37%

36%

35%
2000

Source:

2001

2002

2003

2004

2005

2006

2007

Casewriter graphs based off of company financials from Capital IQ, a division of Standard & Poor’s, accessed
August 2012.

15
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713-512

Hennes & Mauritz, 2012

Exhibit 8c

Operating Profit (% sales) and Operating Profit (% capital)

Operating Profit (% sales)

26%

24%

22%

20%

18%

16%

14%

12%

10%
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2009

2010

2011

2012

Operating Profit (% capital)

60%

55%

50%

45%

40%

35%

30%

25%
2000

Source:

2001

2002

2003

2004

2005

2006

2007

2008

Casewriter graphs based off of company financials from Capital IQ, a division of Standard & Poor’s, accessed
August 2012.

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Hennes & Mauritz, 2012

Exhibit 8d

713-512

Sales Growth and Same Store Sales Growth

Sales Growth

40%

30%

20%

10%

0%

-10%

-20%
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Same Store Sales Growth

14%
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
2004

Source:

2005

2006

2007

2008

2009

2010

2011

2012

Casewriter graphs based off of H&M annual reports, 2000–2012.

17
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713-512

Hennes & Mauritz, 2012

Exhibit 8e

Number of Stores and Sales per Store

Number of Stores

3,000

2,500

2,000

1,500

1,000

500

0
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2009

2010

2011

2012

Sales per Store ($ million)

8.5

8.0

7.5

7.0

6.5

6.0

5.5

5.0

4.5

4.0
2000

Source:

2001

2002

2003

2004

2005

2006

2007

2008

Casewriter graphs based off of: H&M Annual Report, 2000–2012.

18
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Hennes & Mauritz, 2012

Exhibit 8g

713-512

Employees and Sales per Employee

Number of Empolyees ('000)

80

70

60

50

40

30

20

10

0
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2010

2011

2012

Sales per Employee (million)

0.28

0.26

0.24

0.22

0.20

0.18

0.16

0.14
2000

Source:

2001

2002

2003

2004

2005

2006

2007

2008

2009

Casewriter graphs based off of H&M Annual Report, 2000–2012.

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713-512

Hennes & Mauritz, 2012

Exhibit 8h

Working Capital (% sales) and Inventory Turn

Working Capital (% sales)

33%

31%
29%
27%
25%
23%
21%
19%
17%
15%
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2008

2009

2010

2011

2012

Inventory Turn

5.0
4.8
4.6
4.4
4.2
4.0
3.8
3.6
3.4
3.2
3.0
2000

Source:

2001

2002

2003

2004

2005

2006

2007

Casewriter graphs based off of company financials from Capital IQ, a division of Standard & Poor’s, accessed
August 2012.

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Hennes & Mauritz, 2012

Exhibit 8i

713-512

Net Income (% sales) and Return on Equity

Net Income (% of sales)

18%

17%
16%
15%
14%
13%
12%
11%
10%
9%
8%
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2009

2010

2011

2012

Net Income (% of Equity)

45%

40%

35%

30%

25%

20%
2000

Source:

2001

2002

2003

2004

2005

2006

2007

2008

Casewriter graphs based off of company financials from Capital IQ, a division of Standard & Poor’s, accessed
August 2012.

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713-512

Hennes & Mauritz, 2012

Exhibit 8j

Debt to Capital Ratio

Debt to Capital Ratio

29%
28%
27%
26%

25%
24%
23%
22%
21%

20%
2000

Source:

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Casewriter graphs based off of company financials from Capital IQ, a division of Standard & Poor’s, accessed
August 2012.

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Hennes & Mauritz, 2012

Exhibit 9

713-512

H&M Retail Banners, 2012

H&M
H&M, was now represented on more than 40 markets. In 8 countries, the collections were also available online. H&M stocked a broad and diverse range of fashion for men, women, youth and children. In addition to clothes, H&M offered cosmetics, accessories and home textile products.

H&M Home
H&M operated a number of H&M Home stores selling household lines in Stockholm, Norrköping,
Helsinki, Copenhagen, Oslo, London, Amsterdam and Frankfurt. H&M Home aimed to provide fashion for every room in the house, including towels, bed linen, curtains and other home textiles in trendy colours and prints. The product line was also offered on line.

COS (Collection of Style)
“Modern, urban and chic”, COS offered customers a combination of “timelessness and distinctive trends,” for both women and men. The range covered everything from quality clothing for work and party-time to accessories, “all with fashion sensibility down to the smallest detail.” COS also offered fashion for children.

Monki
Monki was “synonymous with personal creativity and expression.” Here young women could find clothes, accessories and a novel store concept that was “its own imaginative world.” The stores and monki.com provided “innovative collections” and an” inspiring fashion experience” characterised by
“playfulness and colourful graphic design.”

Weekday
Weekday sold its own brands MTWTFSS Weekday, Cheap Monday, Weekday Vintage and Weekday
STOREMADE, but also commissioned design collaborations with independent fashion labels such as
Carin Wester, Bless and Bruno Pieters. Weekday’s stores offered “urban fashion” for men and women “always at the best price.”

Cheap Monday
Cheap Monday combined “influences from street fashion and subcultures” with a “catwalk vibe.”
For “hip” men and women. The offering included high fashion denim, clothing and accessories at
“prices accessible to all. “ Each season, Cheap Monday held a fashion show in Stockholm.

Source:

H&M, “The H&M group,” http://about.hm.com/AboutSection/en/About/Facts-About-HM/Brands-andCollections/HM-Group.html#cm-menu, accessed January 2013.

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713-512

Hennes & Mauritz, 2012

Endnotes
1

H&M, 2012 Annual Report (Sweden: H&M, 2012), p 11.

2

H&M, 1989 Annual Report (Sweden: H&M, 1989).

3

H&M, 1998 Annual Report (Sweden: H&M, 1998).

4

H&M, 1996 Annual Report (Sweden: H&M, 1996).

5

Darius Sanai, “Mr Persson’s sartorial challenge.” The Independent- London, June 28, 2000.

6

Gap, Inc. company data via Capital IQ, Inc., a division of Standard & Poor’s.

7

H&M, 2000 Annual Report (Sweden: H&M, 2000).

8

“The Stars of Europe- Challengers,” Bloomberg Business Week, June 17, 2002.

9

Ibid.

10 Tracie Rozhon, “H&M Keeps Up the Expansion, but Some Analysts See Weak Links,” The New York Times,
October 14, 2004.
11 Erin White and Kimberly Palmer, “U.S. Retailing, 101—Among the Many Lessons Sweden’s H &M
Learned: Cut Costs, Don’t Hide Khakis,” The Wall Street Journal, August 12, 2003.
12

Tracie Rozhon, “H&M Keeps Up the Expansion, but Some Analysts See Weak Links,” The New York Times,
October 14, 2004.
13

Meredith Derby, “Lagerfeld Leads H&M to 23.9% Net Gain.” Women’s Wear Daily, January 31, 2005.

14

Ibid.

15

Inditex. company data via Capital IQ, Inc., a division of Standard & Poor’s.

16

“KARL LAGERFELD LOVES HIS H&M,” Women’s Wear Daily, June 18, 2004.

17

Company website, http://about.hm.com/content/hm/AboutSection/en/About/Facts-About-HM.html#cm-menu, accessed May 15, 2012.
18

Nandini D’Souza, “H&M’s Walk in the Park,” Women’s Wear Daily, April 20, 2005.

19

Robert Murphy, “HOW SWEDE IT IS: H&M PROFITS UP 17%, NEW FORMATS ON HORIZON,”
Women’s Wear Daily, January 26, 2007.
20

Ibid.

21

Ibid.

22

Jessica Price Brown, “Swedish duo to grow after H&M acquisition,” Drapers, March 15, 2008.

23

Ibid.

24

Ibid.

25

Ibid.

26

Ibid.

27

Ola Kinnander, “Earnings Digest: H&M’s Low-Cost Approach Falters—Rise in Net Profit Is Less Than
Expected Amid Global Economic Downturn.” The Wall Street Journal, October 1, 2008.
28

Ola Kinnander, “Corporate News: H&M Scion Named As Retailer’s Chief.” The Wall Street Journal,
February 12, 2009
29

H&M, Inditex, and Gap, Inc. company data via Capital IQ, Inc., a division of Standard & Poor’s.

30

Ibid.

31

Ibid.

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Hennes & Mauritz, 2012

32

713-512

Ibid.

33

“Jens Hansegard and Laurie Burkitt, “The Monday Interview—Karl-Johan Persson: Feeling Success in
China, H&M Targets Smaller Cities—Swedish Chain Set to Open More Stores in World’s Second-Largest
Economy Than Anywhere Else Next Year.” The Wall Street Journal Europe, December 5, 2011.
34

Anna Molin, “H&M to Continue Expansion Despite Profit Drop.” The Wall Street Journal, January 30, 2013.

35

“Jens Hansegard and Laurie Burkitt, “The Monday Interview—Karl-Johan Persson: Feeling Success in
China, H&M Targets Smaller Cities—Swedish Chain Set to Open More Stores in World’s Second-Largest
Economy Than Anywhere Else Next Year.” The Wall Street Journal Europe, December 5, 2011.
36

Anna Molin, “H&M to Continue Expansion Despite Profit Drop.” The Wall Street Journal, January 30, 2013.

37

H&M, 2012 Annual Report (Sweden: H&M, 2012), p 11.

38

Sarah Karmali, “Preview H&M’s New Luxury Line,” Vogue UK, November 20, 2012.

39

Anna Molin, “H&M to Continue Expansion Despite Profit Drop.” The Wall Street Journal, January 30, 2013.

40

Ibid.

41

Company website, http://about.hm.com/content/hm/AboutSection/en/About/Facts-About-HM.html#cm-menu, accessed May 15, 2012.
42

H&M, 2012 Annual Report (Sweden: H&M, 2012), p. 41.

43

Ibid., p 11.

44

Anna Ringstrom, “Analysis: H&M on quest for growth with new fashion chains.” Reuters News, June 4,

2012.
45

Company website, http://about.hm.com/content/hm/AboutSection/en/About/Facts-About-HM.html#cm-menu, accessed May 15, 2012.
46

H&M, 2012 Annual Report (Sweden: H&M, 2012), p. 9.

47

Ibid.

48

Greg Petro, “The Future of Fashion Retailing.” Forbes, November 5, 2012.

49

Ibid.

50

H&M, 2012 Annual Report (Sweden: H&M, 2012), p 9.

51

“SPAIN: Zara more recession-proof than H&M, say analysts.” Just-Style, November 27, 2008.

52

Company website, http://about.hm.com/AboutSection/en/About/Sustainability/Reporting-andResources/Reports.html#cm-menu, accessed January 2013.
53

H&M Conscious Action Highlights 2012 Report, p. 5.

54

Ibid.

55

Ibid.

56

Jens Hansegard, “H&M Sales Slump Again.” The Wall Street Journal, March 15, 2013.

57

Company website, http://about.hm.com/content/hm/AboutSection/en/About/Facts-About-HM.html#cm-menu, accessed May 15, 2012.
58

Zargani, Luisa, “H&M Expansion Hits Italy,” WWD, September 19, 2003.

59

Company website, http://about.hm.com/content/hm/AboutSection/en/About/Facts-About-HM.html#cm-menu, accessed May 15, 2012.
60

“Hennes and Maurtiz,” The Economist, February 28, 1998.

61

Ibid.
25

This document is authorized for use only in UNSW Business Society Consulting Competition 2014 by Jennifer Harris at University of New South Wales from April 2014 to October 2014.

713-512

Hennes & Mauritz, 2012

62

H&M
Sustainability
Reports,
“Conscious
Actions
Sustainability
Report
2012,”
http://about.hm.com/AboutSection/en/About/Sustainability/Reporting-and-Resources/Reports.html#cmmenu , accessed January 2013
63

H&M Conscious Action Highlights 2012 Report, p. 5.

26
This document is authorized for use only in UNSW Business Society Consulting Competition 2014 by Jennifer Harris at University of New South Wales from April 2014 to October 2014.