12/02/2011 Strategy Analysis of H&M | Maissaa BEN TAHRA | Strategy: Dr Darrell Jaya-Ratnam | Knowledge, Strategy and Business Analysis |

Strategy: Dr Darrell Jaya-Ratnam | Knowledge, Strategy and Business Analysis |

REPORT OF STRATEGIC ENVIRONMENT ANALYSIS

| There are many external factors affecting the fast fashion industry most importantly in H&M’s case is the transportation cost and price of oil | External factors change in the markets of production. Raw material prices have increased; cotton prices for example almost doubled in 2010. H&M has to adapt to changing conditions but always in accordance with their business concept – to offer customers fashion and quality at the best price. | There is a mix of external shocks in the fast fashion industry: * Economic slowdown * Energy costs (oil price) * Employment level * Change in regulations * Logistics (i.e. shipping time) * Transportation cost and time (H&M owns design but do not own factories therefore it is importing most of its goods from china which results in high transportation costs) * Use of IT * Raw material price fluctuation (e.i: cotton’s price have doubled up in 2010)

There is a mix of external shocks in the fast fashion industry: * Economic slowdown * Energy costs (oil price) * Employment level * Change in regulations * Logistics (i.e. shipping time) * Transportation cost and time (H&M owns design but do not own factories therefore it is importing most of its goods from china which results in high transportation costs) * Use of IT * Raw material price fluctuation (e.i: cotton’s price have doubled up in 2010)

ˡ (2011), H&M’s environmental objectives and sustainability policy. Available from: H&M, Web site: http://www.hm.com/us/corporateresponsibility/environment/hmsenvironmentalobjectivesandsustainabilitypolicy__envworkar

ticle2.nhtml [Accessed: February 2, 2011].
ˡ (2011), H&M’s environmental objectives and sustainability policy. Available from: H&M, Web site: http://www.hm.com/us/corporateresponsibility/environment/hmsenvironmentalobjectivesandsustainabilitypolicy__envworkar

ticle2.nhtml [Accessed: February 2, 2011].

External shocks

External shocks | | Most of H&M’s suppliers are based in Asia and the rest in Europe, therefore H&M is facing different regulations as well as high transportation cost. H&M market segmentation is psychographics | H&M own designers interpret fashion trends and create fashions that are accessible to all. The stores are revitalized weekly with new items. | Economics of demand:
-Market segment: market segmentation for H&M is psychographics, including social class, lifestyle and personality variables.
-Product differentiability is high in the fast fashion industry. Products are differentiated in terms of style, quality of raw materials and users according to gender and age.
-Rate of growth: H&M is expanding rapidly (H&M is worldwide now). Fast fashion is growing very fast. Underlying growth rate: 5% in the last three years. Growth rate declined in recent years due to job losses, which was a result of the market slowdown.
-Volatility: H&M brings new lines every week with big amount
-Availability of substitutes: There are many retailers offering same products at either same price or lower
Economics of supply
-Concentration & diversity of producers: H&M sources clothes and other products from about 700 suppliers who in turn use subcontractors.
-Cost structure: low cost. 60% of H&M’s suppliers are based in Asia where labor cost is cheap.
-Supply curve: supply curve is greater than the demand curve H&M is supplied by a high number of items
-Entry barriers: The industry has a high level of entry barrier (in medium and high scale business). The direct sales market also has high entry barrier (require huge amount and expertise to procure the quality garments).

Economics of demand:
-Market segment: market segmentation for H&M is psychographics, including social class, lifestyle and personality variables.
-Product differentiability is high in the fast fashion industry. Products are differentiated in terms of style, quality of raw materials and users according to gender and age.
-Rate of growth: H&M is expanding rapidly (H&M is worldwide now). Fast fashion is growing very fast. Underlying growth rate: 5% in the last three years. Growth rate declined in recent years due to job losses, which was a result of the market slowdown.
-Volatility: H&M brings new lines every week with big amount
-Availability of substitutes: There are many retailers offering same products at either same price or lower
Economics of supply
-Concentration & diversity of producers: H&M sources clothes and other products from about 700 suppliers who in turn use subcontractors.
-Cost structure: low cost. 60% of H&M’s suppliers are based in Asia where labor cost is cheap.
-Supply curve: supply curve is greater than the demand curve H&M is supplied by a high number of items
-Entry barriers: The industry has a high level of entry barrier (in medium and high scale business). The direct sales market also has high entry barrier (require huge amount and expertise to procure the quality garments).

| | H&M’s strategy is to sell fashionable clothes at an affordable price. | Companies can follow the possible growth strategies to strengthen their conduct and improve the performance.H&M sells fashion at an affordable price | -Price determination: price is generally based on: * Material cost (including sewing, packing and other accessories) * Labor cost * Overhead cost
Pricing at H&M: affordable cost
-Advertising/promotion: H&M uses famous model’s pictures and brands to be introduced in one of H&M’s lines such as Kate Moss. H&M uses video advertising, print ads (such as H&M magazines) and e-marketing through the website they introduced recently which now allows customer to shop online.
-Volume: H&M strategy is to bring a high amount of each item
-New products: H&M’s strategy is to refresh its store with new items every week

ˡ (2011), Corporate responsibility. Available from: H&M, Web site: http://www.hm.com/gb/corporateresponsibility__responsibility.nhtml [Accessed: February 2, 2011].
-Price determination: price is generally based on: * Material cost (including sewing, packing and other accessories) * Labor cost * Overhead cost
Pricing at H&M: affordable cost
-Advertising/promotion: H&M uses famous model’s pictures and brands to be introduced in one of H&M’s lines such as Kate Moss. H&M uses video advertising, print ads (such as H&M magazines) and e-marketing through the website they introduced recently which now allows customer to shop online.
-Volume: H&M strategy is to bring a high amount of each item
-New products: H&M’s strategy is to refresh its store with new items every week

ˡ (2011), Corporate responsibility. Available from: H&M, Web site: http://www.hm.com/gb/corporateresponsibility__responsibility.nhtml [Accessed: February 2, 2011]. | | H&M’s distribution flows through different channels before they reach the customers. | A large part of the finished products of H&M that are manufactured are shipped using external contract companies to the central warehouse in Hamburg, Germany, which served as the transit terminal. Logistics are managed centrally from the company's headquarters in Stockholm. | Distribution: product flow

The finished products are delivered to buyers either by air or sea.

The finished products are delivered to buyers either by air or sea.

ˡ (2011), Green logistics. Available from: H&M, Web site: http://www.hm.com/us/abouthm/factsabouthm/fromideatostore/logisticsanddistribution__fromideatostorelogisticsanddistrib

ution.nhtml [Accessed: February 2, 2011]. | | H&M is environmentally aware and therefore improving it’s current technology in order to improve its environment awareness. | 2010 was a very good year for H&M with a sales increase of 15 percent. Profit after financial items increased to SEK 25 billion.In 2011, H&M plans to open around 250 stores net in new and existing markets.H&M gives a big importance to its employee whether those who are working on stores or the ones working at its suppliers factories. | -Employment level: more than half employees are engaged in the manufacturing of women’s, girl’s and babies garments. The second biggest group of workers are into the production of men’s and boy’s garments.
-Production process: this is divided into four major operations: * Raw materials inspection * Fabric layout * Marking and cutting * Sewing and finishing * The product design which is done by H&M
-Risk: There is a high cost risk and degree of control when entering an international market.
-Technology objectives: H&M is adopting new technologies and methods to minimize the environmental footprint through improved production processes and a choice of materials.
-Employment objectives: H&M’s objective is to be a good employer, including in those countries whose laws and regulations fall short of our own requirements. The whole of our activity is shaped by a fundamental respect for the individual. This applies to every aspect from fair wages, working hours and freedom of association to the opportunity for growth and development within the company. H&M offers its employee many benefits including: * Employee Discount Medical * Vision and Dental Coverage (For employees and their family)
-Employment level: more than half employees are engaged in the manufacturing of women’s, girl’s and babies garments. The second biggest group of workers are into the production of men’s and boy’s garments.
-Production process: this is divided into four major operations: * Raw materials inspection * Fabric layout * Marking and cutting * Sewing and finishing * The product design which is done by H&M
-Risk: There is a high cost risk and degree of control when entering an international market.
-Technology objectives: H&M is adopting new technologies and methods to minimize the environmental footprint through improved production processes and a choice of materials.
-Employment objectives: H&M’s objective is to be a good employer, including in those countries whose laws and regulations fall short of our own requirements. The whole of our activity is shaped by a fundamental respect for the individual. This applies to every aspect from fair wages, working hours and freedom of association to the opportunity for growth and development within the company. H&M offers its employee many benefits including: * Employee Discount Medical * Vision and Dental Coverage (For employees and their family)
Finance: H&M’s 2009 figures:
Finance: H&M’s 2009 figures:
H&M sold more than SEK 100billion. Gross margin increased by 0.4% units to 61.5% while the operating margin amounted to 22.7%. Profit after financial items increased by 11% to SEK 21.2 billion. Profit after tax increased by 13% to 15.3 billion represents earnings per share to SEK 18.48
H&M sold more than SEK 100billion. Gross margin increased by 0.4% units to 61.5% while the operating margin amounted to 22.7%. Profit after financial items increased by 11% to SEK 21.2 billion. Profit after tax increased by 13% to 15.3 billion represents earnings per share to SEK 18.48 |

REPORT OF STRATEGIC PORTFOLIO ANALYSIS

| H&M is place on the cash cow part on the BCG model | | H&M’s has two products which are placed on the cash cow line, there are clothing and accessories.Online shopping and H&M’s magazine are placed on the star line. | H&M is mostly placed in cash cows on the BCG matrix model. The main products that H&M produces are clothing, footwear and accessories. Both clothing and accessories are considered as cash cow on the BCG model since both products are low market growth. H&M changes its products constantly as fashion changes fast; this means that H&M’s products do not have high potential to grow in markets. The company’s products are profitable since H&M keeps updating its stores with new products. Nevertheless, H&M are continually updating their inventories, in order to attract more customers. H&M uses a strategy that would keep customers visiting their stores regularly. H&M’s strategy has met a great success in selling their products and finding the suitable position of its product in the Boston matrix. In addition, the online shopping facility as well as their catalogue is placed on the STAR section on the BCG matrix
H&M is mostly placed in cash cows on the BCG matrix model. The main products that H&M produces are clothing, footwear and accessories. Both clothing and accessories are considered as cash cow on the BCG model since both products are low market growth. H&M changes its products constantly as fashion changes fast; this means that H&M’s products do not have high potential to grow in markets. The company’s products are profitable since H&M keeps updating its stores with new products. Nevertheless, H&M are continually updating their inventories, in order to attract more customers. H&M uses a strategy that would keep customers visiting their stores regularly. H&M’s strategy has met a great success in selling their products and finding the suitable position of its product in the Boston matrix. In addition, the online shopping facility as well as their catalogue is placed on the STAR section on the BCG matrix Info on H&M (Based on 5 year cumulative figures) | Net Sales | Mkt Share | Mkt Growth | Ave Growth Rate | Europe | 7,735 | 41% | 48% | 10% | America | 712 | 7% | 89% | 18% | Asia | 146 | 9% | 849% | 212% | Mena | 37 | 60% | 1143% | 229% | | 8,630 | 28% | 58% | 12% |
ˡ Roberts, A. (2011), H&M, Zara Fast Fashion Pressures Luxury Labels to Speed Up. Available from: Bloomberg, Web site: http://www.bloomberg.com/news/2010-09-30/h-m-zara-set-pace-as-fast-fashion-mentality-spreads-to-luxury-companies.html [Accessed: February 2, 2011]. | | | H&M’s strategy is to design items in-house and send this latter to be made in external factories that are not owned by H&M. H&M makes loads of designs monthly. | | H&M goal is to encourage its current customers to buy more. This work when H&M noticed major weaknesses in competitors’ product or marketing programs.H&M’s main competitors are ZARA and GAPH&M strategy is to buy big amount of each items with does not guarantee that they will all be sold within a specific time, therefore more items takes space within storedBefore opening new stores or before entering a new market, H&M conducted extensive research on the demographics of the consumers, spending power, competition, and other factors that could contribute to the success of the international venture. | Products Present New Products Present New P R E
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Market PenetrationAround one quarter of H&M stock is made up of fast-fashion items that are designed in-house and farmed out to independent factories around the world. H&M also keeps a large inventory of basic, everyday items sourced from cheap Asian factories. H&M brings new line every week, which keeps customers coming back. 60% of H&M’s suppliers are based in Asia which makes shipping time longer. H&M saw a major expansion throughout Europe in recent years and is still looking to open more stores within Europe. | Product developmentH&M develop new designs quickly even though it has a slow development from concept to point of sale. On average, this takes weeks. H&M’s “affordable fashion” positioning clearly denotes that it’s not a luxury brand, its target customers are a great number of people that are eager to purchase fashion while quite sensitive to prices. H&M also has super business teams, which constantly monitor external developments – consumers on catwalks, at airports, shopping areas, sport events, movies and other events. H&M has teams traveling the world with the aim of discovering new fashion behavior and trends. This explain why H&M’s team, which consists of passionate and able designers, experienced market specialists and procurement and production planners, is able to annually create approximately 40,000 new designs from which about 10, 000 are so quickly selected for and put into production. H&M’s strategy is to bring a large amount of an item to the store, which may take long time to sell, and takes space within stores. | Market development N E W N E W
H&M’s the Swedish company, got fastest growing clothing manufacturer suppliers. H&M fastest growing division, turns its inventory twice as fast as major competitors, with an inventory-to-sales of 5% compared to an industry average of 14%.H&M are growing even internationally they got in Europe. According to H&M annual report Europe is the region that H&M most focus on the developed fashion market. H&M own more than 1,000 stores in Europe which is a higher number than its competitors. The company is also looking forward opening more than 50 stores in Europe in the near future. | Product/Market diversificationH&M uses many manufacturer suppliers within Europe as well as Asia. They create many different designs each week. H&M introduced the online shopping facility where delivery is possible to European countries. H&M has also introduced the gift card. |
ˡ Walter, S. (2009), Expansion Opportunities for H&M in Asia - Market Analysis. Available from: GRIN, Web site: http://www.grin.com/e-book/140245/expansion-opportunities-for-h-m-in-asia-market-analysis [Accessed: February 8, 2011]. | | America: H&M is looking to open new stores in this region regardless of the high number of competitors. | H&M started expanding in America since 2000 and now they have more than 200 stores operating in that region.H&M is looking to open more stores in America in the future even though the company is slowly developing in this region due to competitors. | Market (present) Market (new) P R E
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Market penetrationH&M opened its first store in Canada in 2004 which saw a lot of success. There are currently 48 stores in Canada. As of August 2010, H&M had more than 200 stores in the United States, the first store being opened in 2000. | Product developmentH&M follows the same strategy as for Europe, the company develop new designs quickly even though it has a slow development from concept to point of sale due to delivery time (as stated before most of H&M’s suppliers are based in Asia). H&M now started selling perfumes, cosmetics and body splash as well as body lotion. | Market developmentH&M consider selling in new locations in new market. The company is slowly expanding in the United State due to a high number of competitors; however H&M is still looking to opening more stores within this region. | Product/Market diversificationH&M is looking to introduce its online shopping facilities for both Canada and United States. |
ˡ (2011), The world of H&M. Available from: H&M, Web site: http://www.hm.com/us/abouthm/theworldofhm/northamerica/unitedstates__worldofhm_countrycode_us.nhtml;jsessionid=E3DCA141C08C2C064CBBD697378F31A3 [Accessed: February 8, 2011]. | | Asia: Asia is considered as a big market for H&M | McKinsey estimates that by 2025 there will be 220 million upper-middle-class households in China's cities, defined as those making $5,000 to $12,500 a year, in contrast to 23 million households in 2005. "We're taking things slow to start out, but we're clearly not going into Asia for 10 stores," Persson explains. "The potential for the market is just too huge."H&M’s top management considers Asia to be the newest and biggest market for H&M in future. | Market (present) Market (new) P R E
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N E W Market penetrationH&M has four stores in Japan, 15 stores in China and 6 stores in Hong Kong, which is not that many in comparison with Europe. | Product developmentDue to the fact that most of H&M’s suppliers are based in china, there is less transportation cost which means that stores get refreshed quickly after the design is done. | Market developmentIt plans to set up its first store in Korea, sees potential in Taiwan and wants to up its store count in China by 30% in 2009. H&M is not looking to open more stores in China as it is a big market and there is a high percentage of competition in this region. | Product/Market diversificationThere is no option of online shopping in China and so not offer gift cards services, therefore the diversification of product and market in this region remains low. 90% of items at H&M in this region are made in the local market which is China. Young Chinese like fashion at an affordable price, therefore product diversification is a must in this region in order to make profit and attract Chinese customers. | | | Africa & Middle East | The Middle East stores are managed through a franchise agreement with Alshaya and currently have H&M stores in Kuwait, Dubai, Qatar, Egypt, KSA, Bahrain, Oman and newly opened Lebanon.Alshaya are the first franchisee of H&M. | Market (present) Market (new) P R E
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Market penetrationH&M has opened its stores in North Africa (Egypt) and Middle East (Saudi Arabia, Dubai, Kuwait etc) through a franchise agreement. H&M is selling same products in this region. However the price is seen to be higher than the price in other regions due to lack of competitors. Most franchise outlets in these regions are in an agreement with same company which is Alshaya. | Product developmentH&M uses same strategy as other regions. Refresh stores more often with design made in house and sent to suppliers. | Market developmentAlshaya is looking to open more stores in North Africa and more in Dubai. | Product/Market diversificationH&M in Dubai tries to develop a section where they can sell traditional Middle Eastern clothes.Online shopping is not available. |
ˡ (2011), Alshaya Stores. Available from: Alshaya, Web site: http://www.alshaya.com/Stores.jsp [Accessed: February 8, 2011].ˡ (2011), The world of H&M: Africa & Middle East. Available from: H&M, Web site: http://www.hm.com/us/abouthm/theworldofhm/middleeastandnorthafrica/bahrain__worldofhm_countrycode_bh.nhtml |

REPORT OF BUSINESS UNIT STRATEGY ANALYSIS

More than 90 percent of all transports at H&M are done via ocean, rail or road which is time consuming. | |
Summary

H & M Hennes & Mauritz AB (operating as H&M) is a Swedish retail-clothing company, known for its fast-fashion clothing offerings for women, men, teenagers and children.
It has almost 2,200 stores in 38 different countries in regions like America, Europe, Africa, Middle East and Asia, as of 2011 H&M employed around 87,000 people. Europe is the region with a high market share and a high competition. The company saw sales at its established stores rise sharply in recent years as the company reaped the benefit of an improving global economy and gained market share. ˡ H&M has expanding in recent years internationally and still looking to expand more in the coming years. ˡ

ˡ (2010), H&M July sales surge, seen winning market share. Available from: Thomson Reuters, Web site: http://http://us.fashionmag.com/news-118484-H-M-July-sales-surge-seen-winning-market-share [Accessed: February 2, 2011].
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