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H&m strategy analysis

07/01/2021 Client: saad24vbs Deadline: 2 Day

H&M IN FAST FASHION: CONTINUED SUCCESS?


africa and India. Despite these aggressive expansion


)lars, analysts had some doubts=


'There are fears that the product is not good enough, brand appeal is fading or that prices have been undercut by an even cheaper competitor. These are big


Including Inditex (Zara), Gap and H&M, continued to be the market leaders (see Table 1). An example of the new and vibrant smaller players was the Japanese company, Uniqlo, which had started to expand aggressively. Moreover, fashion is, by its very nature, unpredictable and fickle trends are prone to sudden changes, which makes competition uncertain. End consumers have an enormous selection of garments to choose from and will quickly adopt new trends. In the 'fast-f ashion ' category they are also extremely cost conscious and will seek out bargains.


Some of the players in the industry are both produc- ers and retailers. For example, Gap Corporation and Indi- tex both manufacture their own products and sell them in their own stores. Other retailers have a multitude of suppliers to choose from. As international trade liberal- ises, the number of suppliers increases and competition


CASE H&M in fast fashion: continued success? STUDY Patrick Regn6r and H. Emre Yildiz


questions- Adam Cochrane, analyst at UBS3


This case examines the role of resources and capabilities in building competitive advantage and the ke. issues to consider while evaluating the sustainability of competitiveness. H&M has enjoyed a leading pog ' bon in the global fashion and apparel market thanks to its unique concept, business model and ability to combine elegant designs with affordable prices. Key competitors, however, have challenged that position and H&M needs to evaluate the sustainability of competitive advantage derived from its resources anil capabilities. The case explores the areas and functions in which H&M has enjoyed advantage vis-a-vis competitors and how, if at all, this advantage can be sustained in the long term.


The apparel industry


The total market size of the global apparel retail industry in 2014 was $1,317bn (£856bn, €1,014bn),' but with an annual growth rate of just 3.8 per cent for the period 2010-14.s This slow growth increased competition. which was further intensified by a large number of small players, although the large international incumbents,Introduction retailer by market capitalisation, based on Zara's rapid


expansion, particularly in emerging markets The increased competition, and the fact that margins had started to erode due to increased cotton prices and rising production costs in Asia, put the H&M high- fashion/low-price formula and aggressive expansion under scrutiny. Investors had come to trust H&M's


model that relied on a set of unique resources and capabilities, but Zara's success questioned the sustain- ability of the formula.


The increased competition for consumer spending in the fast-f ashion business was further intensified by the poor economic situation. With 70 per cent of shareholder voting rights controlled by the company's founding


Persson family, H&M's chief executive Karl-Johan Persson tried to calm investors and emphasised the long- term view:


The apparel retailer H&M has made an incredible journey, from a single store established by the founder Erling Persson in Sweden in 1947 to a pioneering 'fast fashion ' business with 3700 stores in 61 countries and more than 132,000 employees worldwide. 'Fast fashion ' refers to a quick response to new trends and fashion items that are made available in stores immediately thereafter. By the time Persson's 34-year-old grandson Karl-Johan Persson took over as CEO in 2009, H&M had become global leader in the 'fast-fashion ' segment with a distinctive business approach that challenged most competitors. The business model, commonly referred to as 'cheap-and- chic', emphasised high fashion at prices significantly below those of competitors, with the fundamental prin ciple being 'Fashion and quality at the best price '.


As the CEO of the company, Mr Persson emphasised the importance of maintaining the company's growth based strategy, as he stated in the 2014 annual report:


Table I H&M and its multinational competitors


g K 0


.g


H&M


Positioning and segments Business model Key figures Financials


H&M is a retailer of fashion apparel, cosmetics, accessories and shoes for women, men, teenagers and children. Collection of Style(COS) otters customers a combination of timelessness and distinctive trends, for both women and men. The /Monk/ stores provide innovative collections and an inspiring fashion experience characterised by playfulness and colourful graphic design. Week(/ay sells its own brands but also commissions design collaborations with independent fashion labels. The Cheap /Won(iay stores combine influences from street fashion and subcultures with a catwalk vibe. The latest addition is the luxury store concept & Other Sto/bs.


The business is operated from leased store premises, through internet and catalogue sales and on a franchise basis. H&M does not own any factories. Production is outsourced to independent suppliers. H&M's growth target is to ncrease the number of


stores by I0-15% per year, and at the same time increase sales in comparable units. This growth is entirely self- financed. The collections are created by 140 in-house designers With an in-house design and a tightly controlled factory and distribution network, the company has the ability to take a design f rom drawing board to store shelf in just two weeks. That enables Zona to launch new items every week, which keeps customers coming back again and again to check out the latest styles. The company also has a policy of zero advertising and instead invests its revenues in opening up new stores.


At the end of 2014, the company had 3261 H&M stores.114 COS stores. 92 /Wor7k/ stores, 22 Weekday stores and f\ve Cheap Monday stores as well as 130 f ranchise stores. The group outsources product manufacturing to 700 independent suppliers through its 16 local production offices in Asia and Europe. The company employs more than 132,000 people


The company recorded revenue of $20,137m in the fiscal year ending November 2014. an ncrease of 3.84%


compared to fiscal 2013. lts net income was $2,691m in fiscal 2014, representing a slight increase compared to a net income of $2,620m in the preceding year.


'We have great respect for the economic climate. In this situation it is extra important to have a long-term perspective and to always make sure we give the best combination of fashion and quality for money in every market.'l


2014 was a very good year for H&M, with strong sales and profitability. We are continuing to add value for our customers and to invest for an even stronger H&M. We will open a net total of 400 new stores and nine new online markets in 2015.'


Inditex (Zara) The flagship brand of the company is Zona. Zara also operates /<lddy's C/ass stores, which specialise in junior fashion. The Pu// and £3e.ar format offers casual clothing. It caters primarily to young males and females and offers a range that starts from sophisticated urban fashions to casual wear. Bershka stores are large and spacious. They are intended to be meeting points for street fashion, music and art. /W.ass#770 Z)c/#7 stores are located in prime retail locations and offer basic, contemporary styles in next-generation fabrics including high-quality garments. Stead/uadt/s is aimed at young fashion- conscious customers, offering international fashion with the latest designs. Oysho offers fashion trends in women's lingerie and undergarments.


Zane is present in 87 countries. with a network of 1991 stores located in major cities throughout the world. Pull and Bear has opened 853 shopsin the main streets and shopping centres of 63 countries. /Mass/mo


Du#7 operates 665 stores in 63 countries. The fiershka sales format has 954 stores in 66 countries. There are currently 858 Stead/uadus stores in 56 countries. There are currently 549 0ysho stores in 39 countries.


The corDpany recorded revenue of $20.480m in the fiscal year ending January 2015, which represents a decrease of about 10% compared to fiscal 2014. lts net income was $2,826m during 2014, compared to a net income of $3.212m in the preceding year.


we are investing for the future and we always have the customers in focus. Despite increased purchasing costs, we have continued to strengthen our customer offering - for example, by not raising our prices to customers-"


H&M continued to emphasise the long-term view in its expansion strategy. For 2015, 400 new stores were planned, with China, the USA and the UK expected to be the largest growth markets. They also planned to enter new markets including Taiwan, Peru, Macau South


H&M opened another 379 new outlets in 2014 with the addition of flagship stores in key locations such as Milan, Munich and New York, as well as expansion into new markets like Australia and the Philippines. However, H&M was being seriously challenged by Zara, the prime retail brand of Spain's Inditex, which had already over- taken H&M to become the world's biggest fashion


This case was prepared by Patrick Regn6r and H. Emre Yildiz of the Stockholm School of Economics. It s intended as a basis for class d scussion and not as an illustration of good or bad pactice. © Patrick Regn6r and H. Emre Yildiz. Not to be reproduced without permission.


jcontinued)


576 577


H&M IN FAST FASHION: CONTINUED SUCCESS? H&M IN FAST FASHION: CONTINUED SUCCESS?


Table I H&M and its multinational competitors (conf/needy able 2 comparative financial data


Positioning and segments Business model Key figures Financials H&Mi Inditex (Zara)2 Gape UNIQL04


Gap Under the Gap brand, the company offers an extensive range of apparel at moderate price points. £3anan.a Repuh//c was acquired by the company in 1983. This brand offers sophisticated, fashionable collections at higher price points than the Gap brand. The Old Navy brand was launched in 1994 to address the market for value-priced family apparel. The brand ,4fh/efa offers customers perf ormance-driven women's sports and active apparel and footwear for a variety of activities.


The company operates through two segments: stores and direct. The


stores segment includes the results of the retail stores for each of the


company's brands: Gap, Banana Republic, Old Navy and Athleta. The direct segment includes the results of the online business for each of the company's web-based brands.


By the end of fiscal year 2014,Gap had 3280 company-operated and 429 f ranchise stores. Of the company-operated stores. 1398 were operated under Gap brand. 1022 run with O/d /VaW label, 650 stores sell £3.an.ana


Repuh#c branded apparels and the remaining 103 stores se\\ Athleta, Plperlime and /nte/mfx brands.


U/V/QLO Japan operated a network of 852 stores at end of August 2014. U N IQLO Internationa has a total of 633 stores. Of that total. 374 stores are located in Greater China CMainland, Hong Kong and Taiwan). 133 in South Korea, 80 in Southeast Asia and Oceania, 42 in the USA, 9 in the UK. 8 in France and 8 in Russia L//V/QLO has around 70 partnerfactories, and roughly 75% of L//V/QZ.O products are made in China.


increase of 1.7%


glH$$. =t::';i=;:ii:;:P"


Icky figures (thousand USD)


i frat ng revenue (turnover) Income before tax


Net income


Cash flow


Total assets


shareholders' funds


Price earning ratio Number of employees profitability ratios


Return on equity (%) Return on capital employed (%)


Return on total assets (%) Profit margin (%)


Gross margin (%) EBITDA margin (%)


OBIT margin (%) Cash flow/turnover (%)


Structure ratios


Current ratio (x)


Liquidity ratio (x) Shareholders' liquidity ratio(x) Solvency ratio (%)


Gearing (%)


iAs of 11/30/2014 and for 12 months. 2As of 01/31/2015 and for 12 months. 3As of 01/31/2015 and for 12 months. 4As of 08/31/2014 and for 12 months Source: Mint Global, Bureau van Dijk.


20,398,901 3,488,529 2,691,132


20,480,750 13,382,00 1,332,0003,668,241


2,826,871 3,849,846


17.383,705


16,435,000 2,013,000 1,262,000 1,836,000 7,690,000 2,983,000


13.83


791,000 1,028,000 9,568,000 6,133,000


3,370,785 lO,184,295 6,945,534


23.36 93,351


11,834,871 32.57


137,054 141,000 n.a


30,448


38.75 36.16 26.42


23.89 12.90 11.50


UNIQLO The company is a retail chain operator specializing in in-house designed casual clothing for men and women. The company operates stores under the name of L//V/(2Z.O. The company is the leading clothing retailchain in Japan in terms of both sales and profits. UNIQLO is a member of Fast Retailing Group, which also operates other chain stores under the franchise names Theo/y (fashionable basic clothes that suit a contemporary I ifestyle), Compfo/r Des Cordon/ers (the brand nurtures a sense of natural authenticity and flattering femininity), Pdncesse fam.fam(corsetry. lounge wear and swimwear brand) and G.U. (an entirely new business mode for a company offering extremely low- priced clothing in the Japanese market).

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