When does h&m get new shipments

Corporate Strategic Analysis Report.

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 /

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).

L//V/QZ.O has established a SPA (Specialty store retailer of Private label Apparel) business model encompassing all stages of the business - f rom design and production to final sale. By continuously refining this SPA model, L//V/QZ.O differentiates itself from the competition by developing unique products. The company quickly makes adjustments to production to reflect the latest sales environment and minimise store-operation costs, such as personnel costs and rent. This is how L//V/QLO provides such high-quality clothing at such reasonable prices

The company recorded revenue of $13,382m by the end of August 2014, an increase of 13% compared to fiscal 2013. lts net income was $791m in fisca 201 1, compared to a net income of $2,088m in the preceding year.

21.59 42.31

16.26 17.91 57.33 22.69 17.70 18.80

24.51 16.41 8.27

9.96 50.78 11.02 9.25 7.68

i I I I I I 17.10 59.19 20.23 16.90 16.52

12.25 41.70 16.05 12.55 11.17

2.11 1.15

13.79 68.20 7.25

1.90 1.40 9.03

68.08 11.95

1.93 1.09 1.21

38.79 83.61

2.63 1.81 7.66

64.10 13.06

g

Sot/nce: Company websites. buying and selling'7 with the essence of 'tradesman-ship '. This was also maintained at the core of the company's culture when his son Stef an Persson took over as CEO in the 1980s. Even after Karl-Johan Persson took over in 2009, the leadership style and organisationalculture still relied on Erling Persson's basic values and beliefs, based on his strong business acumen and characterised thrift, no-nonsense decision-making and delegation of respon sibility. These are fundamental ingredients of 'the spirit of H&M ', which retained the shared and tacit under- standing of how the company does business. It is under- lined by seven codified core values:8

Another aspect of the H&M spirit is the extraordinary focus on employee involvement. This participatory management philosophy is one of the reasons why H&M is seen as a company where experimentation, trial-and-error learning, fast decision-making and willingness to take initiatives and try new ideas define the basic pillars of organisational culture. Another key ingredient in the culture of H&M is the active encouragement of this spirit at all organisational levels.9 Trying new things is also encouraged among purchasing managers, but while trying something new and making mistakes is acceptable, it is important that the same mistake is not repeated.

Experimentation is also present at the store level, where interior decoration, lighting, colours, clothes displays and even locations are swiftly changed depending on sales and customer preferences. However, the range within which new Ideas can be tried is clearly bounded by H&M's core ideas and values. In a memo to its employees, H&M specifies this as follows: 'Our employees

among manufacturers in low-wage regions intensifies. Switching from one supplier to another is not difficult, although it entails the risk that choosing low-cost sup pliers may imply a more extended supply chain, less able to cope with sudden fluctuations in demand as the industry reacts to changes in fashion. There is also a risk that low-cost suppliers may not be up to the required quality standards.

The spirit of Hennes & Mauritz (H&M) H&M is an abbreviation of 'Hennes' (the name of the first

women's apparel store opened by Erling Persson in 1947) and 'Mauritz ' (a later acquisition of a men's clothing store). The company has undergone a tremen- dous transformation from having lust one store and a domestic focus to become one of the world's largest

fashion retailers. As argued by one of the few journalists that has access to the company; 'The story of H&M does not really concern clothing, but from the beginning one man's vision or rather unbreakable stubbornness, devo- tion to a goal and knowledge of human nature.'s

Not unlike IKEA in furniture, the H&M philosophy is to make fashion affordable for everyone: 'Fashion and quality at the best price.' The roots of the H&M 'spirit ' can be traced back to the 1940s. when Erling Persson started to conduct, what he calls, ''the primitive trade of

Entry to the retail industry does not require a large capital outlay: setting up a single independent retail store is within the means of many entrepreneurs and there are plenty of suppliers to choose from. However, on a globa scale, a few large corporations account for a major share of total industry revenues. Their size and economies of scale (see Table 2) enable them to build brands in multiple retail outlets, and exploit their greater buying power when negotiating with suppliers.

We believe in people We are one team

Straightforward and open-minded Keep it simple Entrepreneurial spirit Constant improvement Cost-consciousness

578 579

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

all contribute to making H&M what it is today. We have a strong corporate culture the spirit of H&M that is based on simplicity, a down-to-earth approach, entrepre neurship, team spirit, straight lines, common sense and a belief in individuals and their ability to use their initiative.'io

Swedish national values also play a role including a humble, informal and non-hierarchical management style combined with the 'democratisation of fashion '. Creative advisor Margareta van den Bosch comments: 'We're a very democratic society [in Sweden] . . . We keep what we do simple and we think it's wrong that fashion should be the preserve of the rich.'::

Despite this humility, results are central, something which is emphasised by Erling Persson's early focus on fakfen ' or 'the pace ', which still remains a fundamental

practice at all organizational levels. It is a straightfor- ward and persuasive weekly list that includes sales and other key figures compared to the previous day, month and year. On this list each manager can clearly see exactly how much has been sold of each individual product. The buyers use this information to reallocate production or shipments, reducing potential over- stocking problems. This itemized report also allows buyers to maintain a high level of turnover, keeping the apparel on the sales floor up to date. Allemployees are also made aware of these results and if sales are up from the day before the sales figures are applauded during store morning meetings.

Limited attention to titles and job descriptions is also a characteristic of H&M: 'At H&M we do not have any job descriptions. It provides considerable freedom, but it also makes it more difficult to blame someone else and claim that something is not part of your duties. Some love it, but others leave after a few weeks.'i2

In line with this emphasis on informality, independent decision-making is celebrated and decentralisation is encouraged within the limits of the organizational culture. However, central functions like buying and logis- tics also have a considerable influence and the organisa bon is in a sense 'a peculiar mix of strong centralisation and delegation'.i2 it has been a challenge to preserve the flat and simple organisational structure during H&M's tremendous growth. The company has a matrix country/ function organisation with each executive management team member being responsible for a function and for the results of work within their function in each country.

i:!:!:::l:liilliF sili$i inviting and inspiring; strengthening the brand and offering local customers the best possible shopping experience. '

Instead of owning retail properties. H&M Opts for renting store premises, which increases flexibility and adaptability. By renting space, the company is able ta adapt more quickly to the changing demand patterns and location attraction in its key markets.

The window display where the customer meets H&M - is perhaps the most important ingredient of the stores. Guidelines for store design and display windows are created centrally based on a large 'test store ' in Stockholm. Every two or three years a completely new interiors programme is created. Although centrally guided, every store is unique as it showcases different items in the window display, although they may come from the same collection. Displays, both in windows and inside stores, are changed frequently. This way, consumers are continually attracted to visit the stores to keep up with the latest collections.

In line with H&M values, decision-making is decen- tralised and store managers have considerable autonomy. The shop manager runs the business like an entrepreneur and is authorised to take independent decisions within

the overall guide lines; essentially like running their own business. This increases employee loyalty and commit- ment to the organisation and is a great motivator.

H&M spends around five per cent of its revenues on advertising. " in addition to conventional channels, H&M has also

established a strong social media presence. The company aims to become part of its customers' daily lives, through HS pages on Facebook, Twitter, Instagram, Google+ and Youtube, as well as the Chinese social networks Youku and fina Weibo. Each network is updated on a regular basis. Through social media, millions of H&M followers share ideas and opinions and get quick answers to their

queries New fashion videos and reports are uploaded onto Youtube weekly and have had millions of hits. Through the H&M apps customers can explore the latest collections and campaigns, find out what's new at H&M and locate stores. At its launch in August 2010, the phone app was the most downloaded application in a most all of H&M's markets.

inspiration from everywhere, but the most important thing is to make it your own way. Quality means carefully testing everything bef ore it hits the shops, from jeans to lipstick. But it also means H&M is a fashion house in its own right, with its own trends. We do not copy.'i '

Apart from size adjustments, for example in the Asian market, no special changes are made to to adapt the collections for specific countries. H&M argue that: 'It is important that H&M keeps its own personality in each country, and fashion has become more global, more international'.i5 Similar trends are appearing the world over. Of course this is also driven by economies of scale in buying and manufacturing

Buying, local production offices and corporate social responsibility (CSR)

11! H&M does not own any factories. Instead, manufacturingis primarily outsourced to low-cost countries with some 70 per cent of production in the Far East and South Asia and the remainder in Africa, Europe and the Middle East. With the focus on economies of scale, including low wage and high-volume production, the company maintains low Input costs and often has the latest trends in its stores within a month of the initial design.i6 H&M also constantly redefines its production and distribution in response to changing market and production conditions to ensure that they continuously improve the efficiency of the production flow. This way, H&M has been able to reduce lead times by 15 20 per cent in recent years.:' In 2011, H&M worked with 900 independent suppliers of which 150 were considered long-term strategic partners. Buying is centralised in Stockholm and has always had a central role in H&M. Managers within this function have often been the best paid in the entire organisation

To reduce lead times, the 50 production offices are in direct contact with suppliers and report back to central procurement in Stockholm. They mediate between the large network of independent suppliers and the central purchasing office, to identify the right suppliers to place orders with, to optimise time and cost decisions, and to ensure that decisions comply with H&M's CSR policies. Each supplier owned or subcontracted multiple factories; globally 1652 factories were approved for making goods for H&M. H&M conducted a total of annual 3623 audits of suppliers in 2014. CSR has increased in importance for H&M. Being a high-profile and visible player in the textile and apparel industry, the company is under constant scrutiny in terms of working conditions and wage levels in the overseas suppliers they work with. Being fully cognisant of this, H&M pays particular atten bon to CSR and takes several actions throughout its value chain to keep its brand name away from the usual

Design

Design is centralised at the Stockholm headquarters and ncludes a team of almost 200 designers and about 100 pattern makers. The centralisation of design allows for minimum time-to-market and the design team has direct contact with the production offices around the globe. This allows for a rapid-response manufacturing process to capitalise on design trends immediately. The design team works intensively with new trends, materials and colours from what is popularly known as the 'White Room ' and is supported by the 50 production offices around the world.

Much effort is put into researching and predicting emerging market trends. H&M designers hold customer surveys, dialogue sessions and focus groups, and pick up trends from employees in the global stores and then add their own particular features. They need to have an up-to the-minute fashion feedback focus and be conscious of the very latest trends. According to Ann-Sofie Johansson, head of H&M design department: 'We try to look out for trendsetters, what's popping, vintage looks, what's happening at music festivals. The internet is getting more important as are catwalk shows, but these are more of a confirmation of what we know is out there'.i3

She and her team pick up inspiration in several ways: notes from travels, fashion classics offered by Paris, Milan, New York, London and Tokyo, textile fairs, street fashion and exhibitions: 'Celebrity inspiration is also rnportant, as well as what bloggers are saying and )Id-f ashioned sources such as music. magazines, movies 3nd costume dramas'.n

However, H&M always adds its own touch to the design, reating collections that strike a good balance between the :st trends and the basics. Margareta Van den Bosch,

creative adviser and former head designer says: 'We get

r

Marketing and social media H&M's strong brand image is associated with value and stylish collections. In addition to 200 in-house collabora- tions with famous designers, there is a unique approach employed by H&M over recent years. This has included signature collections designed by Stella Mccartney in 2005, by avant-garde Dutch designers Viktor & Rolf in 2006, by Madonna in 2007, by the Italian designer Roberto Cavalli and Kylie Minogue in 2007, by Sonia Rykiel in 2009, by Versace in 2011. by Italian fashion label Marni in 2012, by Isabel Marant and Beyonc6 in 2013 and by American designer Alexander Wang in 2014

Highlighting the high level of brand awareness, H&M was ranked 21st among the top 100 most valuable global brands according to Interbrand in 2015, with a brand value of US$22bn. In comparison, Zara ranked 30th with US$14bn, and neither Gap nor Uniqlo made it. into the top 100 list. H&M's superior brand value vis-i-vis I

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

criticisms aimed at the textile industry. H&M also produces a special collection (Conscious Collection) using sustainable materials. The company has formu- lated seven commitments called 'H&M Conscious Actions'. These include adopting ethical practices, improving working conditions and using natural resources responsibly. Other projects include community invest- ments.i8

: Hrllil EI : :::: : responsibility and decision-making, and are capable ofending A love of fashion combined with a focus onsales is perceived as a major advantage. store in 1947 to 4000 in 2015. In 2016, H&M planned to open another 400 stores and to pursue aggressive growth in its new luxury label format of stores called '& Other Stories'. However, fashion-retailing history is full of companies that have confidently expanded into new inter- national markets but later been forced to retreat and drastically curtail their growth. e.g. Marks & Spencer, C&A, Benetton. The question for H&M and its third-gen- eration leader Karl-Johan Persson is to what extent will H&M's resources, capabilities, practices and knowledge be enough to keep up with the competition, including vigorous new players? Will these entrants be able to repli- cate H&M's success?

'lts centralized logistics and warehouse System, close coordination of the procurement staff with the produc- tion offices, intelligent use of ICT [information and communication technologies] tools, purchasing flexi- bility and overall a central governing model, has incredibly reduced the lead time and improved logistics to have lightning-f ast turnaround speed of just 20 days, making it a truly unique supply chain innovator.'2i

Internationalisation and expansion While H&M's skill in providing fashionable and elegant clothes at affordable prices and catering for the dynamic tastes and preferences of customers can broadly be iden- tified as the main drivers of its success, perhaps their unique advantage lies in their ability to replicate the same business concept and 'spirit ' across time and space. Since the 1990s, international expansion has been aggressive and the company has moved into Eastern European markets, the Middle East, Asian markets and Russia. By 2005, H&M had already expanded into more than 20 countries with more than 1000 stores.

Continuous growth by replicating the same business model and store concept thus defines the core of the company's expansion strategy. Prior to moving to a new country or city, H&M first conducts a thorough evaluation of market potential. This is done according to factors like demographic structure, purchasing power, economic growth, infrastructure and political risk.

H&M's policy is to recruit local people wherever they open a new store. H&M looks for those who have the 'right ' personality and potential to understand and adopt the core values of the organisation. Another element is to use formal training programmes, as well as on-the-job training, to socialise employees into this culture and make sure that they understand and act according to the company's core values. These socialization mechanisms are the means by which H&M successfully adopts a 'mental franchising ' model, in which the ownership of each and every store remains in the hands of H&M whereas the shop managers often run their shop as if it were their own.

All of these initiatives are essential elements of H&M's constant growth strategy, where the ambition is to create and re-create businesses that reflect the basic and fundamental values and the overall H&M spirit. To this end, the company keeps formal rules and procedures to a minimum and prefers to equip its employees with tacit skills via experiential learning in the field. This way, H&M makes sure that those who work in new outlets are exposed to and infused with the original spirit. Combining this with the values of initiative-taking and entrepreneur- ship, H&M has been able to stay ahead of its competitors by moving fast and reaching large markets based on applying a simple business modeluniversally, yet making Subtle modifications and adaptations at the local level.

H&M's growth to become one of the largest global fashion retailers is an incredible success story from one

Logistics: distribution, warehousing and IT

Buyers and production offices are closely integrated throughout the value chain with distribution centres, warehouses and the stores around the globe. To reduce poor buying decisions and to increase flexibility in allowing stores to restock quickly during the season with best-selling products H&M made sure not to place orders too early. H&M puts more emphasis on economies of scale in its supply chain set-up compared to Zara's focus on flexibility and speed:

Human resource management(HRM)

Key to the recipe of H&M's success is its ability to establish a strong corporate culture with well-defined values, and to make sure its employees understand and internalize these values in their job. One impor- tant element to ensure that this culture continues ta be integrated into HRM is the recruitment process and training.

Internal promotion and job rotation are two central ingredients in the HRM policies, and experience, loyalty and continuity are highly regarded. These two aspects are central to cultivating and disseminating the H&M spirit and culture throughout the organisation. The company's steady growth has been providing ample opportunities for employees to take on new challenges in another store, department, role or country. Aligning

corporate and individual goals with development and growth strategies are essential for H&M:

Notes and references 1. As quoted in C. MacCarthy, 'H&M continue aggressive expansion

F7nancia/ 7]1nes, 29 September 2011 2. As quoted in M. Stothard, 'H&M to launch new line of stores', Franc/a/

77mes, 29 March 2012. 3. As quoted in M. Stothard, 'H&M defend strategy as margins fall ',

Hr7ancM/ 77mes, 26 January 2012. 4.$1 : £0.6 : €0.75 5. Marketline, Industry Profile: Global Apparel Retail, ID:MTLN5577521,

6. B. Pettersson, }/annie/smdnnen, Manpocket: Stockholm, 2001, p. 21

8. H&M website: http://about.hm.com/AboutSection/en/About/Facts- About- H M/About- H M/Business-Conde pt-and-G rowth.html .

9. B. Pettersson, 2001, p. 91 10. http://about.hm.com/en/About/facts-about-hm/people-and-history/

working-at-hm/values.html 11. As quoted in J. Craven, 'H&M: meet the brains behind fashion's mega-

brand', Da/&' /14a/f/Ma// On#ne, 23 February 2010. 12. Jan Jacobsen as quoted in B. Pettersson, 2001, pp. 261-2. 13. As quoted in P. Kam, 'High street label H&M serves up inspiring fash-

ion at affordable prices', The Star on//ne, 20 September 2012. 14. As quoted in N. Mehta-Jasani, 'H&M: from the inside ', Ch/r7ada/boom,

29 June 2007. 15. Margareta Van den Bosch, creative adviser as quoted in N. Mehta-

Jasani, ChinadaiMcom, 'H&M: from the inside ', 29 June 2007. 16. K. Capell and G. Khermouch, 'Hip H&M: the Swedish retailer is rein-

venting the business of affordable fashion ', Bus/ness Week, 11 November 2002.

17. 'Industrial change in the textiles and leather sector ', EMCC, http:.// www.eu rofo u nd .eu ropa .eu/sites/defa u it/files/ef.files/emcc/ pu blications/2004/ef 0465en.I. pdf.

18. http://about. h m .com/en/About/susta ina bility/com m itments/ strengthen-commu nines.html.

19. T. Kih16n, On Lc2gisdcs /n the SfnateW of the F7/m, Link6ping University,

20. H&M Annual Report 2011 21. R. Pal 'Identifying organizational distinctive competence by business

mapping in a global textile context ', ./oc/rna/ of Zex#/e and ,4X)X)ane/

Technology and Management, 7(4), 20LL 22. H&M Annual Report 2008

2015

7. Ibid

11

'Lead-times vary from two to three weeks up to six months. The different lead-times reflect differences in the nature of the goods. The trick is to know the right time to order each item. A short lead-time is not always the best, since the right lead-time is a matter of bringing price and quality into balance.''9

H&M controls virtually alllogistics internally except for external contractors handling transportation. The inte grated logistics function is a key business process for H&M that supports cost efficient supply of goods and generates economies of scale: 'H&M can offer the best price by avoiding middlemen, buying the right product from the right market, being cost-conscious at every stage and having efficient distribution.'20

This integrated direct distribution channel ensures that H&M stores receive new shipments daily, giving the company further control over supply and demand shifts. Store-keeping of merchandise is minimised and individua stores do not have backup stocks; they are replenished as required from a central warehouse. They also shift merchandise around internally depending on demand. For example, if a particular fashion proves exceptionally popular to men in a particular region, but not in another, they can shift inventory from the first region to the second. The distribution set-up also enables H&M to respond to market segment changes within a country.

To support the swift and efficient flow of goods, H&M logistics is dependent on effective information sharing and the latest IT systems that are continuously developed. These systems permit optimal supply and demand deci- sions, whilst also providing valuable information for under- standing customer needs and the placement of products.

'The key words for continual growth are responsibility and commitment. We have committed employees and we are prepared to delegate responsibility at every level. I tell employees. if you do not grow, neither will H&M.'

Head of HRM, Pdr Dare::

A participative culture is thus central to the spirit of H&M and the leadership philosophy emphasises straight- forward and direct relationships with employees The HRM policies emphasise the core value - 'We believe in people ' -and the open-door policy, granting allemployees the right and possibility to discuss any work-related issue directly with management.

Consequently, H&M values personal qualities much more than formal qualifications; great school grades and all the university credits in the world are no guar-