Free Strategic Review Of H&M Report Example
Analysis of External Environment.3
Porter’s Five Forces4
Industrial Life Cycle..5
Strategic Group Analysis5
Analysis of Resources and Competences..7
Porter’s Value Chain..7
Generation and Evaluation of Strategic Options.9
Final Recommendations for H&M12
H&M Group, which includes H&M, COS, Monki, Weekday, Cheap Monday, and & Other Stories, provides fashion products. The first store opened in Sweden under the name of Hennes women’s clothing store in 1947 (Harvey, 2013). Today, H&M has almost 3500 stores in 55 markets across the globe, in addition to an online shopping experience (H&M, 2015). H&M, which stands for Hennes and Mauritz, caters to the needs of several markets in the clothing industry, including men, women, teenagers, and children; Its aim is to provide its customers with a plethora of fashion choices, at the same time paying attention to its design, quality, and sustainability, thereby offering “fashion and quality at the best price” (H&M, 2015). H&M’s mission is to strive to offer its customers top-quality fashion products, at the same time minimizing environmental impact to promote sustainability (Harvey, 2013). The company’s vision is to run its operations to meet economic, social, and environmental sustainability, thereby keeping in mind the needs and rights of both current and future customers (H&M, 2015). This report will provide a strategic analysis of H&M fashion products exclusively in United Kingdom.
Analysis of External Environment
PESTEL Analysis: The PESTLE analysis takes into account the political, economic, social, technological, legal, and environmental contributing factors (What is PESTLE Analysis, 2014).
Political: As H&M sources mainly from countries such as China, Bangladesh, and India, its products are subjected to custom duties.
Economic: Recession usually causes a lack of confidence among both consumers and suppliers. Moreover, rising labor costs can also have an impact.
Socio-cultural: Rising interest in green issues or sustainability efforts.
Technological: New ways of promoting sales including online shopping and e-commerce
Environmental: The use of renewable resources, which promote energy efficiency and waste reduction also has an impact.
Legal: The Company follows Swedish legislation international law and EU laws. Accordingly, not all the countries in which the company operates have clear and comprehensive labor legislation. The code of conduct of H&M is also important.
Porter’s Five Forces: Porter’s five forces analysis includes the five competitive forces influencing every industry, including competition, potential of new companies entering the industry, power of both the suppliers and customers, and threat imposed by substitute goods (Porter’s 5 forces, 2003).
Competition in the industry: In terms of its position in the fashion industry, H&M faces high competition owing to the large number of rivals. However, this is often advantageous for the company because the number of firms in the fashion or clothing industry is so high that chances of individual firms stealing the market share are relatively low, thereby allowing each company to prosper. In this industry, the exit barriers are also low thereby allowing weak or less competitive firms to leave the market; this consequently raises the profits earned by remaining firms.
Threat of new entrants: New entrants could pose a threat to H&M, however, often the cost of establishing strong distribution networks after entering a well-established industry is very high, thus new competitors take time to adjust and make their place in an industry. Similarly, H&M is not directly affected by new companies because initially, their costs of production are very high while the costs for H&M are low owing to its size and resultant economies of scale. Lastly, the barriers to entry into an industry are usually high, making it difficult for new competitors to enter the clothing industry, thereby keeping big companies like H&M cushioned.
Threat of substitutes: In general, the emergence of better or cheaper substitutes reduces sales and profits for a company. H&M operates in an industry whereby people can choose between several products of the same type. However, by providing fashion products of high quality, low prices, and that keep in mind fashion sustainability, H&M faces little threat from companies selling similar products.
Power of suppliers: As mentioned earlier, H&M operates by buying large quantities of goods from a plethora or trusted suppliers and sells them to consumers. In most cases, H&M buys large quantities of a product from each supplier, thereby reducing the bargaining power of the supplier because it can choose to cut quantities purchased at any time, thus posing a threat to the suppliers.
Power of customers: H&M operates in a large industry which serves the needs of a large number of customers. This implies that no one customer has much bargaining power, a positive point for H&M.
Industry Life Cycle: Typically, an industry experiences birth, growth, maturation, and eventual decline; within an industry, firms may lie in different stages (Industry life cycle, n.d.). In Sweden, where H&M was first established, the company has reached maturity. In Europe, where H&M began expanding in the 1980s, the company has also reached levels of maturation. In Asia, particularly Hong Kong and Shanghai, where H&M first began expansion measures in 2007, the company is growing but has not entirely reached maturity (Chen et al., n.d.). Overall, H&M has approximately 3500 stores operating in 55 countries. In the future, it plans on expanding to Bulgaria, Malaysia, Latvia, Mexico, and Thailand, where the company is only in its preliminary stage in the life cycle (Chen et al., n.d.).
Strategic Group Analysis: A strategic group refers to a group of firms in an industry; these firms follow similar strategies and tend to have similar performance (Budayan et al., 2007). The two factors I will be choosing to classify the strategic groups and conduct the analysis are average price of the product and breadth of the product line in terms of where the products lie on a fashion spectrum. H&M’s competitors include The Gap Inc. (including Banana Republic, Old Navy, Piperlime, and Athleta), Arcadia Group Ltd. (including Topshop, Dorothy Perkins, Evans, Wallis, and Burton and Topman), and Industria de Diseno Textil SA (including Zara, Oysho, Pull and Bear, Bershka, and Massimo Dutti) (H&M, n.d.). The figure below shows how H&M deliberately positions itself to differentiate itself from other companies, its competitors, in the clothing fashion industry.
Figure 1: Strategic Group Mapping
Scenario Analysis: In the future, several external environmental factors may shift to cause an impact on H&M. Due to the existence of market uncertainties, it is essential to predict several scenarios to foresee future successes and losses. The best case scenario posits a situation which is better than the base case. For H&M, the best case scenario would assume a lower-than-usual recession in the economy, an increased demand for fashion products, profits resulting from growing sales invested back into H&M’s operations and a reduction in distribution costs or logistics costs owing to a greater number of outlets across the globe. In this case, H&M is expected to flourish in the clothing/garment fashion industry.
The worst case scenario would, logically, assume the opposite of what would is foreseen in the best case scenario and in this case, H&M is expected to face severe setbacks and the company must prepare for the worst. The most probable scenario, equivalent to the base line scenario, would be a relatively constant rate of inflation in the economy, a consistent demand and preference for H&M fashion products, a relatively stable rate of new entrants in the industry, stable internal management of the company, and a steady increase in the number of H&M outlets across the globe, leading to slow but consistent growth.
Analysis of Resources and Competencies
VRIO Analysis: The VRIO analysis takes into account the value, rareness, imitability, and organization for each type of resource (Vrio Analysis, n.d.). This analytical technique allows a company to realize its potential for improvement, if any, by maximizing the utilization of all resources. The main competencies of H&M can be considered to be the quality of its products, how fashionable they are, and their prices. All three measures, quality, price, and fashion, are valuable, costly to imitate or difficult to substitute, and are organized to be exploited (Yan et al., 2014). However, looking for high-quality, low-priced, fashionable clothing is not uncommon (Yan et al., 2014).
Porter’s Value Chain: This indicates how a company utilizes its inputs to produce outputs, maintaining value of goods produced and ensuring that the value of outputs exceeds the value of inputs; the value chain is comprised of both primary and supporting activities (Porter’s value chain, n.d.). The value chain looks into H&M’s infrastructure, human resource management, technology, and procurement of goods; these can be classified under its supporting activities.
Firm infrastructure: H&M’s major markets include Europe, North America, North Africa, Middle East, and Asia, with some markets more developed while others in their rudimentary stages. H&M’s head office is located in Stockholm, Sweden, and holds the major departments including finance and accounts, design, communications, human resource, security, IT, and logistics. The H&M Group has roughly 700 suppliers.
Human resource management: Employee satisfaction is one of the most important goals of H&M. In the hiring process, H&M closely identifies the people who will help it achieve its goals, keeping in mind the culture and values of people residing in the area. To ensure stable growth, H&M provides its employees with optimal working conditions, providing incentives to boost their motivation.
Technology development: With a growing reliance on the internet for most everyday activities, including buying goods, H&M has incorporated the advances in technology, namely e-commerce, to boost its sales.
Procurement: In order to produce a satisfactory output, H&M must procure certain resources, including labor and capital. H&M itself does not own any manufacturing units or factories, enabling it to pick and choose the suppliers its wants to purchase products from and sell to its customers.
H&M’s primary activities mainly deal with logistics, encompassing factors such as transportation of goods, handling, storage, testing, and information systems. Once the merchandise arrives at the distribution location, it must be transported to H&M outlets across the country. Operations of H&M primarily deal with the product design. Lastly, marketing and sales deal with boosting net sales and expanding the number of customers. The price is also adjusted depending on the market; since H&M is a large company, it is able to buy a variety of products from various suppliers, and sell them at different prices depending on their quality. The value chain also takes into account services provided by H&M, such as fashion consultancy, altering products in case of consumer dissatisfaction, and free delivery (in some cases) in case of online shopping. All of these primary and supporting activities add value to H&M’s products.
Virtual Chain: In order to maximize its profits, H&M makes use of the virtual chain model. The virtual value chain takes into account information-based industries which involve physical goods but also operate through a virtual marketspace; it includes content, infrastructure, and context (Collin, n.d.). For H&M, context plays a crucial role as it encompasses traits such as pricing, branding, and support, taking into account the customers’ needs. By collecting information on which products are being bought the most, or which ones are unpopular, depending on the region, H&M can alter the products it sells in a particular location, thereby minimizing waste of resources and keeping sustainability in check. This is made possible via its online sales.
Generic Strategies: H&M’s general strategy revolves around boosting quality of its products, sustainability in fashion, and profitability. It aims to expand, both physically and online, by first assessing all the factors in the potential market, such as the economic situation in the country, environmental sustainability and laws, and the general demographic structure, before setting up new outlets there (Expansion strategy, n.d.).
Generation and Evaluation of Strategic Options
Strengths: One of the greatest strengths of H&M is that it is a popular retail-clothing company owing to the quality and relatively cheap prices of its fashion products (SWOT Analysis for H&M, 2013). Another strength is that H&M is constantly expanding to serve the needs of customers worldwide. Lastly, H&M’s product range is not narrow; it supplies clothing for women, men, teenagers, and children, and also products for Home decoration.
Weaknesses: Even though H&M proposes to sell high-quality fashion products, the quality of its products, though once superior, has been surpassed by the top-notch quality products sold by other firms in the retail-clothing industry, such as Burberry and Polo and Ralph Lauren. This is primarily because H&M charges low prices in comparison to these high-end fashion companies.
Opportunities: Even though H&M is prevalent in most parts of Europe and America, it is still relatively uncommon in some parts of Asia such as Hong Kong and Shanghai, though H&M is expanding and should continue to expand to explore new markets. This also causes other companies to cooperate with H&M and expand globally. One advantage that H&M has over other companies, and must therefore utilize it to the fullest, is its concept of “fashion sustainability”.
Threats: One of the greatest threats faced by H&M is the increasingly rapid pace at which the fashion industry innovates and releases new products. This means that H&M must constantly compete with popular high-fashion companies such as Zara and Forever 21 (SWOT Analysis for H&M, 2013).
TOWS matrix: The TOWS matrix, which denotes threats, opportunities, weaknesses, and strengths, examines the internal and external environment to devise a strategy for a company, suggesting how a company can maximize the benefit from its strengths, overcome its weaknesses, capitalize opportunities it is presented with, and optimally deal with threats (The TOWS Matrix, n.d.).
Figure 2: TOWS Matrix for H&M
Ansoff matrix: The Ansoff matrix enables the company to think about growth by showing four ways a company can grow, keeping in mind the risks involved, including market development, diversification, product development, and market penetration (The Ansoff Matrix, n.d. ).
Figure 3: Ansoff Matrix for H&M
SAF criteria: Among the most feasible and appropriate recommendation for H&M is market development and reducing weaknesses by utilizing opportunities and strengths. H&M has several unexplored markets, including Asia, especially Hong Kong and Shanghai, where it can introduce its products via direct sales in addition to online sales to boost net sales. This will also allow H&M to cooperate with other high-fashion companies which want to expand globally as well.
Stakeholders Analysis takes into account the parties which affect or are impacted by a proposed change or measure, such as market development in the case of H&M (Stakeholder Analysis, 2015). The stakeholders in this case are the consumers, suppliers, shareholders, employees etc. and the impact could be on finance, supply of products, legislation, and environment. By expanding its markets, H&M will not be negatively impacting the stakeholders as an increase in consumers base will not reduce the quantity or quality of products sold to existing consumers, in fact, the increase in sales might as well allow money to be re-invested into the company, allowing it to improve the quality of its products.
In order to expand its markets, H&M will require more resources, including employees and training facilities, as well as a more widespread number of suppliers, especially in places where the new markets are proposed to be implemented. H&M, being a large company with high revenue, can easily afford to expand its supplier base and employees.
Taking into account the SAF framework, SWOT analysis, and TOWS analysis, the most plausible future recommendations for H&M would be to expand its markets in areas where the demand for cheap clothing is high and competitors are few, to improve the quality of its products, to diversify its products range by releasing more unique designs which are not only cheap, but also fashionable, and to focus more on fashion sustainability, thereby increasing the demand for its products among consumers by designing strategies which minimize waste and environmental impact and give back to nature.
H & M produces products from independent suppliers also it partners in long term as it has to take supplies from them for a longer period of time. The products are then sold to the customers. This is also beneficial for the suppliers since they get a good platform to sell their goods. H&M is a strong brand name however if these suppliers want to sell their goods alone it would take them years to build such a reputation.
Economic and Geographic Factors affecting H&M:
Other factors such as the geographical location will also have an impact on how new competitors affect H&M; if the new companies have better locations with untapped resources pertinent to the industry, H&M will be negatively affected and vice versa.
The worst case scenario would, logically, assume to opposite of what would is foreseen in the best case scenario. This includes a greater-than-usual recession, slowing down of opening of new stores globally, hindrance to growth in new locations owing to existing competitors that have a good brand image or economies of scale competitive advantage in the region, and internal conflicts in management within H&M.
H&M’s primary activities include inbound and outbound logistics, operations, sales, and marketing. The value chain itself looks into H&M’s infrastructure, human resource management, technology, and procurement of goods; these can be classified under its supporting activities.
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