Business Strategy for Hennes and Mauiritz Company - Case Study Example

Business Strategy Report Hennes&Mauritz AB In the United Kingdom Candi Number: 118206 Executive Summary Content Strategic Analysis 1 Overview 1.1.1 Firm Overview 1.1.2 Industry Analysis 1.2 Organizational Purpose (Visions and Missions) 1.3 Financial Analysis 1.4 External Analysis 1.4.1 PESTEL model 1.4.2 Opportunity & Threats (OT) 1.5 Internal Analysis 1.5.1 Strengths and Weaknesses (SW) 1.5.2 VRIO framework 1.6 Competitive Force Analysis 1.6.1 Threat of Intense Segment Rivalry 1.6.2 Threat of New Entrants 1.6.3 Threat of Substitution 1.6.4 Threat of Bargaining Power of Suppliers 1.6.5 Threat of Bargaining Power of Buyers 1.7 Key Success Factors 2. Strategic Development 2.1 Appendix Bibliography 1. Strategic Analysis 1.1 Overview 1.1.1 Firm Overview Hennes &Mauiritz AB (H&M) is a Swedish multi-national fashion retailer, found in 1947, with its headquarter located in Stockholm. H&M is best known for designing and retailing fast-fashion apparel of good price for men, women, teenagers and children, as well as accessories, cosmetics and footwear. (Youell, 2013) There are six independent brands comprises by the company: H&M, COS, Monki, Weekday, Cheap Monday and & Other Stories. Hence, the company started to launch its collaboration clothing with designers and celebrities since 2003. The company entered the UK fashion market in 1976, and eventually became one of the leaders in the UK fashion-apparel retailing market, with 234 stores across the country, and the second-biggest apparel retailer in the world. (H&M’s Annual Report, 2013) 1.1.2 Industry Analysis The fashion industry is one of the most vibrant and creative business sectors in the UK. It directly contributes nearly £21 billion to the UK economy. (British Fashion Council, 2014) H&M is currently ranked as the second-biggest apparel retailer in the world, following the Inditex, the parent company of Zara. 1.2 Organization purpose (Visions and Missions) H&M states that it vision is that all its operations are run in a way that is economically, socially and environmentally sustainable. (H&M, 2014) The company is helping to meet the needs of both present and future generations by supporting fundraising program, ensuring the working condition in its supply chain and continuously developing new and green materials in production. The main mission of H&M is to offer quality fashion at the best price. In its company report, H&M states numerous of times that quality is more than making sure that products meet or exceed consumers’ expectation. H&M is constantly working towards its vision and mission. And this is the key for its profit and growth. 1.3 Financial Analysis 1.4 External Analysis 1.4.1 PESTLE Analysis In order to examine the external environment of H&M, PESTLE Model and Opportunities and Threats from the SWOT model are used. 1.5 Internal Analysis Strengths and Weaknesses from the SWOT model and VRIO framework are used to identify H&M’s internal environment. 1.5.1 VRIO Analysis To evaluate the core competencies of H&M, a VRIO framework analysis can be used. Quality Fashion Price Valuable Yes Yes Yes Rare No No No Costly to Imitate Yes Yes Yes Organized to be Exploited Yes Yes Yes Performance Implications Average/Above Average Returns Average/Above Average Returns Average/Above Average Returns Figure 1. 1 VRIO framework for H&M It is not rare to find high quality clothing or clothes at a low price within the fashionindustry. Therefore, by utilizingresources and depending on strong design team, H&M is combing the core competencies of quality, fashiondesign with a best price strategy, to ensure its competitiveness. 1.6 Competitive Force Analysis Figure 1.2 Porter Five Force model for H&M 1.6.1 Threat of Intense Segment Rivalry The idea of the fashion industry is to spot the right trends on catwalks and have the items on shelves before your competitors do. This makes the rivalry level is high since there are a large number of similar retailers including both large and small firms. The rapid change in the industry leads firms constantly renewing their product to appeal to fickle customer bases as well. In addition, the loss of consuming interest on apparel caused by recession also makes the competition within the fast fashion industry become more intense. The main competitor of H&M isInditex, the parental company of Zara, which is also the world’s largest fashion retailer. The GAP, Uniqlo and Forever 21 are also expanding worldwide with similar strategies and target market with H&M. The e-commerce giant ASOS Plc. has also become an obstacle of H&M’s onlineexpansion. 1.6.2 Threat of New Entrants The threat of new entrants is high since the barriers of entering and exiting the fashionindustry are low. There are numerous of alternative brands in the market and made the costs of switching brands and customers’ loyalty became low. In addition, there are many manufacturing contractors available and therefore contributes to making the market more open to new entrants. 1.6.3 Threat of Substitutes The threat of substitutes is high due to the large number of competitors. There are numerous of alternative brands in the market with similar designs but cheaper price or better quality. As quality control is one of the biggest problems within H&M, the chance of buyers switching brands is high. Besides, the rise of online stores also threatened H&M’s position as online-shopping has becoming a trend in the society. 1.6.4 Bargaining Power of Suppliers The threat from the bargaining power of suppliers is low for H&M. As a mature fashion retailer, H&M has a large network of suppliers worldwide. Increased globalization and international trade provides more options for retailers to source from foreignmanufacturers. Moreover, manufacturers from low wage countries, such as China and India, face more competition. 1.6.5 Bargaining Power of Buyers The threat from bargaining power of buyers is moderately high. Fashion industry is highly consumer-driven and H&M’s customers are highly price-sensitive, they might switch to another brand if better price and similar fashionable products are provided. However, as the buyers are fragmented, there is no specific buyer influence on products or price. 1.7Key success factors 2. Strategic Development 2.1 Existing strategy The strategy of H&M is to offer is to offer fashion and quality at the most affordable price and at the same time achieve the best price. H&M annual reports emphasizes that quality relates to the product of H&M exceeding the customers expectation and satisfaction with the company as an entity. According to the H&M’s annual report of the year two thousand and nine, ‘taking responsibility for how our operations affect people and their environment is also an essential prerequisite for H&M continued profitability and growth’ (UK Essays, 2013, p. 1). H&M long term strategic plans and objectives are laid out in seven key areas that includes productivity, competition, employee relations, technological strategies of leadership, profitability and competition. In this aspect, these are the long-term strategic plans spans over a period of five years. According to the H&M the long-term strategic plans needs to be flexible, achievable, measurable, suitable, understandable, acceptable and realistic to the employees (VAN & BEHRER, 2011). However, the H&M maintains that the three major long-term strategic plans are with respect to the technological leadership, profitability and competition. In this aspect, the H&M reported a positive progress on the three strategies just within the first three months of its implementation and the overall profits for the first quarter of its implementation in the 2009, arose to 4.1 percent that refers to three point four six billion Swedish Crowns while sales increases in this period by thirteen percent (STERNQUIST,2007). This is sales excluding sales tax. In this respect, the first quarter of LTO is an aspiration to maintain financial stability that H&M enjoys over this period. H&M aspires in its strategic plans to increase sales by twenty percent and total earnings per share by thirty percent in the quarter ending 2015. In the annual report of 2008:7 the company CEO laments that their long term strategic plans is to make fashion achievable to everyone. Existing strategy of the H&M with respect to e-commerce is with respect to the company’s whole process of value chain. In this respect, there is a linkage of individual stores to the logistics and procurement to the central warehouse. From these central departments H&M has an IT way to follow sales of individual items to feed an intelligent system of procurement. The company existing strategic plan relies on the IT integration in the central office and the twenty-one available production offices. These offices negotiate with suppliers globally via the internet. In addition to this communication between departments, takes place electronically on matters of production development and design (WANG, 2011). In this regard, SWOT analysis of the company’s strategic plans is; strength includes achievements of strong brand image and attainment of sufficiently low cost. Opportunities includes; possibility of new markets in the Asian continent, interest for cheap clothing may increase due to economic crisis and new market expansion due to emergence of online markets. The company’ weaknesses include slow distribution system, excessive expansion, and reduced number of suppliers because this requires more resources and low quality of production. Threat to this existing strategy is an emergence of many competitors that are very aggressive and grows constantly. Thus, the H&M requires an improved effort to differentiation in order to face this competition. This brings us to the following consideration. In relation with the SWOT analysis of H& M, it is realizable that, the foremost tool of communicating and distribution of product is internet based. This is an indication of the shift form the conventional way of doing business to the modern and technologically supported ways. H & M has immensely invested in the internet communication and distribution channels and this strength has put it ahead of its competitors such as the ZARA. Continued expansion of the H&M market niche through the internet means indicates that, the company is accessing new clients who are internet savvy. However, the company management should not entirely abandon the conventional distribution and marketing channels because, they from a certain percentage of the total market niche. Level of Differentiation The H & M is distinguished by six distinctive products, which include the H&M, COS, Monki, Weekday, Cheap Monday and & Other Stories. With these assorted brands, the company has succeeded in sustaining an apt strategy in ensuring that its clients are satisfied and its market niche is kept increasing. The six brands is a sure indication of determined product differentiation, which ahs earned the company unprecedented image both in the local and international market. The aspect for apt product differentiation has played a significant role in keeping the company’s products in the market even during times of economic depression. The advanced level of product differentiation is immensely motivated by the well defined market segmentation of the company (WALTER, 2010). H&M uses the following criteria in its market segmentation strategy The variable of segmentation Company’s Target Demographic Trends Generation Y (born between 1979- 1994) Class and Income level Middle class income earners Geographic- position of the stores Big cities in the three regions (Nordic-17.3%, Euro zone, 56.4%, excluding Finland, The Rest of the world-26.3% Problems/Challenges The foremost problem facing the H& M Company is the continued declining of the consumer confidence. The H&M market is facing a serious decline in the consumer confidence on their products. This has been motivated by the increasing completion from other companies, which have endeavoured in producing super quality products such as Massimo Dutti, which is fetching Zara company lofty revenues from across its market segments. It is imperative to note that, the total revenue sales for Zara and other competitors in this industry surpass that of H&M (STEENKAMP & KUMAR, 2007). This is an implication that, the on-going shift of brand preference is affecting g the company’s sales and consequent shrinkage of the market niche. This may occur in both the local and international markets and will mean many losses to the H & M. The other challenge facing the company is the continued decrease of recognition and appreciation in the local market-US, in the recent past; the company has experienced stiff competition in the home market by international fashion brands. This has seen some of the company’s stores in the US to offer some brands on big discounts in order to control the inventory pressure (WALTER, 2010.) The third challenge facing the H&M is the increased gap in the industry talent gap. Despite the fact that, most of the fashion design experts are young and divergent professionals, the company is experiencing a threat in terms of its less-competitive designers, who of recent past have presented a relatively less pleasant and modern designs in the market (HANCOCK, MURATOVSKI, MANLOW & PIERSON-SMITH, 2014). It is probable that, the declining revenues from sales and the consumer confidence is attributable to this challenge and if not resolved amicably within the shortest time possible, the company is likely to loose a lot of its clients and that the end it will have reduced market niche. What does a reduced market niche for H&M mean? A lot of capital needed to rebuild confidence and consequent regaining and expansion of such a niche (FILHO & IDOWU, O. 2008). Generation of Strategic Options The foremost strategic proposal for the H&M management is to create a high profile group of marketers both physical and online. The groups of marketers will endeavour in marketing the company brands and ensuring that new aspects of the company such as distribution channels, customer service, and pricing are well displayed during the marketing exercise. This marketing campaign should begin in the US. This will work towards gaining the lost glory and ensuring that the consumers’ confidence is restored. In essence, the company should restructure its marketing strategy, particularly the internet based to ensure that, the targeted group, which is internet savvy, is reached and satisfied with the brands offered (FILHO, L., & IDOWU, 2008). The management should endeavour in using the Ansoff matrix in evaluating the progress made and the areas that need attention. For instance, the following Ansoff Matrix procedure should be applied in trying to resolve the problem facing the company presently. The attributes of the Ansoff are significant for the H &M management to make sound decisions. Market Penetration The H& M management should seek to increase its products in the existing markets. Avoid competition with other players in the industry Product Development The firm should introduce to the existing stiff competition, the H& M, should endeavour in introducing new products into the existing markets Market Development The H&M management should endeavour in introducing the existing products into the new markets, this is in believe that, the present market has reached a saturation level. This means that, the firm should endeavour in increasing its exports(ASPERS, 2010). Diversification This is strategy is said to be the most risky since the firm will be compelled to introduce new products into the new markets. The probability of the sales and niche occupation trends is not predetermined (ASPERS, 2010). In addition, the company should seek its lost glory by investing in market research on the trending aspects in the industry. For instance, company should have information on why there is increasing acceptance of brands from the ZARA Company and other competitors (HUDSON, 2010). This information is vital in reorganising its strategy as it prepares to restore its power in the market. Moreover, the information is critical to the management team to understand the company’s trending graph in both the local and international market milieus. In overall the, company will use the Ansoff to position, sustain proposition and present the ne brands to the clients. The other proposal on the prevailing situation in the H&M is to invest more capital in talent. The company should ensure that a detailed research on the talent trends is done and proper criterion of selecting talented and qualified designers is applied to get the best group that can turn around the present situation of low and old-fashioned designs presented into the market (TUNGATE, 2012). It is imperative to note that a highly talented team of designers with all aspects of the modern design and fashion trends will propel the H&M back to its usual position as the leading company in the industry. In essence, the pattern of fashion presented in the market reflects the talent of the company’s designers. Implementation Implementing the aforementioned proposals needs a total commitment from the management. However, it should be noted that, the top executive will have to evaluate the proposals for the attributed cost efficiency and after ensuring that, they are manageable then the respective department team will lead the process of implementing. For instance, the aspect of resting the company’s image and lost glory in terms of the trying to restore the consumer’s confidence, the marketing department will take charge of the whole exercise, but off course reporting to the top executive (ZHI, 2013). To implement this proposal and others, it is imperative that the H&M management applies the BCG matrix as a guideline as indicated below The BCG and SBU ranking The strategic business unit level of H&M ranges between 10-15% per year. While on the side of the BCG, the company rank number one potential for employment opportunities. On the other hand, the company’s research department in collaboration with the marketing department should do carry out market research (ASPERS, 2010). The information found should be shared within the top helm of management to ensure sound decision-making. In essence, the overall implementation process of these proposals will be a success if all the concerned organs of the company are actively involved. Ion addition, the decision making process should be guided by professional ethics and the prevailing situation of the company in a bid to restore its glory and fame. In essence, the implementation plan will work efficiently if the H& M strategizes well to curb the forces of threats, capitalize in the existing opportunities, rectifying its weakness and using its strengths as a tool to rise up to the top of the ladder. Application of this matrix will see the H&M, come back to its normal position and gains the confidence of the consumers once a gain (ASPERS, 2010). In addition, the firm will increase the revenue sales and consequent market niche expansion, both locally and internally. The aspect of exuding the consumer’s confidence on the existing and new brands will enable the firm’s products gain a lifeline in the market milieu where other competitors such as Zara are creating new market niche each day. List of references ASPERS, P. (2010). Orderly fashion: a sociology of markets. Princeton, N.J., Princeton University Press. TUNGATE, M. (2012). Fashion brands: branding style from Armani to Zara. London, Kogan Page. HANCOCK, J., MURATOVSKI, G., MANLOW, V., & PIERSON-SMITH, A. (2014). Global fashion brands: style, luxury & history. STERNQUIST, B. (2007). International retailing. New York, Fairchild Publications. HUDSON, J. (2010). Interior architecture: from brief to build. London, Laurence King. IN WANG, S. (2011). Big brand theory. Berkeley, CA: Gingko Press. VAN, . B. J., & BEHRER, M. (2011). How cool brands stay hot: Branding to generation Y. London: Kogan Page. ZHI, W. (2013). Exhibition Space. UK ESSAYS. November 2013. Strategic Hrm View Of Hm Management Essay. [online]. Available from: http://www.ukessays.com/essays/business/strategic-hrm-view-of-hm-management-essay.php?cref=1 [Accessed 11 December 2014]. FILHO, L., & IDOWU, O. 2008. Global Practices of Corporate Social: Responsibility, 1-2, New York: Springer Science & Business Media. WALTER, S. 2010. Expansion Opportunities for H&M in Asia - Market Analysis,1-2. Boston: GRIN Verlag. STEENKAMP, M., & KUMAR, N. 2007. Private Label Strategy: How to Meet the Store Brand Challenge. 123-124. New York: Harvard Business Press. Appendix Appendix 1 Net income of H&M (FactSet, 2014) Appendix 2 Sales of H&M and its competitors (The Wall Street Journal, 2013) Appendix 3 H&M’s margin (Morgan Stanley, 2014) Read More