Retail Marketing Analysis: H&M - Essay Example

? Retail marketing analysis report: H&M BY YOU YOUR SCHOOL INFO HERE HERE TABLE OF CONTENTS 0 Introduction................................................................................................................. 4 2.0 The fashion retail environment.................................................................................... 4 3.0 Trends and competition............................................................................................... 5 4.0 Critical success factors................................................................................................ 5 4.1 The retail marketing mix – product................................................................. 6 5.0 Store format and location............................................................................................. 7 5.1 Store layout, design and visual merchandising................................................. 8 6.0 Customer service and facilitating services.................................................................... 9 7.0 Pricing strategies and tactics......................................................................................... 10 8.0 Marketing communications........................................................................................... 11 8.1 Promotional activity.......................................................................................... 11 8.2 Supply chain management................................................................................. 12 8.3 Retail internationalisation.................................................................................. 13 9.0 Evaluation of sustainable competitive advantage......................................................... 13 10.0 Future trends................................................................................................................ 13 11.0 Summary and conclusion............................................................................................. 14 References LIST OF TABLES Table 1: The full retail marketing mix – critical success factors................................. 7 Table 2: A comparative pricing structure for H&M, Zara and Peacocks..................... 10 Table 3: The most significant competitive advantages of H&M.................................. 13 LIST OF FIGURES Figure 1: Sample illustration of H&M fast fashion boho-chic products..................... 4 Figure 2: Illustration of the modern H&M interior store design and layout............... 8 Figure 3: The supply chain model of H&M................................................................ 12 1.0 Introduction Hennes & Mauritz AB (H&M) is a multinational clothing retailer headquartered in Spain and established in 1947. H&M is credited with being a pioneer in the fast fashion industry, providing contemporary and affordable clothing for a variety of target markets. H&M maintains a particular focus on servicing the 18-34 year-old markets demanding contemporary and exclusive clothing offerings at an affordable price. Analysis of H&M consists of a blended approach utilising secondary and qualitative primary observational research occurring in-store. 2.0 The fashion retail environment Fast fashion is representative of the ability of an apparel retailer to move from the clothing design board, to the catwalk, and finally to the store inventory in the fastest method possible as a strategy to respond quickly to changing trends in fashion design and consumer social culture (Hines and Bruce 2001). H&M provides clothing that is referred to as boho-chic, a blend of hippie and Bohemian influences made popular by such celebrity figures as supermodel Kate Moss and British actress Sienna Miller. The majority of fashion offerings provided by H&M are youth-inspired, modish, and modern with a retro appeal. Figure 1: Sample illustration of H&M fast fashion boho-chic products Source: WordPress.com. (2011). The Ikea of clothing, H&M, versus the Verizon iPhone. [online] Available at: http://conscientiousness.wordpress.com/2011/02/10/the-ikea-of-clothing-hm-versus-the-verizon-iphone/ (accessed 27 April 2013). The fashion industry for the youth market requires that clothing retailers maintain a keen environmental awareness of what trends are driving youth consumption in order to gain competitive advantage. The basic conception of competitive fast fashion is low price and disposability in order to create a consumer market perception of exclusivity and selectiveness by which few markets will be wearing the same creations due to the speed by which new fashion designs are replenished in-store. 3.0 Trends and competition Promotional prowess is one of the most fundamental competitive tools available for fast fashion producers. Main competitors to H&M include Zara, Topshop and Peacocks. All of these fast fashion retailers provide similar products geared toward the youth target market (18-34) with very comparable pricing structures for multi-market products. The trend of fast fashion competitors is to establish a category management model, by which there is more interactivity between manufacturer and the consumer target segments to create more effective and collaborative relationships (Hines 2007). In order to provide relevant fashions in a rapid replenishment ideology and establish an effective and affordable pricing structure that will be accepted by target consumers, fast fashion retailers attempt to gain competitive advantage through a low cost leadership strategy philosophy. Described by Michael Porter (1985) the low cost leadership strategy is an effort at minimising waste along the entire value chain (Grant 2002) and operating at full capacity in the facilities that provide manufacturing support for the business model (Thompson 2008). From a competitive standpoint, the goal of this fast fashion, low cost leadership strategy is to be able to undercut competitor pricing on a variety of fashion offerings through supply chain efficiency improvements and recognising large cost advantage opportunities through foreign outsourcing. 4.0 Critical success factors It is not only the low cost leadership strategy, coordinating cost controls throughout the value chain, that provides critical competitive advantages for H&M in the fast fashion industry, it is understanding the design, pricing, servicescape development, and promotional activity that is able to differentiate H&M from competition that offers similar boho-chic products. 4.1 The retail marketing mix - product The four dimensions of the retail marketing mix include product, price, place and promotion. This is inclusive of merchandise and service, value and cost, advertising and sale promotions, as well as location and logistics. In terms of product, H&M must be considerate of the social implications of merchandise as influence in purchase and re-purchase behaviour of the youth market. Younger target markets often consider the opinion and attitude of important reference group figures, believing that fashion represents an ability to improve social status, express individualistic personality traits, and improve social belonging (Kim, Forsythe, Gu and Moon 2002). Tungate (2008) further supports the social relevance of fashion consumption, stating that fashion following is like a drug, with the general belief that outward changes are related to inward changes. “When consumers change their look, they believe they have evolved emotionally as well” (Tungate 2008, p.164). It is during the period of young adulthood where individuals are still looking toward peer reference groups as a means of justifying or building a sense of personal identity (Weiten and Lloyd 2005). Because of the emotional relationship between fashion and social status, many youth markets that maintain very low financial resources (representative of the majority of H&M’s target segments) tend to seek fashion selections associated with the theory of conspicuous consumption, which is utilising perceived quality fashion merchandise to gain psychological satisfaction and present to important social reference groups sophistication and taste cultivation (O’Cass and McEwen 2004). Therefore, the design teams that attempt to meet fast fashion timelines must be aware of the importance of fashion as a social consideration, positioning the business as a top quality producer whilst also being able to provide an acceptable pricing structure practical for lower resource consumers in the working or middle class. Therefore, in terms of product, these factors have changed the internal organisational structure at H&M to include a team of 50 different pattern designers, use of 100 different specialised designers in Stockholm, various budget controllers to ensure compliance to low cost leadership strategy, and approximately 100 different international buyers each with different procurement responsibilities (Hapuarachchi 2010). Through this organisational structure, which varies significantly from major competitors, H&M is able to ensure quality whilst also controlling costs throughout the supporting divisions of the value chain to meet rapid replenishment needs of new and innovative fashion designs. Table 1: The full retail marketing mix – critical success factors Product Designs trend-focused and disposable Massive staff of designers and buyers Sophisticated and cultivated design philosophy Price Low cost leadership strategy Contribution margin-based pricing Values-based pricing Place Hamburg central logistics centre facilitating low cost distribution to Western Europe Asian production office facilitating quality checks on fabric procurement prior to delivery to Hamburg Promotion Celebrity endorsement Famous designer collaborations In-store advertising – lifestyle/psychographic for social identity 5.0 Store format and location Within the retail marketing mix, it is important to recognise additional factors of product in the associated with the servicescape, including the store exterior, the interior environment, store layout and design, product and pricing displays, and human variables of the service environment (Berman and Evans 2009; Turley and Miliman 2000). Through qualitative observation during an in-store visit to H&M in the UK, the store was designed with the same philosophy of merchandising and product development, showing a modern and youth-focused servicescape. Figure 2: Illustration of the modern H&M interior store design and layout Source: Cardiff Fashion. (2012). Versace and H&M collaboration. [online] Available at: http://www.cardifffashion.com/uncategorized/versace-and-hm-collaboration/ (accessed 26 April 2013). 5.1 Store layout, design and visual merchandising As shown by Figure 2, the layout of H&M is intended to represent the interests and social attitudes of youth segments whilst staying true to modish brand philosophy. According to H&M, the aim of their store layout, merchandising strategy and design characteristics are to “create a comfortable and inspiring atmosphere to make it simple for consumers to find what they want and feel at home” (H&M 2012, p.2). Qualitative observation also witnessed many in-store features that were aligned with the business’ brand strategy for high quality and fashion exclusivity. Nearly all point-of-purchase displays featured actors that were aligned with the lifestyles and physical characteristics of youth markets. Actors in the in-store merchandising plan (ad strategy) included young models that were engaged in social lifestyle situations, which reinforced the competitive advantages of H&M that it achieves by understanding the importance of social status and social reference groups when deciding to make a final fashion purchase. Zara’s in-store advertising and merchandising displays were more sophisticated, showing youth actors not in lifestyle scenarios, but often just unique individual actors who were largely expressionless, seemingly in an effort to create more demand in the higher-priced fashion merchandise with a more formal appeal. This would seem, compared to H&M, to create a type of cognitive dissonance between the brand identity that Zara wishes to present and the social considerations of the buyer markets. In marketing theory, cognitive dissonance is where a consumer segment’s attitudes and beliefs are at odds with one another. In service industries, it is necessary to create a positive brand identity that there is consistency between brand image and merchandising/advertising to remove cognitive dissonance (Bose and Sarker 2012). H&M is much more consistent between in-store servicescape and brand identity related to quality with lifestyle-related promotions (psychographics) that seems more effective in removing cognitive conflicts in the minds of consumers. 6.0 Customer service and facilitating services H&M does not aggressively promote its internal service philosophy. To analyse this competitive advantage of H&M, the report relies on qualitative observation of the service encounter with a variety of in-store consumers. Zeithaml, Pasuraman and Berry (1990) developed the SERVQUAL model that describes the importance factors in service quality that will improve customer retention and influence purchase decision-making in-store. Under this model, the most important competitive factors for H&M include responsiveness, reliability, assurance and empathy. It was clear that employees were trained to be engaging with customers, attempting to approach consumers in a polite and friendly manner immediately upon entering the store or beginning to browse the servicescape. Service employees were also no-pressure agents, attentive yet courteous when customers indicated they wanted to browse merchandise without direct intervention from sales associates. On several occasions during the researcher visit to H&M, customers illustrated a specific need (special event fashion needs and beachwear needs) by which employees attempted to provide consumers with options that would provide needs fulfilment. This is important for H&M as Boulding (1993) identified a direct correlation between quality of service perceptions and willingness to provide quality word-of-mouth advertising and repurchase intentions. In nearly every detail, H&M showed competence and empathy to the needs of consumers, including the researcher, who engaged the service staff with an emphasis on inquiring about quality of the merchandise. The training emphasis for the service employees was very obvious as the sales staff was able to describe some dimensions of the supply strategy and fabrics procurement that reinforced promises of quality to the researcher. The talent and competency of the service staff avoided having to come up with service recovery strategies, which made the experience of qualitative observation and engagement at H&M a memorable and enjoyable experience. 7.0 Pricing strategy and tactics Pricing, as another element of the retail market mix, is one of the main competitive strategies of H&M, which are aligned with Peacocks and Zara (as two examples) due to the ability to inject efficiency into the supply chain network. Table 2: A comparative pricing structure for H&M, Zara and Peacocks H&M Zara Peacocks Women’s Dresses ?6.99 to ?29.99 Women’s Dresses ?14.99 to ?49.99 Women’s Dresses ?14.99 to ?29.99 Male Casual Attire ?9.99 to ?34.99 Male Casual Attire ?25.99 to ?59.99 Men’s Casual Attire ?6 to ?16 Men’s Formal Attire ?24.99 to ?74.99 Men’s Formal Attire ?39.99 to ?69.99 Men’s Formal Attire N/A Women’s Formal Attire ?29.99 to ?69.99 Women’s Formal Attire ?29.99 to ?74.99 Women’s Formal Attire N/A Table 1 shows the pricing disparity between H&M, Zara and Peacocks as well as the variety of merchandise available. Peacocks significantly outperforms Zara and H&M in casual attire, but lacks a more formal merchandise structure that provides advantages to H&M and Zara. Zara has established a higher pricing model, however this is largely due to the fact that Zara operates and owns 70 percent of its manufacturing and logistics facilities which provides higher operational costs. H&M is able to outperform Zara in most product categories for both male and female target segments as nearly all production is outsourced to foreign nations with lower labour costs and more profitable currency exchanges. This translates into the ability to be a premier low cost provider in fast fashion. 8.0 Marketing communications Promotional activity, the brand image projected by H&M and supply chain management strategies contribute to effective marketing for this service-centric business. 8.1 Promotional activity Peacocks tends to cheapen its brand by running periodic discounting promotions on top of its already low cost model. H&M and Zara also run promotions, but somewhat mask these discounting strategies in order to sustain a brand associated with quality. H&M utilises celebrity endorsements and design collaborations with very respected and brand-recognised international designers in order to support its quality positioning. Such figures as David Beckham and the American singer Beyonce represent male undergarments and female swimsuits, respectively in the H&M promotional model. In 2007, popular music star Madonna worked collaboratively with H&M for a new and innovative fashion collection. Celebrity endorsements, especially for the youth market, have more impact competitively as relevant famous figures represent important reference groups that influence consumption behaviour in this industry (Pornpitakpan 2003). Neither Zara nor Peacocks follows this same celebrity endorsement and design collaboration model, representing a competitive advantage for H&M that understands the attitudes and socio-psychological needs of youth consumer markets. During the observational period, the researcher found many lifestyle relevant in-store advertisements that showed well-known and attractive celebrities that had endorsed collaborative fashion lines. Wang, Zhang, Choi and D’Eredita (2002) reinforce that ad perception contributes strongly to the consumers’ holistic view of the brand. H&M is highly effective in using youth-oriented and easily recognisable celebrities with lifestyle and attitude values similar to the firm’s target markets which gives a sustainable competitive advantage in promotional competence. In relation to brand image, this is, again, consistent with the quality and lifestyle-oriented brand identity that H&M attempts to utilise to position the business as a differentiated fashion retailer from main competitors Peacocks and Zara. 8.2 Supply chain management H&M outsources nearly all of its production activities, again gaining cost advantages through low cost labour opportunities and currency exchange rates favourable to the Euro. H&M buys fabrics ahead of forecast scheduling in order to reduce costs of procurement (Li 2007). The goal of the brand is to establish a positioning based on quality, and H&M maintains more advantages by owning the production offices that govern quality assurance and regulates the production activities of its more than 700 international suppliers. The business established a logistics centre in Hamburg in order to centrally locate its distribution system that provides significant cost advantages for the business. It is through this efficient system, emphasising cost reductions, that the business is able to communicate its short lead times on certain fashion products (two weeks) that makes the firm appear more reliable along the SERVQUAL model. Figure 3: The supply chain model of H&M Source: Saini, M. (2008). Analysis of clothing supply chain: integration & marriage of lean & agile. [online] Available at: http://organisationalexcellence.files.wordpress.com/2008/03/microsoft-word-analysis-of-clothing-supply-chain.pdf (accessed 25 April 2013). 8.3 Retail internationalisation It is the low cost procurement strategy that is the main internationalisation advantage for H&M, since the majority of outsourced suppliers operate in Asia, where the Euro is valued substantially higher than the countries of origin for fabrics and raw yarns and other required textile products. Additionally, H&M must provide relevant finished fashion products that are aligned with international cultures and society that will differ dependent on the cultural characteristics that reside in nations where H&M operates retail centres. In the UK, the culture is individualistic which makes exclusivity through disposable fashions more associated with the lifestyle-centric brand image. This represents an ideal market based on the supply strategies in place with H&M and the ability of the firm to meet short lead times for replenishment of innovative designs required to gain UK market attention. In Sweden, the base of its headquartered operations, consumers believe strongly in more feminine traits along Hofstede’s Cultural Dimensions model, meaning there should be moderation in consumption and a general belief that there would be equality in the social condition (Hofstede Centre 2012). To be a successful international company, product offerings and lifestyle-centric advertising must reflect these differing social values to make revenue growth improvements. 9.0 Evaluation of sustainable competitive advantage Table 3: The most significant competitive advantages of H&M Cost controls in supply network Volume of specialist buyers and budgeters Collaborations with designers and celebrity endorsements Knowledge of consumer socio-psychological needs Low cost provider strategy – Pricing Service quality attributed to training power 10.0 Future trends There is no evidence that Zara or Peacocks is seeking, currently, the same celebrity endorsement opportunities of H&M, which is generally a very expensive financial investment. However, H&M has achieved much better co-branding status among competition by using actors and other famous figures that have similar values and characteristics favourable to the youth target markets. This is likely to continue as a future trend which builds sustainability into the promotional function for H&M. Competition is not nearly as skilled in creating advertising campaigns that have positive psychological and sociological outcomes with customer segments, which would require experiential knowledge that could take time for competitors to try to imitate. H&M has also built a great deal of brand equity that is founded on brand loyalty with its most attractive and dedicated youth markets. Future trends for H&M is expansion into additional product lines (such as male grooming products or female fragrances) to tap into this valuable brand value. There is no evidence that Peacocks has this same level of brand loyalty which limits this business’ ability to expand using equity from the corporate brand. Zara continues to expand into international markets, having a very recognised brand in volumes of international markets (brand recall). It is likely that Zara will respond competitively if H&M attempts extension of product lines since the business cannot compete in terms of price with H&M under its high cost operational model. 11.0 Summary and conclusion Generally, when conducting research both secondary and primary about a retail organisation, it is expected that weaknesses will be discovered somewhere in the value chain that creates barriers to sustainable competitive advantage. However, H&M is a model that could be benchmarked for effective service quality, understanding what drives its target consumers’ purchasing behaviours, and establishing the internal and external systems necessary to attain cost controls to provide low-cost products. Where H&M excels is in supply strategy and promotion that is currently not being imitated by the company’s two largest retailer rivals. It is through this strategy where positioning and differentiation occurs effectively, giving the business a strong brand related to quality and also the ability to provide more competitive pricing structures. In nearly every detail, H&M outperforms both Peacocks and Zara for being a fast fashion leader that provides relevant products, service strategy, and pricing which improve market loyalty and repurchase intention. References Berman, B. and Evans, J.R. (2009). Retail management: a strategic approach, 11th edn. New Jersey: Prentice Hall. Bose, T.K. and Sarker, S. (2012). Cognitive dissonance affecting consumer buying decision-making: a study based on Khulna Metropolitan area, Journal of Management Research, 4(3), p.191. Boulding, W., Kalara, A., Staelin, R. and Zeithaml, V.A. (1993). A dynamic process model of service quality: from expectations to behavioural intentions, Journal of Marketing Research, 30(1), pp.7-26. Grant, R.M. (2002). Contemporary strategy analysis, 4th edn. Oxford: Blackwell. H&M. (2012). Always get a good deal, MySpace. [online] Available at: http://www.myspace.com/hnm2007#! (accessed 25 April 2013). Hapuarachchi, C.R. (2010). Benetton, Zara, H&M – Supply chain management. [online] Available at: http://www.slideshare.net/hdchachi/zara-hm-and-benneton-supply-chain-management (accessed 26 April 2013). Hines, T. and Bruce, M. (2001). Fashion marketing – contemporary issues. Oxford: Butterworth-Heinemann. Hines, T. (2007). Supply chain strategies, structures and relationships, in T. Hines and M. Bruce (eds.). Fashion Marketing – contemporary issues, 2nd edn. Oxford: Elsevier. Hofstede Centre. (2012). What about Sweden? [online] Available at: http://geert-hofstede.com/sweden.html (accessed 26 April 2013). Kim, J., Forsythe, S., Gu, O. and Moon, S.J. (2002). Cross cultural consumer values, needs and purchase behaviour, The Journal of Consumer Marketing, 19(6), pp.481-502. Li, L. (2007). Fashion magnates’ supply chain contest. [online] Available at: http://www.cbfeature.com/index.php?categoryid=Vm10YVlWVXhVbk5SYkVwUlZrUk JPUT09K1M=&p2_articleid=Vm10YWIyUXlTblJWYWs1UlZrUkJPUT09K1M=&p2_p age=2 (accessed 25 April 2013). O’Cass, A. and McEwen, H. (2004). Exploring consumer status and conspicuous consumption, Journal of Consumer Behaviour, 4(1), pp.25-39. Pornpitakpan, C. (2003). Validation of the celebrity endorsers’ credibility scale: evidence from Asians, Journal of Marketing Management, 19, pp.179-194. Saini, M. (2008). Analysis of clothing supply chain: integration & marriage of lean & agile. [online] Available at: http://organisationalexcellence.files.wordpress.com/2008/03/microsoft-word-analysis-of-clothing-supply-chain.pdf (accessed 25 April 2013). Thompson, A. (2008). The Five Generic Competitive Strategies: Which one to employ?. [online] Available at: http://www.scribd.com/doc/92580197/Five-Generic-Business-Level-Strategies-Thompson-Et-Al-Chap5 (accessed 26 April 2013). Tungate, M. (2008). Fashion brands, branding style from Armani to Zara. London: Kogan Page. Turley, L.M. and Miliman, R.E. (2000). Atmospheric effects on shopping behaviour: a review of the experimental evidence, Journal of Business Research, 49, pp.193-210. Wang, C., Zhang, P., Choi, R. and D’Eredita, M. (2002). Understanding consumers’ attitude toward advertising, Eighth Americas Conference on Information Systems, Syracuse University. [online] Available at: http://melody.syr.edu/hci/amcis02_minitrack/RIP/Wang.pdf (accessed 26 April 2013). Weiten, W. and Lloyd, M. (2005). Psychology applied to modern lie – adjustment in the 21st Century, 7th edn. United Kingdom: Thompson Wadsworth. Ziethaml, A., Pasuraman, A. and Berry, L. (1990). Delivering quality service: balancing customer perceptions and expectations. New York: Free Press. Read More