As a leader in the value priced segment of the fashion industry, H&M has experienced significant success and growth over the last few years. With a company spirit rooted in simplicity, autonomy, and a strategic centralized logistics processes they easily compete with other fashion giants and have carved out a strong position in their industry.
In this paper, we will highlight advantages in leadership, areas of competitive advantage, corporate risk, and future potential for growth within the fashion industry. Leadership The H&M clothing company was originally created by Erling Persson who developed the the Hennes clothing brand, meaning “Hers”, in 1947, following a trip to the United States of America and New York City, NY.
It was at this time when he believed fashion can be created and sold in a new way and can be affordable for all. A later acquisition of the Mauritz Widforss hunting apparel and fishing equipment retailer led to the creation of the H&M brand, in 1974, where clothing was made for the whole family which also included fashion accessories and cosmetic lines, which rounded out the brand.
Founded under a tradesman-ship philosophy where strong business sense, thrift, logical decision-making, and delegation of responsibility represent the company values, Karl-Johan Persson, great grandson of Erling Persson, assumed the position of CEO in 2009 and continues to manage the company based on the same principles that have made them successful.
Additionally, the company’s core values are closely aligned with the original philosophy, which has lead to effective leadership throughout the company and has been a major contributor to their ability to maintain agility in a fast paced market. The H&M group is a multi-brand matrix that spans eight different brands that are each managed by their own director.
Additionally, their structure resembles a participatory style of leadership and management where entrepreneurship with in the company and its stores is encouraged and performance is measured by sales production.
Allowing associates at all levels to participate in the creative process, product sales, and marketing development has been a successful model for H&M that appears to be a sustainable approach for managing the company for the future.
The needs of consumers differ with age. As such, firms always tend to offer a variety of products that tend to meet the needs of a particular age bracket. The consumers are aggregated according to age, depending on the manner in which they exhibit similar requirements and responding in the same way to the market actions.
Based on this analysis, H&M will be targeting the younger generation, particularly between the ages of seventeen and forty years. The age bracket represents over 75% off the fashion apparel market.
Market segmentation, according to income, is common among the firms. Most firms target customers within the high-income category, particularly firms dealing in fashionable and luxury products. However, H&M is targeting both low and high-income customers. In other words, the firm’s products directly appeal to low and high-income consumers.
Lifestyle incorporates the classification of clientele in terms of collective principles, ideas, beliefs, and interests. However, no standard lifestyle customer profiling exists. The type of psychographic profiling remains critical to H&M due to the type of products offered. The firm is applying the 4C’s model in customer classification.
Competitive Advantage Competing in a broad and fast paced market such as fashion, H&M has positioned itself to complete with other large brands like Gap, Zara, and UNIQLO. Their most significant advantage over their competitors is their efficient management of a vast supply chain.
Since H&M does not manufacture their own products like some of its competitors, H&M relies on an extensive supply chain that consists of “747 suppliers” with 150 of these being considered as long-term strategic relationships (P. Regner, H. Yildiz, n.d.). With a large supplier network such as this, they can significantly reduce lead times and can typically deliver products to market within two weeks time.
Where other clothing retailers produce mass amounts for mass markets, H&M, like its competitor Zara, only produces limited runs of new styles, which reduce the risk of oversaturating inventories, and potentially creates demand for popular products. As a result, H&M improves their agility and product diversity quickly and can easily respond to shifts in segments or markets.
Another advantage H&M has developed over its competition is the ability to keep the majority of their distribution and warehousing internal to the company. Without the need to outsource these items, H&M has reduced their overhead costs and improved efficiency in distributing products to its stores.
Additionally, they have laser focus on locating their retail locations where they can best be visible to consumers and choose to rent these locations in lieu of investing in their own infrastructure. As a result, they maximize adaptability by being able to exit a location with minimized impact to overhead costs.
Although the H&M group has numerous advantages over their competition, they are also subject to some disadvantages that are common amongst companies who operate in the fashion space. Corporate social responsibility is a primary risk that H&M must continuously be aware of since 70% of their manufacturing is outsourced to low-cost countries in the Far East and South Asia (P. Regner, H. Yildiz, n.d.).
As a result, H&M is under constant scrutiny and must be wary in regards to fair wages, ethical overseas labor practices, and sustainability of resources used in their products. To mitigate these risks H&M employs corporate social responsibility programs and strategies; however, nothing is truly airtight and may not protect a company one hundred percent of the time against unethical practices.
Growth Strategy Since the publishing of the reviewed case study the H&M group has been experiencing a slow decline in sales when compared to major competitors like Zara. Unfortunately, this is due largely in part to H&M’s lack of e-commerce presence.
Although they have a website that provides consumers with information on various brands, you can’t order anything online and must go to a store in order to complete a purchase. With recent shifts to online ordering H&M is way behind the curve in this area and will have to focus on developing this capability quickly if they are to compete in the fashion market place.
Additionally, they should consider a similar purchasing approach like other retailers are offering. Online purchasing with store pickup would significantly add to the consumers’ convenience and may be just what they need to differentiate themselves from other clothing lines.
In addition to increased online presence, the H&M group still plans growth in physical store locations and has created a new discount line of clothing for consumers. The additional brand called, “Afound”, will offer discounted external brands as well as discounted brands internal to the H&M group.
Even though H&M is rolling out a new brand to prop itself up against previous reports of slow growth, the key to future growth will be how quickly they can develop their e-commerce capability. Conclusion The H&M group has been very successful over the years in an industry that is known for being fast paced.
With a no nonsense approach to trade and strong supply chain, H&M can easily compete in the fashion market place. Current weakness in e-commerce is a very significant concern but if a quick response can be facilitated H&M can easily close performance gaps as they relate to their competitors and could see increased growth in the long term due to the technological capability.
