H&M Company Analysis

Sep 19, 2019
folder_opencategory: Business

Introduction

Fast fashion is based on three principles, which are copying, speed and price. Its strategy can be expressed by a simple formula: an immediate reaction to a demand, offering clothes in the height of fashion at a reasonable price, and frequent updating of collections. A fast turnover and low prices seriously change the attitude of people to shopping. If earlier clothes were bought for a season, sometimes even for several, at present, people buy without thinking long. Customers try to visit a store as often as possible, and every time they find a lot of novelties. The leading producers of luxury clothes around the world appeared under pressure of relatively young fast fashion retailers. Copying collections of expensive brands, sellers in the mass market compete with them. Having won the world recognition by its trade policy, oriented at financial possibilities of the European youth, the fast-fashion H&M Company has recently implemented an active rebranding strategy using a multi-model supply chain and the combination of agile and lean business strategies.

Overview of H&M

Hennes & Mauritz (H&M) is one of the best Swedish companies engaged in the retail sale of inexpensive quality things for men, women and children. The company is a stable and reliable sales leader. Except clothes, it sells cosmetics, footwear, and different fashionable accessories. A hundred of designers, knowing everything about fashion and high quality, create new fashionable things. In Europe, H&M is considered to be the largest retail network, which has been holding the leading positions in the world markets for a long time (Shen 2014).

The history of H&M began in 1947, when Swede Erling Persson founded the company specializing in the retail sale of women clothes. It received the name “Hennes”. In 1968, the assortment of products extended. Persson bought Mauritz Widforss producing men’s wear for fishing and hunting in Stockholm. Later, the company was renamed into Hennes & Mauritz and became known as the best retail center. Every year the number of H&M shops promptly grew in Sweden and in the Western European countries. At first, H&M shops appeared in Norway, Great Britain and Germany and later in the whole world. In the 1980s, the son of Erling Stephan developed the strategy of selling cheap but qualitative things. The idea was successfully developed and brought the world fame to the company. Its business activity was ruled by the principle of the best price for quality fashion (Jin, Chang, Matthews & Gupta 2012).

The company gained fame in the late 1990s. The reasons for the growing popularity of H&M include the correct business strategy of the company focused on clients and the globalization of the mass media, which has opened access to the latest fashion shows. Besides, the awareness of the recent changes on the world podiums caused the desire to follow fashion directions, define tendencies of a fashionable season, and to make all efforts to find the available copies allowing remaining fashionable.

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H&M uses the minimum number of intermediaries and large volumes of purchases, as well as invites the best designers and experts of fashion and fabrics to cooperation. Collections are created by joint efforts of fashion designers and purchasers of H&M. In order to catch the future trends, the company carries out continuous monitoring of the world around and derives inspiration from street fashion, cinema, travel and other cultures, as well as from the mass media fashion history. The general subjects of collections are usually planned on average one year before, whereas the latest tendencies can be picked up at immediately (Shen 2014).

At present, H&M is a well-known brand, included into the top hundred of the best known world brands. The number of stores all over the world comprises 2200 in forty world countries, but continues to grow. The company’s headquarters are located in Stockholm, Sweden. The main principles of the brand are high quality of goods, democratic prices, and compliance to the recent fashionable trends in the fast fashion mode. Moreover, the company is an official supplier of a uniform for an Olympic team of Sweden from 2014 till 2018 (Shen 2014).

Supply Chain Analysis

Stores are the most important channels of distribution of H&M. Annually, their quantity increases by 10-15%. Except shops, the company carries out sales via the Internet and catalogues in Sweden, Norway, Denmark, Finland, the Netherlands, Germany, and Austria. H&M needs a three weeks period from the design of a sketch of the future model up to its sales in stores. Fast updating of the assortment is the main positioning of the brand. The purpose of such an approach includes an aspiration to avoid the saturation of market fashionable designs. Instead, successful models are slightly updated by color, style, materials or accessories. The company’s main competitor, GAP, needs six months for the production of a new collection, while Zara needs only two weeks for such a process. H&M constantly reduces expenses, minimizes costs of production, and seeks to decrease the number of intermediaries.

The supply chain of H&M has two main features: standardization and postponement.

The challenge in retailing is to respond to changing demand, seasonality, price competition, core important products with high service level goal in right time. H&M’s goal is to be known as a company which is changing with changing fashion trends and to fulfill this promise the whole supply chain has to be designed to support this idea. This synchronization can be analyzed in the supply chain from suppliers till the end users (Nawaz & Saleem 2009).

Thus, H&M uses standardization and postponement in its supply chain. The company does not use the only supply chain strategy, it successfully combines make-to-stock and assemble-to-order models. H&M uses multiple supply chain models rather than a particular one, as it aims at an increase in its sales and satisfaction of customers. Besides, due to the fact that H&M applies stores management in its activities, a customer is the key company’s priority. The right information on time, supply chain management and the transport system compose a successful synergy (Kihlen 2005).

Business Strategy of H&M

The H&M Company uses a rather new business strategy known as “fast fashion”. It represents new collections of clothes based on the recent trends in fashion, but their design is fast and cheap, thereby giving an opportunity for clients to wear modern fashionable clothes at a low price. It is achieved by the correctly chosen business strategy: purchases directly at producers, supporting effective material and realizing goods in own shops, but without renouncing the principles of social-and-ecological responsibility. Moreover, the company uses the cheapest way of transportation through the sea that promotes the reduction of emissions of carbon dioxide unlike more expensive transportation means, for example, by plane (Dari & Pache 2013; Shen 2014).

The business strategy of the company is based on the lean approach, as most of the H&M goods are manufactured in Europe. It buys fabrics in advance, minimizing the expected cost of goods. Moreover, the location of production offices close to the production origin results into an increase in the efficiency of suppliers and the production of clothes within the limited time. H&M is a customer-oriented company, which receives all necessary information on trends and demands from its customers.

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Forecast

In order to be successful in the sphere of the fast fashion retail of clothes, H&M should sensibly estimate competition in the market. The company has to keep the correct balance between the speed of rotation and the structure of expenses. Besides, it is necessary to develop capacities for the effective operation of a variety of goods. The company should involve the presence of intermediary parties represented by style agencies. The latter will be able to gather all necessary information that will allow fashion supply chain participants to organize the processes of logistics and control over the expectations of consumers (Dari & Pache 2013; Database Consulting n.d.).

The second component of the business strategy, which H&M can use in the future, is conquering new markets, having taken the position of the world leader in a niche of quality clothes at reasonable prices provided to the mass audience. In order to achieve it, the company should use business control and monitoring in its business activity. The changing market environment requires the mastering of the newest informational technologies.

Conclusion

To conclude, the given essay has discussed the business model, supply chain management and the business strategy used by Swedish company H&M. The business model of the company is based on such key points as high fashionable things, mass customization, outsourcing, “near to the market” concept, low prices and the flexibility of a customer’s choice. The priority of the company is not quantity, but the quality of produced goods.

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