Evaluation of H&M's current market strategy and its fit with internal and external environment
Company A’s industry analysis
a - Identification of industry’s boundaries (and explanation for choice)*
We have decided to focus our work on the clothing retail market, and more specifically on fast fashion retailers. This includes all major international clothing companies. However, we will exclude from the study the non-clothing divisions of these groups (H&M Home, Zara Home, ...) except for the financial charts and analysis, because H&M and Inditex only have group financials.
b - Industry analysis (Porter’s Five forces model of competition):
Porter:
1 – Threat of New entrants (High) : The market is considered as an attractive one to invest and despite the fact that Zara and H&M are the major players there is still a market share for new entrants. Prices of raw material and transportation costs are quite low which is another threatening factor for existing rivalry. Technology to manufacture low cost clothing is there for everyone with enough resources to take advantage.
2 – Buyer Power (Moderate) : Buyers in the fashion retail industry have no switching costs and can easily search for best prices. Economic instability lowered purchasing power. Huge pressure for innovation in the market. The price can be a factor determining their options.
3 – Threat of Substitutes (High) : Vintage and handmade clothing considered to be as a substitute but characterised by higher pricing. Duplication of styles is often observed in the industry, which can attract the customers who does not mind lower the quality but similar clothing.
4 – Supplier Power (Low) : H&M has more than 700 independent suppliers. The industry has recovered in a sense but this has lowered the competition in it which also lowered the Supplier Power. Fabric prices reduction enhanced even more H&M power over its suppliers
5 – Competitive Rivalry (High) : Zara, Gap, Mango. High exit barriers and the inventory costs are considered huge. They all have the same target group of customers.
Competitor Analysis :
Mango : Known for its excellent business model and supply chain management, has approximately the same number of stores in the same number of countries worldwide, like H&M. Products are similar in style, pricing and quality. Based on a franchising system. And their marketing strategy relies on advertising campaigns.
GAP : Worldwide presence as H&M. Known for the American style culture and the majority of its stores are located in the US. Higher quality but more expensive. Based on a franchising system. Investing in online stores.
Primark : UK retailer, focusing on lower class income targeting mainly women’s fashion clothing. Focus on discount offers. Economies of scale.
Uniqlo : Same as the Gap, focusing on japan. Simplistic and practical compared to H&M and Zara.
BUT THE MOST IMPORTANT. Zara : Multitasks globally, as opposed to H&M who tends to enter one country at a time. Pioneer in fast fashion industry and 3rd largest brand in the garment industry [Graph of Brand Value]. For Zara, speed and responsiveness are more important than cost. Their discounts are more focused over the year than H&M’s [Graph Promotions]. Not the same price architecture [Graph Price architecture].
c - Estimate of average profitability in the industry
Average ROCE: (Waiting for Raph)
Average Net Margin = 5% for the last few years.
d - Identification of Key Success Factors
Key Success Factors of the Fast Fashion industry:
· Good supply chain management. In order to be a real fast fashion retailer, you need to refresh your collections as often as possible. To do so, you need the time gap between collection ideation and store delivery to be as minimal as possible.
· Cashing in on trends. Millenials and GenZ shoppers are frugal, value-minded and demand quick on trend fashion. Knowing this, this is a real Key Success Factor to be able to focus of the latest of-the-moment trends with a responsive and effective supply chain.
· Customer Service. customer service is the most important factor in generating sales and repeat customers. If your customers are well-served, they are considerably more likely to make a purchase during their visit, and to return later. Ensuring that all employees understand the importance of exceptional customer service will go a long way in helping your retail location see success.
Hurreeram, Dinesh & Devkumar S, Callychurn & Keertiprada, Soobhug. (2014). Key Success Factors for the Apparel Manufacturing Industry
e - Analysis of whether and how the industry will change in the future and its implications for Company A
https://www.deloittedigital.com/us/en/blog-list/2020/how-will-the-apparel-industry-change-in-the-next-five-years-.html
According to Deloitte’s work, two main trends should change the future of apparel’s industry.
· Customization. As for other industries (like fragrances, …), it is likely that customize clothes will take a part of the market share. “Technology has put us on the cusp of enabling consumers to modify every aspect of each article of clothing—including trim, sizing, materials, and even fundamental design. Indeed, while only 15 percent of consumers said they tried customized clothing in 2019, 33 percent reported expecting to try it in the future. Drawing on our analysis of how quickly emerging business models have been adopted in the past, we estimate that players offering fully customizable apparel could claim 10 to 30 percent of market share by 2030. Retailers would likely embrace this change, with customization reducing the risks of being over inventoried. And with health concerns surrounding the crisis (e.g., limiting in-person shopping), the migration to customization may accelerate in the near term. We note that customization may vary significantly by geography, as demonstrated by Deloitte’s 2019 fashion-consumer survey”
· Alternative commerce models. A wealth of new options is emerging for how consumers buy and use apparel. For example, they can rent clothing or buy used clothing, for formal occasions or everyday use. They can subscribe to services that periodically ship collections of curated apparel and footwear to them. And they can buy clothing directly on social media platforms they use. All of which are becoming more appealing to trendy shoppers with limited disposable income or more environmental sensibility.