H&M: From Single Store to Global Leader in Fashion Retail - Essay Sample

Introduction

Hennes and Erling (H&M) is a globally renowned seller and distributer of fashion and apparel. Over time, the company has experienced huge transformation from a single store in Sweden to becoming one of the leading fashion retailers worldwide with 3700 retail shops in sixty-one nations (Regner & Yildiz. 2014, 578). H&M's success is widely attributed to its unique business model that put it on a competitive edge with most rivals. Its model, cheap and chic as it is widely referred, focuses top fashion at significantly lower prices relative to that of the competition.

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H&M, however, has come under strong competitive challenge from Zara, another formidable fashion brand of Spain's Inditex which surpassed it as the world's number one fashion retailer by market capitalization. The emergent strong competition and diminishing margins attributed to increase in production costs in Asia and higher cotton prices brought H&M's business model of high fashion/ low-price under scrutiny by shareholders (Regner & Yildiz. 2014, 578). Altogether, amidst these business dynamics, H&M has managed to stay afloat in the fashion industry through creation and implementation of unique business strategies.

Analyzing H&M Through PESTEL Model

The PESTEL (Political, Economic, Socio-cultural, Technological, Environment and Legal) is scanning model used by to businesses analyze its macro environmental characteristics. Due to globalization and technological dynamics, the PESTEL model has become a central item for businesses in their strategic plans (Ihsan. 2012, 52). Scanning for macro factors in the business environment is one of the fundamental stages of strategic planning and it helps a business understand how these factors will influence its operations. From the 1990s, H&M has aggressively pursued expansion to international markets and the company has penetrated into Eastern European markets, Asian, Russia, and the Middle East (Regner & Yildiz. 2014, 583). This has been achieved by replicating the business model and store concept. The success of H&M in moving into a new international market stems from the fact that it critically employs PESTEL model in the analysis of a new international market. New markets are first scanned for their political, economic, socio-demographic, and infrastructural characteristics in order to avoid huge risks.

Analyzing H&M Through 5 Forces Model

In the business landscape, competition comes not only from established industry rivals, but other forces as well such as customers, suppliers, substitute products, and possible new entrants in the market (Porter. 2008, 26). New entrants in the industry, customer bargaining power and availability of substitute products pose a threat to the business market share by cutting down potential market size, while suppliers' bargaining power influences production cost, hence affecting realizable returns. Naturally, the fashion industry is very unpredictable and mercurial, trends are susceptible to sudden changes, and consumes are exposed to a myriad of fashion tastes making the competitive landscape in fashion industry very complex. According to Regner and Yildiz (2014, 577), a considerable number of small players entered the fashion industry around 2014, with Uniqlo, a Japanese company being a particular example and had begun aggressively expanding and threatening the Asian fashion market. However, big players in the fashion industry like H&M, Gap and Zara still dominated the market share due to their big of economies of scale. These big industry players keep a competitive edge by establishing multiple retail outlets, hence improving their brand awareness, and exploiting their bulk purchasing nature to bargain with suppliers, thus reducing their production costs.

Analyzing H&M Through Strategic Capabilities

Strategic capabilities loosely refers to the ability of a business to harness its skills and resources and use them for a competitive edge, improving its value during its course. H&M has employed several critical strategies its operations and business model that has seen it become the established fashion brand it is today. First, as stated earlier, H&Ms strategy of quality but affordable fashion products is the one critical item that has positioned uniquely in the market over competitors (Regner, Yildiz. 2014, 578). Second, H&M has created a wide portfolio of brands, such as COS, Monki, Weekday, Cheap Monday that target diverse customers within the socio-demographic space (Youell. 2012, 109). The brand are themed differently for customers within each targeted segment. This strategy has widened the market size for H&M by allowing them to penetrate the market at various niches and segments. For a new international market, the instrumental strategy H&M puts in place for success is that of employing the locals in those markets (Regner, Yildiz. 2014, 583). This is very instrumental in creating a social appeal in the new market, hence improving their market international market share.

Analyzing H&M Through the VRIO Model

The VRIO is an analysis model that businesses use to identify and safeguard its most valuable resources which give it a competitive advantage in the industry. VRIO analysis model emphasizes on Value, rarity, imitability, and organization characteristics of the business. The central most item that is are in H&M's business model the non-ownership of factories. H&M primarily outsources manufacturing to counties with low production costs with most close to 70% of its production based in the Far East and South Asia (Regner, Yildiz. 2014, 581). The business utilizes low-wage and high- production volumes in order to realize economies of scale and maintain its low-cost/ high-quality fashion policy. The low-price, but high-quality fashion policy of H&M is the one crucial item that positioned the business uniquely in the industry.

Strategic Options Facing H&M -Tows Matrix

The TOWS matrix is a model that businesses use to identify and analyze its external environment for threats and opportunities, and its internal environment for weaknesses and strengths (Weihrich. 1982, p 55). According to Weihrich (1982, p 56), threats in the external environment include but not limited to inflation, technological landscape, government policies, and energy. On the other hand, the internal environment of a business encompasses, management and workforce, operations, finances, and other resources within the organization. TOWS model operates by evaluating the external environment first and assessing the business internal characteristics for strength and weaknesses. After identifying the various environmental factors, a business evaluates the best strategic ways it can use its internal strengths to benefit from the available opportunities and avoid external threats. It also evaluates the best strategies for using the available opportunities in overcoming its internal weakness, and how it can minimize the internal weaknesses to avoid exposure to threats. H&M is exposed to a lot of threats and opportunities in the fashion industry. However, it tries to adopt best strategies which focuses on its strengths to optimize on the opportunities, while reducing risks to avoid a lot of exposure to threats.

Strengths

H&M has several strengths that has worked well for them to gain a competitive edge in the fashion industry. First, their technological infrastructure. H&M owns a high quality IT infrastructure that ensures connectivity between stores and the central warehouse (Youell. 2012, 111). The IT infrastructure also links the design and production team creating smooth flow operations for the business. Second, H&Ms business model enables them to reduce lead time and reduce unnecessary production costs. The value chain closely integrates consumers, production offices, retail centers, and warehouses globally (Regner, Yildiz. 2014, 582). According to Youell (2012, 111), another crucial strength for H&M is the fact that it has a good financial control. It cuts unnecessary expenses finances all its expansions with the businesses own resources, this ensures the business maintains a good financial position by avoiding costs associated with borrowed capital.

Weaknesses

H&M, however, is not without weaknesses. One key weakness of the business is that it entirely relies on external suppliers for their production process. This limits their control within the production line (Youell. 2012, 113). Albeit, H&M can claim a stipulated relationship with its suppliers, it does not have a round the clock command of them, hence cannot control a sudden change that depends on the supply chain reaction.

Opportunities

The global apparel retail industry is by itself the biggest opportunity for H&M. As of 2014, the market size for apparel was 1,317 billion dollars, hence the fashion industry provides an almost limitless potential market. In the contemporary, however, online shopping is fast becoming popular with consumers worldwide (Youell. 2012, 113). This is one opportunity for H&M that has provided them with a platform to market and retail their merchandize without almost zero limits in terms of physical boundaries.

Threats

AS stated earlier, the biggest threat for H&M competition and the unpredictable nature of trends and consumerism in the fashion industry.

Recommendations for Best Strategies for H&M Under the Safe Criteria.

SAFe is a criteria used to choose from the available strategic alternatives for a business whichever is the best (Beach & Mitchell. 1978, 439). The criterion of selecting the best alternative is based on suitability, acceptability, and feasibility of the strategic option. Suitability focuses on a strategy's capability to optimally utilize the organization's strengths, reduce weaknesses, and if it is line with the company's goals. According to Beach and Mitchell (1978, 444), acceptability of a SAF criteria model is based on a measure of return, risks, and investor reaction to a particular strategy. Returns on an investment, and the risk of losses due to failure of a strategy will result into stakeholders' reaction which will determine the acceptability of the strategy. Feasibility analysis is the ultimate stage in the SAF criteria model. It evaluates the whether the business has the relevant resources to implement the strategy by scanning the business for strengths and weaknesses.

For H&M, its strategies has worked to make the business renown in the fashion industry. However, these strategies can be remodeled through feasibility analysis. When the cotton prices and production costs rose in Asia, H&M experienced a reduction in margins putting its high fashion/ low price formula under scrutiny by investors (Regner, Yildiz. 2014, 576). The business model of H&M relies entirely on external suppliers for its operation. However, markets and business landscape are often marked with volatility and unpredictability in pricing. In a free market, it is possible that suppliers may opt for a rival business due to favorable terms or disproportionally adjust their prices in reaction to inflation. Given this, it is feasible in the long run that H&M reconstructs its supply chain model. It is better and financially for the business in the long run to own some of its supply line in order to guarantee consistency and pricing in its fashion retail.

References

Beach, L.R. and Mitchell, T.R., 1978. A contingency model for the selection of decision strategies. Academy of management review, 3(3), pp.439-449.

Porter, M.E., 2008. The five competitive forces that shape strategy. Harvard busine...