H & MH & M in fast fashion: continued

success?

Seminar in Public and Business Policies

Case Overview

• Case basically discusses the success of H & M.

• According to H & M the success is due to, best fashion items at bestprice.

• Above point was only possible because of best management of supplychain and policy of, to provide latest fashion at best prices.

• How policy of expansion implemented?

• Culture and other policies regarding management style, operationsand employees.

• Business Model of H & M and its competitors and how competitorsstrategies’ forced them to adopt a policy change.

Introduction of the Company• H&M stands for Hennes & Mauritz

• Multinational fast fashion company.

• Having 3500 stores, in 61 countries and 132,000 employees till March,2015, started from 1947 and pioneer in “fast fashion”.

• What is fast fashion?

• In 2009, the founder’s grandson Karl-Johan Persson joined as CEO andbecame had become the global leader in the ‘fast-fashion’ segment.

• In 2010, they stepped up investments in order to strengthen the brandfurther and secure future expansion, according to Karl-Johan Persson.

• Basic business model is ‘cheap-and-chic”,• Emphasis on high fashion at prices significantly below those of competitors, with

the fundamental principle, being ‘Fashion and quality at the best price’.

Products/Items Overview

• H&M deals in fashioned apparels, shoes, cosmetics of women, menand children and other home interior items etc.

• Company and brand success was because of heavy advertisements ofhigh profile stars.

• Making the brand attractive and loved to be affiliated by people.

• Advertisements and other related pictures on next slide, showing thispolicy.

• Major competitors are, Inditex Zara (Spanish brand), Gap, UNIQLO(Japanese brand).

• Inditex took over H&M in China, as well, but only in China.

Products/ Items Overview

Apparel Industry

• Total market size of the global textiles, apparel and luxury goodsmarket was worth $3049.5 billion in 2011.

• Annual compounding growth rate of 3.7% for the period of 2007 to2011, which is very less.

• Slow growth increases competition, which is further intensified dueto a large number of small players.

• Multitude of suppliers for retailers to choose from.

• As international trade liberalized, the number of suppliers globallyincreases and competition among manufacturers in low wage regionsintensifies. Switching from one supplier to another is not a majorissue.

Industry Analysis by Five Forces Model

• Generally bargaining power of suppliers isweak, as many suppliers are available tosupply in different countries and registeredwith them.

• Bargaining power of buyers is more, there aremany competitors and they can switch toother brand easily.

• Threat of substitutes is also very high.

• Industry rivalry is some sort of high, asindustry growth is low, and even one newentrant disturbs it.

H&M’s Core Values

1. Keep it simple,

2. Straightforward and open-minded

3. Constant improvement,

4. Entrepreneurial spirit

5. Cost conscious

6. Team work

7. Belief in people.

• H&M spirit is the extraordinary focuson employee involvement.

• Trying new things is also encouragedamong purchasing managers

• But while trying something new andmaking mistakes is OK it is importantthat the same mistake is notrepeated.

• Experimentation is also present at thestore level where interior decoration,lighting, colors, clothes displays.

• Locations are swiftly changeddepending on sales and customerpreferences.

Business Model of H&M

• Retailer of fashion apparel, cosmetics, accessories and shoes forwomen, men, teenagers and children.

• H&M operates from leased store premises, through internet andcatalogue sales and some franchise stores.

• H&M not owns any factory, in fact outsourced to suppliers/factories.

• 10-15 % growth target.

• Designs are created by 140 in-house designers.

Business Model of H&M

• Having stores like,• The Collection of Style (COS) offers customers a combination of timelessness

and distinctive trends.

• The Monki stores provide innovative collections and an inspiring fashionexperience characterized by playfulness and colorful graphic design.

• Weekday, The Cheap Monday, & Other Stories are other segments or brandpositioning of franchises.

Management Policy and Style

• Based on,

• simplicity,

• a down-to earth approach,

• entrepreneurship,

• team spirit, straight lines,

• common sense and

• a belief in individuals and their ability to use their initiative.

Business Model of Inditex (ZARA)

• In-house design and a tightly controlled factory and distributionnetwork.

• Company has the ability to take a design from drawing board to storeshelf in just two weeks.

• Giving ability to launch new items every week, so people keepvisiting.

• Has a policy of zero advertising and instead invests its revenues inopening up new stores.

• Having brands like Kiddy’s Class stores, The Pull and Bear, MassimoDutti, etc.

Business Model of UNIQLO

• Established a business model encompassing all stages of the business– from design and production to final sale.

• Competing by developing unique products.

• Quickly makes adjustments to production to reflect the latest salesenvironment and minimize store-operation costs, such as personnelcosts and rent.

• High-quality clothing at reasonable prices.

• Operates normally under its own name.

Comparative Analysis on Key FiguresH&M Inditex UNIQLO

3500 stores. 2000 stores. 848 stores.

132,000 employees. 80,000 employees. 80, 000 employees.

61 countries. 74 countries. 25 countries.

More than $16, 137 million revenue.

$ 17,159 million revenue. $ 7835 million revenue.

Net Income of $ 2, 880 million. Net Income of $ 2, 372 million. Net Income of $ 688 million.

Financial Comparative Analysis, Current Ratio, Profit Margin for 2012

SWOT Analysis

• Strengths• In-house designers.

• Outsourcing of production, so finding cheap.

• Quick adjustment to latest trends.

• Better prices than competitors.

• Weaknesses• Weak policies regarding catering new entrants.

• Opportunities• More opportunity to open stores, in middle east and pacific asia, as well as ,

south asia.

SWOT Analysis

• Threats• Major threat, is rise in prices of cotton and forcing H&M to decrease profit

margins.

• Slow growth in industry, so competition is going to intense day by day.

• So, needs policy change to tackle it.

• Policy of expansion adopted, as other UNIQLO and Inditex increasingpresence day by day and hence profits.

Stores Operations and Management• Positions stores at best locations.

• Important communication channel H&M has with its customers.

• Always opts for renting store premises, which increases flexibility andadaptability.

• As, aligned with H&M values, decision making is decentralized andstore managers have considerable autonomy.

• Each manager works like entrepreneurs and authorized to takeindependent decisions, within overall guidelines, like one’s ownbusiness.

• Increases loyalty and commitment to the organization and motivatesthem as well.

Store Operations and Management

• Every two or three years a completely new interiors programme iscreated. To make it attractive for visit continuously.

• Both in windows and inside stores, are changed frequently.

• Consumers are continually attracted to visit the stores to keep upwith the latest collections.

Management of Marketing and Social Media

• H&M’s strong brand image is associated with value and stylishcollections.

• Highlighting the brand’s high level of awareness, H&M was ranked21st among the top 100 most valuable global brands according toInterbrand in 2011, with a brand value of $16.5 billion.• ZARA ranked 44th with $8 billion dollars.

• Gap ranked 84th with $ 4 billion dollars.

• Basic difference is created by huge advertisements campaigns, withhigh profile celebrities.

Management of Marketing and Social Media

• Has a strong presence on social media,• Facebook

• YouTube

• Instagram

• Google+

• Chinese social media like, Youku, Sina, Weibo.

• Updated on regular basis.

• Millions of H&M followers share ideas and opinions and get quickanswers to their queries.

• At its launch in August 2010, the iPhone app was the mostdownloaded application in almost all of H&M’s markets.

Policy and Management about Designs • Design is centralized at the Stockholm headquarters and includes a team of

almost 200 designers and about 100 pattern makers.

• Having direct contacts with factories around the globe.

• Centralization enables them to minimal time to market.

• Also, allows them to bank on latest trends and responding it.

• Much effort is put into researching and predicting emerging market trends.

• They conduct customer and employees surveys, focus groups and dialoguesession, then adding some their own taste, to make a new entry in market(design).

• Fashion shows in Milan, Paris, Beijing, Tokyo and inspiration fromcelebrities are important source of designs.

Policy and Management about Designs

According to Ann-Sofi e Johansson, head

of H&M design department:

‘We try to look out for trendsetters,

what’s popping, vintage looks, what’s happening at

music festivals. The Internet is getting more important as

are catwalk shows, but these are more of a confirmation of

what we know is out there.’

Policy and Management about Designs

• So, H&M is a fashion house in its own right, with its own trends. “Wedo not copy”.

• H&M tries to keep unique personality in every country by addingsome own touch.

• Some are same worldwide, so giving advantage of economies of scalein production.

Outsourcing Policy and Management• All the production is outsourced to factories in Africa, Pacific Asia and

Middle East.

• Most of the products are made in China.

• Continuously redefines the supply chain, operations systems andguidelines to increase efficiency.

• This way, H&M has been able to reduce lead times by 15–20% inrecent years.

• Also forces production houses to follow their CSR policies.

• H&M conducted a total of 2,024 annual audits of suppliers, of which78% were unannounced.• For quality assurance and

• CSR polices check.

Management of Distribution, Warehousing and IT

• H&M makes sure not to place orders too early. So, that if trendchanges, new designs can be placed.

• H&M puts more emphasis on economies of scale in its supply chainset-up compared to Zara, which focused on flexibility and speed.

• The shorter lead time is always not the best, the right lead time isbringing the price and quality into balance. “H&M ‘s Philosophy”.

• H&M offers products at cheap price than others, by avoiding middlemen, purchasing from low price markets like China, cost consciousand efficient distribution system.

Management of Distribution, Warehousing and IT

• Taking H&M’s mix of supply chain management, logistics and IT intoconsideration, the company is considered a world leader in theseareas,• Close coordination between procurement staff and production houses.

• Intelligent use of ICT tools.

• Purchasing flexibility decreased incredibly lead time.

• Improved logistics to have lightning fast turnaround speed of just 20 days.

• All the above points make H&M, a truly unique supply chaininnovator.

CSR Policy

• The company has formulated seven commitments called ‘H&MConscious Actions’.

• These include,• Adopting ethical practices,

• Improving working conditions,

• Using natural resources responsibly,

• Other projects include community investments.

Human Resource Management at H&M• Key of the recipe is, a strong corporate culture with well defined

values and making sure that, employees internalize these values.

• Use formal training programs as well as on-the-job training tosocialize employees into this culture.

• Internal promotion and job rotation are two main things also.• Based on commitment, loyalty and regarded as well.

• There is alignment between individual goals and corporate goals, as

“The key words for continual growth are responsibility

and commitment………..I tell employees, if you do not grow, neither will H&M.” (Head of HRM, once said)

• Basic policy of HRM department is, “We believe in people”.

Human Resource Management at H&M

• Basic policy of HRM department is, “We believe in people”.

• Open-door policy is also great contributor to success of H&M. As,employees can directly discuss any matter with management.

• H&M values personal qualities much more than formal qualifications.

• In sum, H&M likes employees,• Who are self driven,

• Like responsibility,

• Decision making and

• Capable of leading.

Internationalization and Expansion Policy and Management

• Fashionable and elegant clothes at competitive prices and catering forthe dynamic tastes and preferences of customers are main drivers ofsuccess.

• Since, 1990, the expansion policy has been aggressive.

• After 2005, H&M entered 20 countries with more than 1000 stores.

• H&M’s strategy is to recruit local people wherever it opens a newstore.

• H&M looks for those who have the ‘right’ personality and potential tounderstand and adopt the core values of the organization.

Internationalization and Expansion Policy and Management

• Replicating the same business model and store concept thus definesthe core of the company’s expansion strategy.

• Before opening a new store, first conducts a thorough evaluation ofmarket potential.

• This is done according to factors like demographic structure,purchasing power, economic growth, infrastructure and political risk.

• H&M tries to keep minimum formal rules and works in flatmanagement hierarchy, in every country.

• Simple business model universally and making subtle modificationsand adaptations at the local level.

Internationalization and Expansion Policy and Management

• H&M is really a success story, as many stores initially expandedinternationally, but later badly failed like Mark & Spencer, C&A andBenetton.

• All success is because of fashion at price less than competitors.

• H&M strives to continue this strategy and expand more and morethan competitors and cater new entrants as well.

Our Policy Change Recommendations

• They should focus more actively on supply chain management, instead of expansion, so that cost can be managed, decreased.

• Connect with cotton producing countries or producers, so that cotton can be available at desired price.• As CEO H&M met with Bangladesh trade minister and requested to regulate

industry, but our recommendation is to do more actively.

• They should come to south Asian countries as well, like in Pakistan ChenOne, Charcoal etc. are generating well profit with high margins.

• South Asian countries are cotton producing countries, so that selling in this market by purchasing from local suppliers will give high margin.

Cream of Case Study

• Attractive fashion and designs, good quality at prices less than competitors.

• Flat Management and employees run store like their own. Gives sense of ownership.

• Value employees.

All above are main factors, contributing to H&M’s success.

Conclusion

• H&M is a great success, from 1 store in 1947, to more than 3500

stores in 2015.

• All, is because of trust in its employees and management.

• Good management throughout the supply chain.

• Quickly reacting to market trends.