Fashion And Quality At The Best Price

By: Haji Mahmud Haji Mohamed, 011774 Fahad Ramzan, 012279 Ng Kok Kheing, 012163 Murtaza Amin, 012213 Trishakti J.B. Rana, 012016

The Analysis Process

objectives Reviewing H&Ms strategy to increase market share in the fast fashion retailing industry
Background External Analysis Internal Analysis Competency & Strategy Conclusion

Background
Background External Analysis Internal Analysis Competency Strategy Conclusion

key milestones

H&M

1947
Hennes women clothing started in Sweden

Listed in Stockholm
Stock Exchange

1976
First Overseas Store:

eCommerce

1968
Acquired Mauritz Widforss

1974

London

1998

Global Presence
Continues...

H&M is created

2000 2006 2007

United States

Middle East

Asia

H&M
in figures

2011

43 countries 2,472 stores 94,000 employees

Sales including VAT SEK

129 billion
15.8 billion 7th ranked

Profit after tax SEK

Global Fashion Goods Retailer

External

Analysis
Background External Analysis Internal Analysis Competency Strategy Conclusion

Porters 5 Forces Industrial Analysis

SUPPLIERS [MODERATE]
Many Outsourced Apparel Manufacturers Many raw material (cotton, fabrics) suppliers

POTENTIAL ENTRANTS [LOW]

Current Manufacturing Supplier Forward Integration (Know-How, Resource) however branding mitigate threat of market share Low barrier of entry for low scale local market however distribution network and economies of scale mitigate global threat

INDUSTRY COMPETITORS [HIGH]

Many Companies Global reach many incumbents Little product differentiation Diversity of product range of competitors Medium brand loyalty Fashion trends and cost based Matured market knowledge Matured distribution channels

SUBSTITUTES [LOW]
Custom tailor made alternative Counterfeits products

BUYERS [MODERATE]
No switching cost Many customers mitigated with many companies Ease of information for trends, pricing Low product differentiation

Competitive

Strategies
Background External Analysis Internal Analysis Competency Strategy Conclusion

Competition Landscape
key matrixes
3000 2500 2000 1500 1000 500 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011

Revenues
20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 -

Number Of Stores

Legend Inditex H&M GAP

Profits
3,000.0
2,500.0 2,000.0 1,500.0 1,000.0 500.0 2007 2008 2009 2010 2011

Revenue Per Store

12.00

Reducing Profits And Slowing Revenue Growth

10.00
8.00 6.00 4.00 2.00 0.00 2007 2008 2009 2010 2011

Reducing Rev Per Store As Store Increases

H&M Current Strategy

Europe: Focus Market: UK 213 Stores, SEK 37.2m/Store 81% Stores, 83.5% Total Revenue Dependency On Germany 22.9% Total Revenue Internet Retailing 8 Countries China: Focus Market 82 Stores SEK40m/Store

United States: Focus Market 233 Stores SEK 39.5m/Store Middle East: Franchise arrangements South East Asia: Thailand, Indonesia and Malaysia as a follow up to Singapores Success

Globally 10% - 15% New Stores Annually 90% High Income Profile Countries Market Segmentation With 5 Brands Work With Famous Fashion House & Personalities

Proposed Competitive Strategy

Gen-Y Focus Marketing Re-Examine Franchise Model Expand e-Commerce Markets Relook Market Expansion Plans

Relook Market Expansion Plans

Global Middle Income Group Composition By Region

Shift Regional Focus

Less Dependency On Europe Sovereign Debt Euro & US MIG Downward Trend Asia Pacific MIG Doubles Central South America Unexplored Market 28%

2% 6%

18%

2%5% 10% 22%

2009
36% 10%

54%

2020

8%

RPS SEK (m)

120
100

Store Units
250
200 150 100 50 0 Rev Per Store Total Stores

Market Expansion Selection

US, UK Low RPS Yield Sub SEK 40m Possible Store Saturation: >200 Suggested Markets: Japan, South Korea and Russia

80 60 40 20 0

North United Japan America Kingdom

South Korea

Russia

Relook Market Expansion Plans

New Zealand

Opening New Markets

Pioneering Into NZ and Taiwan No Zara presence Follow Zara Into Australia

87% urban population HI GNI USD 29,350 36% gini co-efficient Gen-Y Population 15%
Taiwan

81% urban population HI GNI USD 22,900 33% gini co-efficient Gen-Y Population 11% 89% urban population HI GNI USD 46,200 31% gini co-efficient Gen-Y Population 14%
Indonesia

Monitor Lower Middle Income Experiment

Indonesia Other Potential: Philippines

Australia

54% urban population LMI GNI USD 2,940 37% gini co-efficient Gen-Y Population 18%

E-Commerce & Franchise Models

Expand e-Commerce Markets
E-Commerce Contribution: Zara 7% (2014), GAP (8%)
Target France, Japan and South Korea Mechanism to enter new market Mobile Payment Increasing in APAC

120.0 100.0

104.0

Franchise Model Review

Lowest RPS @ SEK 17m compared mean of SEK 44.50 1.1% of Total Revenue

80.0 60.0 40.0 20.0 0.0

Mean SEK 44.50m

17.6

Gen-Y Focus Marketing

How much shopping behaviour has changed due to economy
7% 9% 19% 8% 20% 5% 20% 9% Significantly 21% 26% Somewhat Not at all Not very much 38% 47% 38% 38% 36%

Gen-Y Focus Marketing

Gen-Y More Resilient To Economic Situation Marketing & Branding With Celebrities Collaboration For Gen-Y

34% All Shoppers

25%
Gen Y

36% Gen X

37% Baby Boomers

29% Seniors

Gen Y: Shoppers born 1982 to 2000 Gen X: Shoppers born 1965 to 1981 Baby Boomers: Shoppers born 1946 to 1964 Seniors: Shoppers born prior to 1946

Source: Retail Forward ShopperScape TM, October 2009

Supplier

Strategies
Background External Analysis Internal Analysis Competency Strategy Conclusion

H&M Current Supply Chain

Largest organic cotton customers
>700 Outsources Suppliers Asia & Europe Quality Control: Training & Audit CSR Activities Finished clothing shipped to central storage in Germany Mostly via Sea

Internal Designers and collaborations

Self Owned or Franchise Stores

Goods shipped to Regional centres for distribution

Proposed Supplier Strategies

Raw Material Alternatives Production Cost Controls

Enhanced Distribution Routing

Enhanced Distribution Routing

Speed To Market Currently Takes 15 Weeks To Deliver (vs. Zara@4 weeks)

Enhanced Distribution Routing

Speed To Market Create Multiple Regional Distribution Centres China and North America Reduce Distribution Time Frame A Few Weeks Shipping Cost Reduction Possible

Production Cost Controls

H&M Operating Margin
25% 20% 15% 10%
23.5% 22.7% 21.3% 18.5% 22.7%

Increasing Cost Of Production

Chinas Cost Of Production Getting Higher Look For

5% 0% 2007 2008 2009 2010 2011

Labour Costs

Rental Costs

Fixed Costs

Alternative Location
Proposed: Vietnam Distribution Costs Reduction With Regional Distribution In Line With Asia Pacific Strategy established

Textile Cluster

Labour cheap and experienced heavy FDI investment Ports proximity developed Infrastructure Vietnam

Raw Material Efficiency & Alternatives

Cotton Price(USD)
250 200 150

Increasing Cost Of Raw Materials

H&M Highest Organic Cotton Customer Look At Production Efficiency At Outsources Partners Reduce Wastage Look At Alternatives Such As Organic Hemp

100

Extreme Rise in Cotton Prices

50
0 2006 2007 2008 2009 2010 2011 Year

Organic Hemp Sustainable material costs lower by 80%

Internal

Analysis
Background External Analysis Internal Analysis Competency Strategy Conclusion

H&M Resource Based View

resources

H&M
Intangible Resources
Human Resources
94,000 Employees Work Rotation To Share Working Culture

Innovation Resources
50 Pattern Designers 100 Designers 100 Buyers External Fashion House Collaboration

Reputational Resources
Strong Brand Value 60% Higher Than Industrial Average Rated 23 (vs Zara 37) Global Brand Ranking

Tangible Resources

Financial Resources
Profitable Company ROE 35.8% vs Zara 28% ROCE 47.1% vs Zara 37%

Organisational Resources
Large Distribution Network 20-30 Distribution Offices Regionally

Physical Resources
750 Outsourced Manufacturer Central Distribution Warehouse In Germany

Technological Resources
Online Shopping System IT System For Logistics, Sales Tracking and Stocks

H&M Resource Based View

competencies
RESOURCES Financial Organisational Physical Technological Human Innovation Reputational
Valuable Rare Costly To Imitate Properly Organisation

Sustained Competitive Advantage Temporary Advantage Sustained Competitive Advantage Competitive Parity Competitive Parity Competitive Parity Sustained Competitive Advantage

Competency

Strategy
Background External Analysis Internal Analysis Competency Strategy Conclusion

Competency Strategy
External Strategies
Review Market Expansion Plans

Internal Resources
Financial Financial

Internal Strategies
Existing: Strong Financial Ability To Support Required Strategies No Specific Action Required

Review Franchise Model

Organisational

Increase e-Commerce & m-Commerce

Physical

Gen-Y Focus Marketing

Technological

Enhanced Distribution Routing

Human

Innovation
Production Cost Controls

Reputational
Raw Material Alternatives

Competency Strategy
External Strategies
1Review Market Expansion Plans

Internal Resources
Financial

Internal Strategies

Review Franchise Model

Organisational

New: Structure to support multiple warehouse sites Existing: Franchise model structure

Increase e-Commerce & m-Commerce

Physical

Gen-Y Focus Marketing

Technological

Enhanced Distribution Routing

Human

Innovation
Production Cost Controls

Reputational
Raw Material Alternatives

Competency Strategy
External Strategies
Review Market Expansion Plans

Internal Resources
Financial

Internal Strategies

Review Franchise Model

Organisational

Increase e-Commerce & m-Commerce

Physical Physical

New: Building Of More Plants, Properties and equipment

Gen-Y Focus Marketing

Technological

Enhanced Distribution Routing

Human

Innovation
Production Cost Controls

Reputational
Raw Material Alternatives

Competency Strategy
External Strategies
Review Market Expansion Plans

Internal Resources
Financial

Internal Strategies

Review Franchise Model

Organisational

Increase e-Commerce & m-Commerce

Physical

Gen-Y Focus Marketing

Technological

Enhanced Distribution Routing

Human

New: Social Networking Sites Capabilities And Support m-Commerce capabilities Existing: e-Commerce currently running

Innovation
Production Cost Controls

Reputational
Raw Material Alternatives

Competency Strategy
External Strategies
Review Market Expansion Plans

Internal Resources
Financial

Internal Strategies

Review Franchise Model

Organisational

Increase e-Commerce & m-Commerce

Physical

Gen-Y Focus Marketing

Technological

Enhanced Distribution Routing

Human Human

Innovation
Production Cost Controls

New: Personal Clothing Labels For Internal Designers Recruitment Of Young Talents From Design Competition Existing: Successful HR Management With Increased By 7,000

Reputational
Raw Material Alternatives

Competency Strategy
External Strategies
Review Market Expansion Plans

Internal Resources
Financial

Internal Strategies

Review Franchise Model

Organisational

Increase e-Commerce & m-Commerce

Physical

Gen-Y Focus Marketing

Technological

Enhanced Distribution Routing

Human

Innovation Innovation
Production Cost Controls

New: R&D Into Design Using Alternative Materials

Reputational
Raw Material Alternatives

Competency Strategy
External Strategies
Review Market Expansion Plans

Internal Resources
Financial

Internal Strategies

Review Franchise Model

Organisational

Increase e-Commerce & m-Commerce

Physical

Gen-Y Focus Marketing

Technological

Enhanced Distribution Routing

Human

Innovation
Production Cost Controls

New: Using Local Celebrities Existing: Using Famous Fashion House & Celebrities

Reputational Reputational
Raw Material Alternatives

Conclusion
Analysis Objective:
Reviewing H&Ms strategy to increase market share in the fast fashion retailing industry

Competitive Strategies

Supply Chain Strategies

Internal Resources Strategies

The END