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Introduction of Strategy, Enterprise, And Innovation at H&M Case Study
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This report will discuss the internal environment of H&M. H&M a multinational clothing company established in 1947. The report will make use of SWOT analysis to define the strengths, weaknesses, opportunities and threats of H&M. The report will analyse the company's internal resources and capabilities by using SWOT analysis. This report will also use PESTLE analysis to show the impact of changes in the external environment on H&M. This report will shed light on how the political, social, legal and other factors can affect the business activities. This report will evaluate the effect of competitive forces on H&M. The report will show how the entry of new participants in the market, bargaining power of suppliers, bargaining power of buyers, number of competitors and number of substitutes in the market can affect the functioning of H&M. This report will also shed light on how the above-mentioned factors and forces can affect the profitability of the company.
Critical analysis of internal resources and capabilities of H&M
The internal environment plays a very important role in the development and growth of a company. Analysis of the internal environment of a company can be done by conducting a SWOT analysis. SWOT analysis shows how a company can use its strength and opportunities to gain competitive advantages and try to mitigate its weakness and threats.
However, a SWOT analysis of H&M will be conducted in the following to show how a company can capitalize on its strengths and try to come over the different weaknesses and threats that the company is facing.
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Strengths of H&M
i. Variety of products- There exist a large range of product. H&M initially started its business with women's clothes only. However, it has extended its ambit and now deals in cosmetics, shoes, accessories and many more items (MOMIN, 2021).
ii. Diversified global presence- H&M have an extensive market reach. There are 5,076 stores of H&M in 74 countries across 6 continents. Apart from physical stores, H&M has a strong online presence. Its online stores are also spread over a large area.
iii. Effective pricing strategies- H&M uses fast fashion models that ensure cost-effectiveness by supplying a product at a cheaper price without compromising its quality. This helps the company to provide a quality product at a price less than its competitors.
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Weakness of H&M
i. Dependence on outsourcing- H&M is highly dependent on independent suppliers. The company takes supplies from over 900 independent suppliers. This may cause uncertainty in business as the company has no control over the production.
ii. Controversy- The brand is always blamed for copying the design of other designers. Products of H&M were also boycotted worldwide in 2018 when it sold a hoodie with a black kid as its model. It used the phrase "Coolest Monkey in the Jungle" which was criticised by people worldwide.
iii. Uninspired fashion- Company is always dependent on large designer companies. Therefore, the company does not produce any unique design of its own. H&M adds new and radical designs in their collection rather than following the current fashion trends.
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Opportunities of H&M
i. Increase in demand- There is an increase in the demand by consumers due to the increases in their purchasing power. People are becoming brand conscious and are buying branded clothes and accessories. H&M can use this as an opportunity.
ii. Expansion plans- The brand is opening new stories. H&M is expanding its territory. This is an opportunity for the brand as it will increase the number of customers. Their sales will increase and thus it will help in greater revenue generation (Duoyan, 2021).
iii. Mergers and acquisitions- H&M can make use of mergers and acquisitions to capture and enter new markets. This will be an opportunity for H&M.
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Threats of H&M
i. Competition- There is a surge in the number of competitors in the fashion industry. This is creating pressure on the brand as the company has to try hard to cope with changing trends and dynamics of the market in order to retain its customers.
ii. Rise in labour cost- Labour costs are increasing in developed countries. This is a threat for H&M as this will increase their cost of production. An increase in cost will automatically lead to a reduction in the profit margin of the company (Bhasin, 2019).
iii. Worldwide pandemic- The outburst of a pandemic is a threat for the company as many physical stores the company are shut down and the sales of the company have also suffered. The company has to rely on its online stores for the sale of its products (Davis, 2022).
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Analysis of external environment of H&M
PESTLE analysis can be used to analyse the external environment of a company and it shows how those factors affect the decision making and the functioning of H&M.
Political factors
H&M operations over a diversified area with different political issues. The political problem of the nations also affects H&M. Turkey, Egypt and Lebanon are the countries where H&M has set up the majority of its production units. The franchises of H&M have to suffer due to the unstable political environment of these nations. Each country has their own set of rules and policies that governs its international trade. H&M has to follow those rules and different requirements of that particular country in order to carry on trade.
Economic factor
The world business and economy have suffered a lot due to COVID-19. Due to the worldwide lockdown, around 80% of H&M's stores were shut down and the company has to bear a huge loss (Barnes, 2021). The loss was so huge because the brand has not made proper use of online selling. The sales of H&M also suffered due to Brexit. After the incident, the US had increased tax rates on imports making H&M's products costly for the people and thus decreasing the purchase of H&M products by them (ABDUL, 2021).
Social factors
Social factors highly influence the fashion industry. Now a day, people are becoming brand conscious. H&M takes their buying behaviour under consideration and tries to produce items that match their tastes. H&M uses social media and celebrities to create a buzz in the industry. It is always evident that consumers' tastes are highly influenced by the taste of fashion of their favourite celebrities. Therefore, they use celebrities to create influence. H&M has also helped women in Bangladesh who were affected by the pandemic (Kumbara, 2020).
Technological factors
Due to their busy schedules and social distancing norms, people prefer buying clothes from online stores. H&M has its own online site where it sells its products. This is very helpful for the company as it will help to increase its customers and its sales will not be affected badly even if its stores are closed due to COVID-19 protocols. They make use of artificial intelligence to design its merchandise and to measure consumer satisfaction.
Legal factors
There are many legal factors that lay a great influence on the company. The company was involved in many disputes in recent years. The brand was blamed for performing racial discrimination. Legal actions were also taken against the company for such activities. Hidden camera footage of the company also went viral where ethnic minorities were discriminated is some stores in Sweden (Jamshidi, 2019).
Environmental factors
Environmental factors greatly affect the demand for clothing and other merchandise of H&M. The company has to cope with changing weather and climatic conditions and has to do supply according. The textile industry is an industry that pollutes the environment the most. H&M takes measures so it can cause less pollution. They make use of environment-friendly materials and fabrics for their products.
Analysis of competitive forces within the industry (H&M Porters 5 forces)
There exist many competing factors in the industry that influence profitability and the activities of an organisation. Here, Porter's five forces analysis will be used to find out the different competitive forces that can cause positive as well as negative impacts on H&M. The factors are given below-
The threat of new entrants- H&M operates in the textile industry where one can only achieve cost advantage if it’s producing in a large capacity. Therefore, it's very difficult for the new entrants to achieve that level of production. Their cost of production will be higher. This will reduce their profit margin and make their survival in the market difficult. Therefore, the entry of new competitors into the market is a bit difficult (Ullah, 2021).
The capital requirement in this industry is also very high. Huge capital investment is required to do market research and analyse consumers' behaviour. Therefore, this can be a constraining factor in the entry of new forces into the market. Though there are so many barriers in the market, new brands and companies are entering the textile industry in order to capture the market.
Bargaining power of suppliers- The suppliers play a vital role in the operation of H&M. H&M is highly dependent on outsourcing. They take supplies from many local suppliers. They take supplies from more than 700 suppliers (Lu, 2020). Any change in the supply pattern of H&M will place the company in a tight position and it will face difficulty in meeting the demands of the consumers. There is also a high possibility that the suppliers can enter the market and the company has to compete with them. This will pose a great threat to the company. If the suppliers do not maintain the quality of their products the reputation of H&M will suffer.
Bargaining power of buyers- The buyers enjoy great control over the company. As there are a large number of buyers in the textile industry. They have the power to influence the price as well as the demand. There are many competitors in the market that strive to capture the customers. Therefore, it becomes very important for the company to maintain a good image among the buyers by maintaining quality control and making a timely supply to its customers. However, H&M already sells their products at a cheaper price than its competitors. This helps H&M to retain its customers for a longer period of time (Teoli, 2019).
Threats of substitutes- In the modern world, people always want newness in things. H&M does not follow fashion trend and do not produce innovative things. This increases the risk of being substituted. There are many brands in the market that goes with the latest trend and try to take consumers' preferences under consideration. They sell trendy clothes at a cheaper price in order to capture the market of H&M. Consumers can easily substitute H&M for those brands. Therefore, H&M should try to pay attention to this matter. They can try to make their merchandise unique so that it can attract customers and at the same time reduce the risk of getting substitutes.
Presence of Competitors- The textile market is very volatile and faces fierce competition. There is a large number of competitors that are giving tough competition to H&M. These brands provide trendy clothes at cheaper price (PARIETTI, 2021). Although H&M is a market leader, there are many brands that are emerging as strong companies in the textile market and are gaining the attention of consumers. This can create difficulties for H&M. The company should try to follow the market and fashion trends so that it can attract more consumers. This will help H&M to have a competitive advantage over its rivals.
Conclusions
This can be concluded that H&M is a leader in the textile industry. Though it has a large number of loyal customers, it has to take the necessary steps to retain them. It can be further concluded that H&M does not follow the market trend and are not innovative. This can cost them a lot. They can lose their customers to competitors. It is observed that H&M have lots of strengths that can be used to gain maximum benefits if it’s clubbed with its opportunities. It is further observed that the company is highly affected by political, social, economic, legal, technological and environmental factors. These lay a great influence on the workings patterns and decision-making abilities of H&M. It was evident that H&M faces fierce competition and there are many competitive forces in the industry that affects the company. It is also concluded that there is a large number of buyers in the textile market that can cause a negative as well as a positive impact on the company.
References
Books and Journals
Teoli, D., Sanvictores, T. and An, J., (2019). SWOT analysis.
Ullah, N., (2021). Fast-Fashion Labels Industry: Strategy Evaluation of H&M.
Jamshidi, M., (2019). Keeping Relationship in Physical Store in a Digital Era: a Study in H&M and Åhlens.
Kumbara, A., (2020). THE ANALYSIS OF PORTER'S FIVE FORCES IN LUCKY TEXTILE GROUP IN FACING THE COMPETITION OF TEXTILE INDUSTRY. Dinasti International Journal of Economics, Finance & Accounting, 1(3), pp.397-412.
Duoyan, H., (2021). April. Research on ZARA Strategy from the Perspective of SWOT Analysis Method. In 2021 6th International Conference on Social Sciences and Economic Development (ICSSED 2021) (pp. 201-205). Atlantis Press.’
Websites
ABDUL, 2021. H&M PESTLE Analysis 2021: Success is a Few Tweaks Away. [Online]
Available at: https://pestleanalysis.com/hm-pestle-analysis/
Barnes, O., 2021. H&M falls to loss as lockdowns force store closures. [Online]
Available at: https://www.ft.com/content/0e7c3f5a-ad14-4fea-aed3-a20d4015d503
Bhasin, H., 2019. SWOT Analysis of H&M. [Online]
Available at: https://www.marketing91.com/swot-analysis-hm/
Davis, A. N., 2022. H&M SWOT Analysis 2022: A Detailed Report!. [Online]
Available at: https://swothub.com/hm-swot-analysis/
Lu, C., 2020. H&M Supply Chain Strategy - Successful Retail Inventory Control. [Online]
Available at: https://www.tradegecko.com/blog/inventory-management/hm-retail-inventory-control
MOMIN, A., 2021. H&M SWOT Analysis: 7 Threats Hennes & Mauritz is Facing. [Online]
Available at: https://pestleanalysis.com/hm-swot-analysis/
PARIETTI, M., 2021. H&M vs. Zara vs. Uniqlo: What's the Difference?. [Online]
Available at: https://www.investopedia.com/articles/markets/120215/hm-vs-zara-vs-uniqlo-comparing-business-models.asp
