EB3803_Case Materials for Assessment 2 (Summer Semester 2021-22)

Case-Study – “H&M in fast fashion: continued success?”

Table 1: H&M and its multinational competitors (page 6-7)

Introduction
The apparel retailer H&M had made an incredible journey from a single store established by
the founder Erling Persson in Sweden in 1947 to a pioneering ‘fast-fashion’ business with
2,206 stores in 43 countries and 94,000 employees world-wide. ‘Fast-fashion’ refers to a quick
response to new trends and fashion items that are made available in stores immediately
thereafter. By the time Persson’s 34-year-old grandson Karl-Johan Persson took over as CEO
in 2009, H&M had become the global leader in the ‘fast-fashion’ segment with a distinctive
business approach that challenged most competitors. The business model, commonly
referred to as ‘cheap-and-chic’, emphasized high fashion at prices significantly below those of
competitors, with the fundamental principle being ‘Fashion and quality at the best price’.

H&M relentlessly continued to emphasize the long-term view in its expansion strategy. For
2013 H&M planned a net addition of 300 new stores with China, the USA and the UK expected
to be the largest growth markets. H&M also planned to enter new markets, including South
America (Chile and Mexico), Bulgaria, Lativia, Indonesia and Thailand.

The apparel industry

The total market size of the global textiles, apparel and luxury goods market was worth
$3049.5 billion in 2011, which corresponds to a compound annual growth rate of just 3.7% for
the period 2007-11. This slow growth increases competition, which is further intensified due
to a large number of small players; however, there are a number of large international
incumbents including Inditex (Zara), Gap and H&M, with Zara being H&M’s most significant
competitor. A somewhat smaller but new and vibrant player is the Japanese company UNIQLO,
which has started to expanded aggressively.

Entry to the retail industry does not require a large capital outlay; setting up a single
independent retail store is within the means of many entrepreneurs and there are plenty of
suppliers to choose from. However, on a global scale, a few large corporations account for a

1
EB3803_Case Materials for Assessment 2 (Summer Semester 2021-22)

major share of total industry revenues. Their size and economies of scale bring about the
ability to build brands in multiple retail outlets, and considerably greater buying power when
negotiating with suppliers.

Design
Design is centralized at the Stockholm headquarters and includes a team of almost 200
designers and about 100 pattern makers. The centralization of design allows for minimal time-
to-market and the design team has direct contact with the production offices around the
globe. This allows for a rapid-response manufacturing process to capitalize on design trends
immediately. The design team works intensively with new trends, materials and colors from
what is popularly known as the ‘White Room’ and is supported by the 50 production offices
around the world.

Much effort is put into researching and predicting emerging market trends. H&M designers
hold customer surveys, dialogue sessions and focus groups, and pick up trends from
employees in the global stores and then add their own particular features. They need to have
an up-to-the-minute fashion feedback focus and be conscious of the very latest trends.

Apart from size adjustments, for example in the Asian market, no special changes are made
to the collection to adapt to the needs in specific countries. H&M argues that: ‘It is important
that H&M keeps its own personality in each country, and fashion has become more global,
more international.’ Similar trends are appearing the world over. Of course, this is also driven
by economies of scale in buying and manufacturing.

Buying, local production offices and Corporate Social Responsibility (CSR)

H&M does not own any factories. Instead, manufacturing is primarily outsourced to low-cost
countries with approximately 70% of production in the Far East and South Asia and the
remainder in Africa, Europe and the Middle East. With the focus on economies of scale,
including low-wage and high-volume production, the company maintains low input costs and
often has the latest trends in its stores within a month of the initial design.

2
EB3803_Case Materials for Assessment 2 (Summer Semester 2021-22)

To reduce lead times, the 50 production offices are in direct contact with suppliers and report
back to central procurement in Stockholm. They mediate between the large network of
independent suppliers and the central purchasing office to identify the right suppliers to place
orders with, in order to optimize time and cost decisions and ensure that these decisions
follow H&M’s CSR policies. Each supplier owns or subcontracts multiple factories; globally,
1,652 factories were approved for making goods for H&M. H&M conducted a total of 2,024
annual audits of suppliers, of which 78% were unannounced. CSR has increased in importance
for H&M.

Store operations and management

The company always positions its stores in the very best locations, whether in a city or a small-
town shopping centre. This has been a firm principle of H&M’s since the first shop opened in
1947, and the principle is still strictly adhered to. The store is the most important
communication channel H&M has with its customers and it must be inviting and inspiring,
strengthening the brand and offering local customers the best possible shopping experience.

Instead of claiming full ownership of the property, H&M opts for renting store premises, which
increases flexibility and adaptability. By renting space, the company is able to adapt more
quickly to the changing demand patterns and location attraction in its key markets.

The window display – where the customer meets H&M – is perhaps the most important part
of the store. Guidelines for store design and display windows are created centrally based on
a large ‘test store’ in Stockholm. Although centrally guided, every store is unique as it
showcases different items in the window display, although they may come from the same
collection. Displays, both in windows and inside stores, are changed frequently. This way,
consumers are continually attracted to visit the stores to keep up with the latest collections.

In line with H&M values, decision making is decentralized and store managers have
considerable autonomy. The shop manager runs the business like an entrepreneur and is
authorized to take independent decisions within the overall guidelines, essentially like running
one’s own business. This increases employee loyalty and commitment to the organization and

3
EB3803_Case Materials for Assessment 2 (Summer Semester 2021-22)

is a great motivator.

Marketing and social media

H&M’s strong brand image is associated with value and stylish collections. In addition to 200
in-house designer collaborations with famous designers, there is a unique approach that has
been employed by H&M over the years. This includes the collections designed by Stella
McCartney in 2005, by avant-garde Dutch designers Viktor & Rolf in 2006, by Madonna in 2007,
by the Italian designer Roberto Cavalli and Kylie Minogue in 2007, by Sonia Rykiel in 2009, by
Versace in 2011 and by Italian fashion label Marni in 2012.

Highlighting the brand’s high level of awareness, H&M was ranked 21st among the top 100
most valuable global brands according to Interbrand in 2011, with a brand value of $16.5
billion. In comparison, Zara ranked 44th with US$8 billion, and Gap came in at number 84
with US$4 billion. This huge difference can partly be attributed to H&M’s long-term
advertising campaigns with high-profile celebrities. In order to enhance the value of its brand
name, H&M spends around 5% of its revenues on advertising.

In addition to conventional channels, H&M has also established a strong social media
presence. The company aims to become part of its customers’ daily lives through its pages on
Facebook, Twitter, Instagram, Google+ and YouTube as well as the Chinese social networks
Youku and Sina Weibo. Each network is updated on a regular basis. Through social media,
millions of H&M followers share ideas and opinions and get quick answers to their queries.
New fashion videos and reports are uploaded onto YouTube weekly and have already had
more than 15 million hits. Through the H&M apps customers can explore the latest collections
and campaigns, find out what’s new at H&M and locate stores. At its launch in August 2010,
the iPhone app was the most downloaded application in almost all of H&M’s markets.

The steps ahead

Looking forward to the coming years, H&M intends to host high-profile collaborations with
designers in various continents. Starting in the summer of 2018, H&M prepares to collaborate
with a number of up-and-coming Asian fashion designers, including Prabal Gurung, Thakoon

4
EB3803_Case Materials for Assessment 2 (Summer Semester 2021-22)

Panichgul and Jason Wu. The theme of African design will take turn in 2019, followed by
Scandinavian in 2020.

More than celebrity effect and boosting creativity, H&M anticipates to paying tribute to
regional cultures. Fashion is a reflection of culture. Fashion is also a universal language. H&M
plans to materialize different cultures in the global market.

Therefore, the advertising campaign is more important than ever. In addition to reinforcing
the brand image and informing customers about new collections, the campaign must be able
to showcase how H&M appreciates the Asian culture. It is a global statement. The audience
is, eventually, everyone on the planet.

Table 1: H&M and its multinational competitors (page 6-7)

The above is abridged from the case-study “H&M in fast fashion: continued success?”. The
full case is available in the book below.

Johnson, G., Whittington, R., Scholes, K., Angwin, D., & Régner, P. (2014). Exploring strategy:
Text and cases. (10th ed.). Harlow: Pearson. pp. 575 - 582.

5
 EB3803_Case Materials for Assessment 2 (Summer Semester 2021-22)

Table 1: H&M and its multinational competitors

Positioning and segments Business model Key figures
H&M H&M is a retailer of fashion apparel, The business is operated At the end of 2010, H&M
cosmetics, accessories and shoes for from lease store premises, had 2,206 stores which
women, men, teenagers and children. The through Internet and included 50 franchise
Collection of Style (COS) offers customers catalogue sales and some stores, 35 COS stores, 48
a combination of timelessness and franchise stores. H&M does Monki stores, 18 Weekday
distinctive trends, for both women and not own any factories. stores and one Cheap
men. The Monki stores provide innovative Production is outsourced to Monday store. The group
collections and an inspiring fashion independent suppliers. outsources product
experience characterized by playfulness H&M’s growth target is to manufacturing to 700
and colorful graphic design. Weekday sells increase the number of independent suppliers
its own brands but also commissions stores by 10-15% per year, through its 16 local
design collaborations with independent and at the same time production offices in Asia
fashion labels. The Cheap Monday stores increase sales in comparable and Europe. The company
combine influences from street fashion units. This growth is entirely employees more than
and subcultures with a catwalk vibe. The self-financed. The collections 94,000 people.
latest addition is the luxury store concept are created by 140 in-house
‘& Other Stories’. designers.
Inditex The flagship brand of the company is Zara. With an in-house design and Zara is present in 74
(Zara) Zara also operates Kiddy’s Class stores, a tightly controlled factory countries, with a network
which specialize in junior fashion. The Pull and distribution network, the of 1,608 stores located in
and Bear format offers casual clothing. It company has the ability to major cities throughout
caters primarily to young males and take a design from drawing the world. Pull and Bear
females and offers a range that starts from board to store shelf in just has opened 626 shops in
sophisticated urban fashions to casual two weeks. That enables the main streets and
wear. Bershka stores are large and Zara to launch new items shopping centers of 44
spacious. They are intended to be every week, which keeps countries. The Bershka
meeting points for street fashion, music customers coming back again sales format has 651 stores
and art. Massimo Dutti stores are located and again to check the latest in 44 countries. There are
in prime retail locations and offer basic, styles. The company also has currently 515 Stradivarius
contemporary styles in next-generation a policy of zero advertising stores in 37 countries.
fabrics including high-quality garments. and instead invests its There are currently 392
Stradivarius is aimed at young fashion- revenue in opening up new Oysho stores in 23
conscious customers, offering stores. countries.
international fashion with the latest
designs. Oysho offers fashion trends in

6
 EB3803_Case Materials for Assessment 2 (Summer Semester 2021-22)

women lingerie and undergarments.

Gap Under the Gap brand, the company offers The company operates The company sources
an extensive range of apparel at moderate through two segments: private-label merchandise
price points. Banana Republic was stores and direct sales. The from approximately 590
acquired by the company in n1983. This store segment includes the vendors and non-private-
brand offers sophisticated, fashionable results of the retail stores of label merchandise from
collections at higher price points than the each of the company’s approximately 430
Gap brand. The Old Navy brand was brands: Gap, Banana vendors. These vendors
launched in 1994 to address the market Republic, Old Navy and are spread across 50
for value-priced family apparel. The brand Athleta. The direct segment nations. The company
Athleta offers customers performance- includes the results of online operates over 3,200 stores
driven women’s sports and active apparel business for each of the worldwide, and has around
and footwear for a variety of activities. company’s web-based 132,000 employees.
brands.
UNIQLO The company is a retailer chain operator UNIQLO has established a UNIQLO Japan operated a
specializing in in-house designed casual SPA (Specialty store retailer network of 848 stores at
clothing for men and women. The of Private label Apparel) the end of 2012. UNIQLO
company operates stores under the name business model International had a total of
UNIQLO. The company is the leading encompassing all stages of 275 stores as of May 2012.
clothing retail chain in Japan in terms of the business – from design Of that total, 135 stores are
both sales and profits. UNIQLO is a and production to final sale. located in China, 16 in
member of Fast Retailing Group, which By continuously refining this Hong Kong, 75 in South
also operates other chain stores under the SPA model, UNIQLO Korea, 17 in Taiwan, 6 in
franchise names Theory (fashionable basic differentiates itself from the Singapore, 5 in Malaysia, 4
clothes that suits a contemporary competition by developing in Thailand, 10 in the
lifestyle), Comptoir des Cotonniers (the unique products. The United Kingdom, 2 in
brand nurtures a sense of natural company quickly makes France, 2 in Russia and 3 in
authenticity and flattering femininity), adjustments to production to the USA. UNIQLO has
Princesse tam.tam (corsetry, lounge wear reflect the latest sales around 70 partner
and swimwear brand), and G.U. (an environment and minimize factories, and roughly 75%
entirely new business model for a store-operation costs, such of UNIQLO products are
company offering extremely low-priced as personnel costs and rent. made in China.
clothing in the Japanese market). This is how UNIQLO provides
such high-quality clothing at
such reasonable prices.