Business analysis

FINANCIAL ANALYSIS & FORECASTING| Joana Cardoso Fontes

 H&M business analysis

• Quick look on MARKETLINE: https://advantage.marketline.com/HomePage

Companies: H & M Hennes & Mauritz AB

• Firm:
– Designing and retailing of fashion apparel and accessories, under brands names such as H&M,
COS, Monki
– listed in Stockholm stock exchange
– 2019: 5.000 + stores in 50+ countries and internet sales in 50 + countries
– Europe and Africa represents more than 2/3 of revenues
– End of 2017: plan is to open 220 new stores worldwide (2014: 400 and start internet sales in 9
more countries)

• Competitor and peers:

– Largest international peer: Inditex, a Spain based firm listed on the Spanish exchange but
closely held by Ortega, with 7,475 stores in 96 countries and internet sales also in 49 countries;
Europe represents 65% of revenues
– European peers: French Connection (UK), Next (UK), Etam (France) and Charles Voegele
(Switzerland);
• much smaller with revenues between €0.25 and €5.32 billion;
• H&M and Inditex follow a fast fashion strategy whereas the others not;
• H&M and Inditex operate on global scale, whereas the peers focus in smaller group of countries

FINANCIAL ANALYSIS & FORECASTING| Joana Cardoso Fontes

 H&M business analysis

• H&M’s strategy: fast fashion retailing characterized by:

(i) trendy and affordable products;
(ii) quick response to changing trends using digital analytics to follow customers tastes and with short
production and lead times; high inventory turnover;

 H&M’s and Inditex core competencies and advantages

– In-house design: allows for continuous monitoring of customers’ preferences and anticipate new
fashion trends very quickly

– Competitive pricing: low price with cost efficiency;

• H&M: outsourcing production with self-operated production offices around the world;
• Inditex: less outsourcing and manages own production facilities; makes use of local suppliers and has one central
logistics center from where it ships products across world and has sophisticated inventory management system

– Brand identity: high customer awareness and customer loyalty

• H&M: high profile advertising campaigns and collaborations with star designers and celebrities; sustainable brand
being committed to social development in production countries and reducing environmental impact
• Inditex: does not advertise; brand awareness through presence and appeal of its stores

– Size and growth: growth strategy, expanding store network by 8-12% every year (H&M and Zara);
allows economies of scale in design, production/sourcing and advertising. Expansion to emerging
markets allows less dependency on saturated markets
• Low dependence on debt financing and high profitability provides financial flexibility to realize growth plans

FINANCIAL ANALYSIS & FORECASTING| Joana Cardoso Fontes

 H&M business analysis

Source: Marketline

FINANCIAL ANALYSIS & FORECASTING| Joana Cardoso Fontes

 H&M business analysis

 Risks: foreign exchange rate fluctuations, inflation in cotton prices, dependency on suppliers (H&M:
900) and competition from discount apparel retailers (Primark)
• to address this, H&M has introduced new brands and store concepts (eg: &OtherStories) and
sells its apparels under 8 different brands and varying price segments

Source: Marketline

FINANCIAL ANALYSIS & FORECASTING| Joana Cardoso Fontes

 H&M business analysis

• Industry:
– Apparel retail is a cyclical industry, function of consumer’s discretionary spending and varies with
economic cycles;
• industry growth rates were negatively affected by 2008’s credit crisis and European
sovereign debt crisis and picked up around 2015

– Factors contributing to industry’s profit potential :

• Moderate growth: expected future growth rate 4-5%; growth opportunities in emerging
markets and online sales segment:

• Pricing and supply chain management: price sensitive customers and increasing
competition from low-cost retailers  increase importance of inventory and supply chain
management to preserve margins

• Perishable nature of fashion: consumers’ fast changing tastes  production cycles need to
be efficient and short to avoid inventory markdowns or write offs

• Sourcing of production: outsourcing to low-cost labor markets to be price competitive 

quality control is key and more challenging, supply chain management is complicated and
reputational costs

• Private labels and specialty retailing: differentiation via branding (private label sales)

• Input prices: 2010-2011 cotton prices reached historical levels, but have reverted to normal
levels by end of 2014

FINANCIAL ANALYSIS & FORECASTING| Joana Cardoso Fontes