The fashion industry is rapidly adopting runway designs and making them available in mainstream stores, resulting in intense competition within a market controlled by a few players. The industry’s ability to quickly supply products allows competitors to frequently adjust their strategies based on consumer behavior trends. Hennes & Mauritz is a leading competitor among fast fashion retailers, with a strong global presence in 38 countries and a turnover of $127 billion in 2010. However, the company still faces obstacles that prevent growth and even maintaining market share.
Predominantly, H&M utilizes a market penetration growth strategy. However, the company also employs product development by introducing exclusive apparel collaborations with iconic designers. Additionally, H&M adopts a diversification strategy by introducing new products targeting new markets, such as their home ware line. H&M’s target market includes individuals aged 15-40 years who are interested in fashion, beauty, and trendy clothing. Moreover, H&M caters to children’s wear, cosmetics, and home ware assortments.
The company recognizes that the most profitable and desired demographic in its market comprises of females aged 15 to 25. H&M caters to two types of customers: those who shop out of need and those who are fashion enthusiasts, seeking validation from others regarding their clothing and appearance for self-identity. To achieve this, the company offers a diverse range of products that meet the expectations of both types of shoppers in terms of excellence, style, and affordability. H&M’s mission statement is simple: “delivering quality and fashion at the most competitive price” as a strategy to gain a competitive advantage.
Due to the current economic influences, this strategy has been more successful. The recession has affected UK households’ disposable income, particularly in H&M’s target market. As a result of financial hardship, many consumers now prefer value retailers and plan to keep buying cheaper products even when the national economy gets better. To avoid raising prices, H&M has effectively outsourced production and controlled costs while dealing with the impact of higher VAT on profitability.
Furthermore, H&M has crafted a successful advertising approach by creating campaigns that showcase the latest season’s designs and prices through various mediums such as television, magazines, posters, and endorsements. However, there are areas where the company can enhance their performance. These areas include increasing responsiveness in less successful segments like men’s clothing, and improving product awareness and consumer loyalty, as identified in the Mintel 2011 report.
Fast fashion is the predominant approach to clothing retail on the high street. It involves quickly bringing designs from the catwalk to the store in order to capture current trends and cater to changing consumer preferences. This strategy, known as “quick response,” originated in the USA and relies on responsive manufacturing capabilities and a highly efficient design team to capitalize on evolving trends and meet consumer demands. H&M, Zara, and Top Shop are major players in the fast fashion market.
The first component of a fast fashion system is the short production and distribution lead times, which are necessary to match fluctuating demand with supply. These lead times are achieved through localised production, inventory monitoring technology, and expected distribution methods. Inditex, the owner of Zara and the world’s largest clothing retailer, delivers new products to its stores twice a week. In comparison, H&M takes three weeks to design, manufacture, and distribute new products (Cachon and Swinney2011).
The product design component of the fast fashion system is accelerated by thoroughly analyzing consumer behavior and industry trends. This analysis helps to identify unforeseen trends and minimize lead times. For instance, Benetton has a team of “trend spotters” and designers in Europe and Asia who monitor market movements and closely follow popular fashion shows.
PEST analysis is a valuable tool for evaluating external factors that impact a company’s performance and tracking trends in the external environment (Kotler and Armstrong, 2010). It includes Political, Economic, Social, and Technical factors. Politics greatly influence business in the UK and play a crucial role in shaping business strategies. Ignoring political factors can lead to profit loss and hinder the adoption of the optimal market strategy (Simkin et al., 2006). For example, the increase in the standard rate of VAT from 17.5% to 20% in 2011, as part of government efforts to reduce deficits, had significant implications for company pricing and cost strategies.
The European Union Law Registration, Evaluation and Authorisation of Chemicals (REACH) is the legislation that has the greatest impact on the European market. It regulates the importation of goods that contain chemical substances. According to Kotler and Armstrong (2008), changes in economic variables, such as income, cost of living, and interest rates, will influence the market. A BBC report from June 2011 reveals that high energy prices and living costs have led to a decrease in consumer spending. Clothing retailers have also suffered from reduced profits due to increasing costs of raw materials like cotton and wage inflation in Asia. Mintel’s report states that H&M saw a 15% decline in profits, which can be attributed to the decrease in disposable income among consumers (Monk, 2011).
The report indicates that 51% of consumers are not inclined to spend money on clothing. According to Kotabe and Czinkota (2001), consumer spending is primarily influenced by future expectations and income level. This becomes evident in situations where inflation rates increase while salaries remain stagnant, resulting in individuals having to reduce their expenditures. Given this scenario, it is probable that H&M will experience additional decreases in profit, especially since George Osborne, the Chancellor of the Exchequer, has predicted another economic downturn in the UK. 4. 3. Social Factors
According to Simkin et al (2006), companies should consider social factors when developing strategy to improve consumer relations and profitability. It has been observed that the public’s concern for companies’ ethical behavior and Corporate Social Responsibility has increased. This shift in focus is evident in companies like H&M, which now prioritize environmental and social issues such as child labor, wages, recycling, and social development projects. The aging population in the UK is expected to impact the needs and demands of the public, necessitating changes in company strategy to ensure profitability.
The disadvantage of this is that numerous competitors enter the market specializing in production processes, which attract customers due to their quality and uniqueness. An example of this is Zara, the closest competitor to H&M, which is highly vertically integrated. It operates its own manufacturing facilities and produces a limited range of goods. This allows Zara to have complete control over its manufacturing process and enables it to quickly respond to market trends. However, H&M sometimes lacks quality assurance because it indirectly controls production. Consequently, other competitors are preferred over H&M.
H&M’s outbound logistics have a longer lead time compared to Zara. For fashion sensitive garments, it takes H&M an average of two weeks, while for more basic garments, it can take up to six months. H&M’s 2003 annual report agrees that the right lead time should bring price and quality into balance, stating that “short lead time is not always the best.” To accommodate the immediate sale of mass-produced products, H&M stores excess inventory in warehouses for availability upon request or when orders are placed.
H&M operates distribution centres in every continent, housing its production offices. Nevertheless, due to fierce competition and rapidly shifting market trends, its products swiftly become unpopular. Consequently, H&M resorts to selling these products at discounted prices and utilizing various promotional actions.
