University of Glamorgan
MSc Management
Module Name: Strategic Management
Assignment Number: 2
Submission Date: 12th January 2007

H&M Strategy

Laura Germer

I. Table of Content

I. Table of Content 2

1. Fashion Market 3

2. H&M 3

3. Business, Corporate and Network Level Strategy 4

4. Industry, Organisational and International Context 8
4.1 Industry 8
4.2 Organisational 9
4.3 International 10

5. Conclusion 11

II. Bibliography 12

III. Appendices 19
Appendix 1: Porter′s Fife Forces for the Fast-Fashion Industry 19
Appendix 2: Power/Interest Stakeholder Identification 19
Appendix 3: Generic Strategy: Maintaining Differentiation Position 20
Appendix 4: SBU Portfolio 21
Appendix 5: Value Chain for H&M 22

1. Fashion Market

Where not stated otherwise the information in the following sections is taken from Myers (2005).

The situation in the fashion retail market is tense and price is still the most important element in the marketing mix. Germany, Italy, the Netherlands and France are especially harsh markets, even though they yield lower revenues than the UK.

The entry of grocers into the clothing market and rising Asian imports increased the competition between clothing retailers. The trend for fast assortment change lingers and the value-for-money attitude has become acceptable. The Five Forces Analysis (see Appendix 1) reveals a competitive market environment in which month-on-month retail sales have been continuously falling in Europe since 2004 until the first quarter of 2006 (Datamonitor, 2006a).

2. H&M

Where not stated otherwise the information in the following sections is taken from the Datamonitor Report (2006a).

H&M is a Swedish clothing retail chain founded in 1947. Its product range includes women′s, teenagers′, children′s and men′s wear. Additionally, it sells sportswear, lingerie, cosmetics and accessories. The business focus is Europe. The biggest markets are Germany, Sweden, UK and Norway. H&M employs 34,600 persons and has 1,244 shops. H&M′s revenues in 2005 were $ 7,618 million, mostly earned in the shops.

H&M′s credo is to market fashionable clothes at an affordable price. The assortment ranges from fashion apparel to basic clothes, which are sold in full-range or concept stores. H&M sells only own brands. During the last three years H&M hired well-known designers for exclusive collections.

Clothing production is completely outsourced to 700 independent suppliers in Asia and Europe. All stores are rented. H&M in general does not franchise.

Only 18% of H&M shares are foreign-owned (H&M, 2006c) and the CEO Stefan Persson holds 69 % of the voting rights (H&M, 2005a)

H&M was the largest clothing retailer in Europe until 2004. It has been overtaken by Industria de Diseño Textil (Inditex) until 2006. This is mainly due to the faster expansion rate of Inditex, which has made H&M lose market share.

As a response H&M decided to open a premium-priced upmarket fashion chain for women in Germany, Belgium and the Netherlands. For the assignment it is assumed that the targeted age is above the age targeted by the current H&M stores, because mature women have a larger disposable income (Birtwistle & Tsim, 2005).

3. Business, Corporate and Network Level Strategy

According to De Wit & Meyer (2005) the two opposing concepts of organisational purpose are the shareholder value perspective and the stakeholder value perspective.

Organisational purpose springs from business values, beliefs and mission (De Wit & Meyer, 2005). H&M′s business values are based on the business concept (H&M, 2005a) and the stated mission describes a growth target only. This suggest a shareholder perspective is dominant at H&M.

The following facts confirm that: The H&M CR-program is criticized to be the application of minimum local legal requirements (H&M, 2005b) therefore it can be assumed to be response to negative press about child labour (H&M, 2006d, Anon, 2006). Furthermore, most of H&M′s competitors have a CR-Program as well, which makes it a hygiene factor (Herzberg, 1959). Furthermore, Erikson commented on profitability and strategy in the financial statement, but did not comment on the CR-Report. Based on this, the identification of key stakeholders was conducted in Appendix 2.

However, H&M does not pursue a strategy of profit maximisation as could be expected from this perspective, but as Erikson states "H&M′s strategy is to continue to grow whilst maintaining good profitability" (Datamonitor, 2006a, p22). This means, growth is the dominant organisational purpose, which can be explained by the fact that a major share is owned by the founding family (H&M, 2005a), who prefer long-term sustainability of investments to profit maximisation. This perspective relies on the assumption, that shareholding is an extension of the right to own private property (Mintz, 2005)

As Myers (2005) points out large scale fashion retailers, who operate mainly in the domestic market, as H&M does, struggle to grow. According to Karnani there are five ways to grow: increasing market share, entering new regions, integrating vertically, entering related industries or entering new industries. Since Inditex outperformed H&M in entering new regions and thereby increased market share, H&M opted for entering a related industry as a growth strategy. This is rather unconventional since most companies choose globalisation in order to grow (Karnani).

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