H&M has established itself as one of the top shopping retailers in the world, providing the most up-to-date designs and inspiration for a wide range of people. It has been in the industry for more than seven decades and has been growing globally since 1947. With affordable and sustainable apparel available to everyone, this brand has become the world’s go-to spot for a quick shopping fix.
However, from the beginning of 2018 to the present, H&M has been experiencing various issues and it has dropped down the rank of the world’s major clothing retailers. It manages to stay in business despite intense competition in the clothing-retail market. Production of various apparels for the market continues, and innovations are continually being created while attempting to compete globally with other companies.
The third chapter focuses on the analysis of the entity’s internal and external elements, often known as Situational Analysis. This chapter comprises a collection of methods that will be essential for H&M and is divided into two sections: the SWOT analysis and TOWS matrix table. By properly analyzing, understanding and interconnecting the different factors involved, it can provide an understanding of the risks and advantages that H&M have.
The First section is the SWOT analysis, it aids in the development of an entity’s strengths, the correction of its weaknesses, the minimization of risks, and the maximization of opportunities for success. It’s a framework that enables businesses in gaining visibility into their current state and understanding or measuring overall business performance. This is an essential framework that can be helpful when it comes to strategy development. In relation to SWOT analysis, TOWS matrix is its variant that categorizes the relationships between the found factors and selecting strategies on their bases. This is a chart where the strengths and weaknesses interconnect with the opportunities and threats.
SWOT Analysis
Strengths
S1: Strong online channels
Companies who accept and utilize the internet more effectively have a major edge in the digital age. H&M has a strong social media presence with a wide audience across a variety of platforms, which is funneled into eCommerce sales. In fact, H&M’s online sales account for 25-30% of total sales in established regions, and are expected to rise at a rate of 25% per year. As a result, H&M has a distinct strong online channel that link the digital and physical worlds to provide customers with a better shopping experience
S2: Community-Centered Approach
Putting the interests of communities first is a good strategy to establish a long-term business. H&M has closed its stores in the United States in support of demonstrators, and it is also focusing on assisting communities in Bangladesh affected by the virus.
S3: Wide range of Products
More customers are attracted by a wide range of products. The company’s unique brands including Cheap Monday, H&M Home, COS, & Other Stories, Monki, Weekday and ARKET provide a variety of products ranging from garments to cosmetics, shoes, boiled eggs, blankets, pots, candle holders, and more.
S4: Economic Friendly
Millennial buyers have shown a willingness to pay more for sustainable products rather than supporting fast fashion firms across the country. The growing evidence of ecological damage have changed the mindset of consumers hence they prioritize organic and eco-friendly products. The H&M Group ranked first in the usage of organic cotton, they particularly used organic, recycled, and cottons that are sourced through the Better Cotton Initiative. They are also expecting to attain their mission to source raw materials in a more sustainable way as they will process their products in a way that will reduce greenhouse gas emissions. The company is expecting to bring their entire value chain as climate positive by year 2040.
S5: Competitive Pricing
H&M sells high-end clothing at a premium price. As part of its marketing mix pricing strategy, H&M products are priced lower. H&M’s cheaper manufacturing and transportation expenses are the reason behind this (Main focus is given on cost minimization). In comparison to Zara, H&M has a larger product selection. On average, H&M products cost $25, whereas Zara products cost $45.
Weaknesses
W1: Overdependence on Outsourcing
H&M outsources the majority of its production to over 900 various distributors in Europe and Asia, rather than producing in-house. While this strategy has helped the company succeed, it also puts it at the mercy of its suppliers. For its products, H&M is overly reliant on third-party vendors. H&M outsources product manufacture to many independent vendors, resulting in a reduced level of production control. Vendor overdependence can impair the company’s order obligations, and any negative customer experience can harm the brand’s reputation. Despite the fact that suppliers sign tight standard procedures and agreements with H&M, the firm does not have day-to-day control and observation over the factories, which means mistakes could happen and harm the H&M brand.
W2: Controversial Products
A media report accusing H&M of racism in Swedish stores, Sweden’s Equality Ombudsman (DO), a government office, initiated an investigation into the fashion brand. A story in a Swedish publication prompted Sweden’s Equality Ombudsman to launch an investigation into H&M’s alleged prejudice that it is looking into the fast fashion behemoth after Swedish newspaper Aftonbladet revealed video that appeared to show an H&M sales employee discriminating against a customer based on race.
W3: Lacks originality & Uninspired Fashion
H&M’s products are heavily influenced by current trends and designs from other brands. As a result of this circumstance, reviewers have labeled the brand’s products as not just unoriginal but also uninteresting. There is no novelty in the products that might attract fashionistas because everything the firm does has previously been done. The H&M does not create its own trends; instead, it just copies what their competitors are doing. The focus on distribution of clothing lines especially in big brands like H&M should be based on the type of climate, people and trends that the country has. They shouldn’t export winter clothing trends to a tropical country to avoid accumulation of expense in inventory. Clothing types must be based on regional population.
W4: Slow response to changing consumer trends
Because of the constant change in trends and patterns, the products must be moved on a regular basis to bring in new stock. This might put a lot of strain on operations and necessitate a very efficient supply chain. H&M has been reluctant to respond to rapid fluctuations in fashion and consumer tastes due to its slower supply chain, resulting in increased markdowns and reductions, as well as low-inspiration collections.
W5: Massive increased in Unsold inventories
Customers are increasingly shifting online in the fast-changing world of fashion commerce, and physical retailers must keep stocks in check. Over the last two years, H&M has been dealing with a huge problem of rising unsold inventory, with the business reporting massive unsold stocks. This could be attributed to inadequate inventory management and mediocre product offerings.
Opportunities
O1: Diversify products
Retailers who sell a wide range of products are more stable and make more money. As H&M has previously offered a wide range of products adding more to their list may boost their current profit. A good suggestion would be expanding their merchandise line to include some sportswear.
O2: Focus on Emerging Markets
The increasing middle class in emerging nations, from Asia to Africa, presents fashion merchants like H&M with the greatest opportunity for expansion. It is a fact that they are already operating in a lot of countries, but there are still places that remains untouched by the brand. H&M can continue to pursue these markets which may raise the sales and grow their customer base.
O3: Expand through Acquisition and Mergers
Companies take advantage of mergers and acquisitions to get around entry barriers in particular markets. H&M can develop into comparable markets such as secondhand clothing by acquiring or merging with a competitor.
O4: Utilize E – commerce
As stores gradually reopen worldwide due to the pandemic, customers are still hesitating to shop in-person, and new restrictions from the local governments still pop up in an attempt to control the virus will further slow the early recovery. H&M initiated a project to integrate the online platforms with for a while now and it has already shown a digital sales reach revenue of 26 percent.
O5: Educate customers on products’ sustainability
H&M is ranked first in the usage of organic cotton and they also have investments in the cotton production procedures, thus this info shall be communicated with their customers, not only on their products’ labels but also on banners as well as their advertising brochures. Such efforts will boost the company’s image toward shareholders, particularly to the probable investors who focus on impact investing.
Threats
T1: Intense Competition
H&M is competing against new and established companies such as Zara, Macy’s, Gap, Boohoo, and others. All of H&M’s competitors are attempting to gain market share and lower demand for their items. Moreover, they have an edge over H&M because of the adjacent vicinity these companies have among their factories and shops.
T2: Increase in Counterfeits
Fake items are most prevalent in the fashion business. With the growing global trade in counterfeit goods, income from H&M’s premium designer labels may suffer in the future. In addition to the negative effect towards its sales, counterfeits can also damage the brand’s reputation as well as the company development.
T3: Rising Operation Costs
As the cost of labor and raw materials rises around the world, retailer earnings are rapidly declining. H&M’s profitability is threatened by the growing operating and production costs. Since H&M needs to continually adjust to the changes that occurs in and out of its company, their performance can be restrained if they cannot fully accustom to these emerging technologies due to its hefty price.
T4: Global Pandemic
Due to what is happening around the world right now, there is a significant decrease in H&M’s sales. Giving discounts because of oversupply will continue to affect the company’s profits and in order to reopen some stores, additional costs will definitely appear. In the case of another global pandemic in the future, lockdowns and quarantine could also disrupt the supply chain, further reducing H&M’s sales and profitability. The continuous flow of raw materials and completed products is likewise critical to global corporations like H&M’s success.
T5: Recession
The pandemic has brought an enormous challenge to the brand as it triggered a possible economic recession. Even if clothing is one of the primary needs of individuals, trendy and fashionable clothes found on H&M stores are considered a luxury. If this continues to be the views of the customers, it will surely result to a sudden drop in the sales of H&M.
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