Holly Topinka Erica Southern Term Project: H&M 1. Introduction/History of the Company

H&M is a retailer that is known for its fast fashion and worldwide globalization. Even

though today it is one of the most well­known retail stores, it was not always this way. H&M

was started by Erling Persson almost 65 years ago. In 1947, Persson opened up the women’s

clothing store Hennes in Vasteras, Sweden. About twenty years later, he purchased the men’s

store: Mauritz Widforss. Little did he know, this acquisition forming Hennes & Mauritz (H&M)

would turn into the worldwide name it is today. “H&M went on to become a huge multinational

chain with 94,000 employees in 50 countries, an annual turnover of 128 billion SEK (as of 2011)

and a vision to expand by 10­15% every year” ("The history of," ).

Company and global expansion was quick for H&M over the past few decades. In the

1950s, the retailer started to move into neighboring countries in Europe. Then, in 1964, H&M’s

first store opened in Norway. This was an important development because it was their first store

to open overseas. In 1998, H&M looked to increase its reach through e­commerce and grow its

brand awareness through their famous ad campaigns. After this, the expansion out of Europe

began. In 2000, H&M opened its first store outside of the European countries in Manhattan with

the prime location of 5th Avenue, as well as, its first store in Spain. 2004 began its introduction

of designer collections within their assortment when Karl Lagerfeld designed for the store.

Following this, H&M moved into Hong Kong, Shangai, China, Greece, and Slovakia. The most

recent expansion was while we were writing this paper. H&M opened their first store in Times

Sq., New York on November 14, 2013.

2. Fashion Profile and Target Market

H&M appeals to a younger generation of people, both male and female. The target

market consists of teens to middle aged adults, aged 18­45. The price range of H&M’s items is

cheap, yet the designs are chic ("Hoovers: H&M," 2013). They have everyday low prices and

also have promotions and sales throughout the year. Along with this, H&M continues to keep its

customer driven to purchase their merchandise by creating exclusive collections by working on

collaborations with many luxury designers.

They have had collaborations in the past with Karl Lagerfeld, Versace, Stella McCartney,

Comme des Garcons, Jimmy Choo, and Lanvin ("Hoovers: H&M," 2013). This concept is

golden for H&M because it appeals to the customer that wants that luxury item but cannot afford

to pay luxury prices. H&M has also recently had Beyonce as the “face” of H&M this past spring/

summer (2013) but was replaced with supermodel Gisele Bundchen for the Fall/ Winter 2013­14

(Terreo, 2013). The items that are in these designer/celebrity collections are priced higher than

the normal range or regular priced items H&M normally sells but since the items are exclusive

and tied to a designers name, the customer doesn't mind paying. As mentioned under H&M’s

history, starting with the first store opening, the target market has changed from only appealing

to women, to expanding their market to women, men, and children.

3. Merchandise Assortment and Evolution

As mentioned earlier, H&M sells their assortment through e­commerce and retail stores.

However, in 2009 they also began offering their merchandise through a direct mail catalog.

“H&M offers everything from the hottest trends to the best in basics for women, men, teenagers

and children complete with shoes, accessories, cosmetics (introduced in 1977), and a home

interiors concept” ("H&m – fashion," ). H&M creates two main collections each year for the

Spring and Fall seasons. However, sub­collections are created throughout the year to keep the

floor looking fresh and to add new inventory. The buyers try to replenish their inventory daily

and turn goods much faster than the average for the industry.

To turn this quickly, H&M likes to split their assortment between traditional basics, and

fast trendy fashion. This allows them to produce higher volume on basics that they know can

always sell and that have less of a risk if there is leftover inventory. On the other hand, they have

the ability to produce fashion goods in small volume and more locally for a shorter lead time.

However, regardless of the season or collection, quality is always the key factor for all

merchandise offered. “Their styles are designed in collaboration with recognized designers, such

as Stella McCartney and Jimmy Choo. This allows them to stay at the forefront of fashion”

(Chen).

Several different brands are offered within the H&M assortment. “Women's clothing

accounts for 60% of sales; with private­label brands including Hennes, L.O.G.G. (Label of

Graded Goods), and the plus­size BiB (Big is Beautiful) line” ("Hoovers: H&M," 2013). H&M’s

focus on basic and core product has not gone unnoticed. For example, EDITD.com writes that

items found in H&M in mid­2011 are still found selling in their stores today ("Retail focus:

what’s," 2011). These include: basic t­shirts, vests, basic jumpers and sleeved jersey dresses,

with seasonal color updates. Even though these pieces seem to be holding strong for this store, it

is their home merchandise that is considered to be their most profitable in the long term.

4. Country of Origin & Currency of Country

H&M’s head office is currently located in the capital of Stockholm, Sweden. As

mentioned before, they opened their first store in Vasteras, Sweden in 1947. The currency they

operate with is the Swedish Krona.

5. Promotions and Markdown Cadence

H&M is known to always offer fast fashion at lower prices. For this reason, their use of

special promotions and markdowns are much less than that of their competitors. “H&M currently

has 2,786 products for sale online, which is fewer than some of their competitors: Boohoo­ 5,039

units, Forever 21­ 5,994 units, ASOS­ 45,383 units. 15.4% of H&M’s product range currently

sits at a discounted price”("Retail focus: what’s," 2011).

Their philosophy with fashion product is focused on reducing their poor performing stock

and reordering proven styles so that they don’t have to be marked down and impact their overall

sales. However, in the basics area, they don’t mind discounting and restocking at the lower price

because the colors introduced in the new season will bring the product back to its original, full

price. This is due to the fact that these items are manufactured at such high volumes, and

therefore low costs, that they have the room to play with their markdowns in this area without it

affecting their profitability.

6. Local Merchandise/ Industry Support or Governance

One way the Swedish government has protected clothing design companies is by

allowing clothing to be protected by copyright. Before the Swedish Copyright Act came into

effect in 1960, clothing was not considered to be a part of protection for copyright infringement.

Until 70 years after the designer’s death, the design is still under copyright protection. If a

designer registers a design, there is a maximum period of 25 years of security of the design. For

unregistered designs, there is a 3 year EU period where the design is protected. “Finally, it is also

possible to assert claims against an infringer by using the Marketing Act (against unfair

competition)” ("Fashion industry –," 2013).

The Marketing Practices Act came into effect in Sweden on July 1, 2008. The act

implements the EU Unfair Commercial Practices Directive and regulates all marketing practices,

as well as, contact between businesses and consumers, and covers all forms of media. The act

contains three general clauses. The first states that “all marketing practices should be coherent

with good marketing customs.” The newer version of the act contains two additional clauses:

“one that prohibits aggressive marketing practices (including harassment, compulsion, physical

violence or other aggressive means of pressure, such as unwanted and repeated phone calls), and

one that prohibits misleading marketing practices.” One of the most important changes in the act

is that it has been widened so that it also encompasses unfair commercial practices that occur

after the sale. The old law covered only marketing practices that took place prior to and during

the transaction. This will ultimately prevent businesses from giving consumers false information

about their rights to make complaints about a product. (Widmark, 2008)

7. Current and Evolving Domestic Retail Landscape/Competition

The Swedish retail landscape has been growing substantially over the last decade. Even

though it was greatly impacted by the recession of 2008, the retail sector had a quick recovery

and today “accounts for a third of the total household purchases, 528 billion SEK” (Hultman &

Elg, 2012). However, the risk of new retailers entering the market is growing. “Entering the

apparel industry does not require huge capital investments and many individuals have the means

to start a clothing line. In addition, there are many manufacturing contractors available and this

contributes to making the market more open to new entrants” (Chen). For these reasons, there is

an increasing amount of competition in Sweden, both domestically and through FDI. The

Swedish retail market was already considered to be very concentrated; however, with these new

retailers still growing and forming, it creates a very competitive and aggressive environment.

8. Current Economic Conditions of Consumer Spending on Fashion Within Sweden

In recent years, Sweden’s economic and retail sales growth have surpassed most

countries in Europe. A retail sales growth of 2.6% per year for the 2014­2017 period is predicted;

which is a big increase compared to Western Europe’s retail sales growth of 1.3% and the

European Union’s rate of 2.5%. Sweden has a highly educated and skilled workforce which

allow for many Swedish companies to grow. GDP for Sweden is expected to grow to 2.4% in

2014­2017. Although these numbers look great for Sweden and are very promising, the

unemployment rate has been steadily increasing for Sweden. At the end of 2013, it is expected to

increase to 8.3% and remain at this level in 2014, up from 7.7% at the end of 2012. This can

negatively affect the retail sales growth. Although unemployment has been increasing in

Sweden, the disposable income has been increasing, even through the recession. The disposable

income rate has grown by 2.5% in 2012 with a forecast of 2.1% in 2013 ("The retail market,"

2013).

“Retail development is relatively high in Sweden with a number of on­going and recently

finished retail developments. The financial crisis did not particularly subdue the retail

development in the country, resulting in the pipeline for new shopping center openings/

extensions in the coming years being above the annual 5 year average”("The retail market,"

2013).

9. Cultural Traditions/Holidays/National Pride that Impact Merchandising

The celebration of holidays in Sweden greatly impacts the fashion business because they

are closed for a significant amount of days throughout the year. It is a very important part of the

Swedish culture to celebrate these holidays, along with, taking significantly long vacations over

the summer months. The holidays, vacation time, and business closures drastically affect the

productivity of the merchandising headquarters in Sweden (including: design, product

development, and buying teams), along with H&M’s retail sales in Sweden.

Most businesses in Sweden are closed Sundays, as well as, on major holidays. There are

twelve major holidays; however, the most important holidays include: Midsummer’s Day on

June 22, Christmas Eve on December 24, Christmas Day on December 25, and New Year’s Day

on January 1. “It is quite common for some businesses to close at noon the day before certain

holidays, and Swedes will commonly take off the klämdag (squashed in days or squeeze day)

that falls between the holiday and the weekend” ("Swedish holidays (red," 2012). For example, if

the holiday falls on a Tuesday, the citizens of Sweden will be given off the Monday prior to have

a long weekend.

The businesses of Sweden are also closed during Boxing Week, which begins December

26, and the days before and after Epiphany (January 6). With this time off, along with the

inclusion of the klamdag days, most citizens will have off for the eleven days surrounding

Christmas.

10. Applied Technological Applications Used By Company

The technology H&M uses to keep its company connected is through its very own

infrastructure. Their infrastructure enables each store to look at corporate logistics, procurement

systems, and allows each store to be connected to the central H&M warehouse. This system

allows the design teams and product development teams to stay connected together which

enables corporate to look at the whole process of product design to sales. This allows every step

to run smoothly and all the procedures to be open and visible which in turn makes production

more effective (Petro, 2012).

11. Local Production/Sourcing (aspiration/expansion beyond country of origin)

“H&M was a pioneer in pursuing vertical integration with its own distribution network.

The company’s clothing collections are created in Sweden by approximately 150 designers and

100 buyers. H&M outsources production to a network of suppliers; 60% of the production takes

place in Asia, the rest in Europe” (Petro, 2012). H&M is an extremely global company, not only

in the location of their retail stores, but also with their supply chain. Their buyers, product

developers, and designers are located in Stockholm, Sweden; the production offices in Asia and

Europe include their merchandisers, auditors, and sustainability teams.

With the location of their production offices located near their suppliers, they are able to

have shorter lead times to help them react to fashion trends. Production in Asia usually has a

longer lead time than production in Europe. Therefore, the production of traditional items are in

Asia, with trendier items made in Europe. Once they decide which country fits their production

needs, they can choose one out of 700 independent manufacturers to create the product at the

costs and profit margins they would like to maintain.

However, H&M needs to be mindful when outsourcing to these outside suppliers. A lack

of control could get them into trouble in several different areas and threaten their reputation.

“The company has limited control over the factories and this could lead to low quality products

which reflects poorly on the brand. There is also uncertainty in the future supply or product,

inefficiency in order fulfillment and slower response times to market trends” (Chen). This means

that, with a lack of control over these suppliers, quality could suffer, as well as, the delivery time

of the product.

The future of H&M outsourcing includes plans to move some production out of Asia and

lessen their dependency on that area of the globe. With increasing pressure to continue their low

pricing while being socially responsible, H&M has planned to produce some of its clothing in

Ethiopia. “As wages are currently rising in China, the Swedish corporation sees its profits

endangered and therefore engages in Ethiopia, where wages are only half as high” ("H&m goes

africa," 2013). Test production has began with mass production expected to start for the spring

2014 line.

12. Financials

“H&M's cheap­chic strategy and global retail presence has largely insulated the company

from the global economic downturn” (Chen). According to H&M’s November 2013 press

release, their comparison sales over last year have increased by 11%. Their quarter sales

(September­November) are expected to be released December 16, 2013.

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