Hennes & Mauritz AB (H&M)

Case Synopsis

Professor: Jerry Sheppard

BUS 478 Section D200
Prepared by:
Anna Yan
Bryna Mu
Gloria Sun
Tian Liu
Yang Shen
Submitted on: October 28, 2014

INTRODUCTION
History in Brief
H&M Hennes & Mauritz AB (H&M) is a design-driven, creative global company that offers a wide
range of fashion. The history of H&M started with a man named Erling Persson who opened Hennes womens
clothing store in Vsters, Sweden in 1947. The first store outside Sweden opened in Norway in 1964. In 1974,
H&M was listed on the Stockholm Stock Exchange. From 1976 to 1990s, along with the sales of cosmetics,
H&M expanded to European markets, like United Kingdom, Germany, Netherlands, and France. Four years after
the first United States store opened in 2000, H&M launched a series of designer collaborations starting with Karl
Lagerfeld. In 2006, H&M started a major expansion of online and catalogue sales. Until 2014, H&M
continuously expanded to Asia, Oceania and South America. (Hennes & Mauritz AB, n.d., Our history)
Today, H&M is one of the worlds largest fashion companies. It comprises six independent brands:
H&M, COS, Monki, Weekday, Cheap Monday and & Other Stories. With 116,000 passionately employees,
H&M offers shopping experience in 3,388 stores across 55 markets worldwide (Hennes & Mauritz AB, n.d.,
Sales markets). According to the recent nine-months (1 December 2013 31 August 2014) report, the H&M
Groups sales excluding VAT is SEK 109 billion, an increase in local currencies by 18 percent during the first
nine months of the financial year 2014. Profit after financial items amounted to SEK 18,096 million, an increase
of 19 percent (H&M, 2014, Nine-Month Report).
Mission and Goals
The companys stated mission is:
Fashion and quality at the best price.
H&Ms purpose is to offer quality and fashion with the best price strategy. They also believed that all
their operations were running economically, socially and in a sustainable way. The goal of H&M is to increase
10-15 percent of the number of stores per year, and at the same time increase sales in comparable units. H&Ms
strong financial position allows them to expand continuously with quality and sustainable fashion (H&M, n.d.,
Global Expansion).

Page 1

EXTERNAL ANALYSIS
General Environment
The clothing industry began centuries ago in homes around the world. It was concentrated on solders
uniforms during the American Civil War, and focused on womens apparel afterward. Today, the ready-to-wear
clothing industry is a thriving industry that reaches males, females, and people of all ages with garments for all
purposes, from the purely practical all the way to haute couture. The clothing industry is fraught with constant
competition and largely ruled by ever changing fashion trends (WiseGeek, n.d. What is the clothing industry).
Global Segment
Through in store and online fashion offering to customers, H&M grows rapidly in the past few years. In
2013, H&M opened more than one new store per day. Currently H&M owns over 3,200 stores all over the world
in total, and its online stores have successfully opened in nine different countries (H&M, 2013, Annual Report
2013).
Demographic Segment
Age structure of H&Ms market consumers is fairly wide, and each age group has its own special
clothing design preference. For example, ages from newborn baby to 14 need comfortable and durable clothes.
Teenagers are looking for fashionable street-wear with the concepts of Rocky and Impuls. For specific
requirements of adults, H&M designed modern contemporary casual or working wear, eveningwear and sports
ware (H&M, 2013, Annual Report 2013).
Political/Legal Segment
The political factor of H&M involves following different counties regulations, such as the custom duty
of shipments from production offices in different countries, the Swedish legislation international law and the
European law. In the meantime, H&M operates under clear and comprehensive labor legislation and the code of
conduct (Kumar, 2014).
Technological Segment

Page 2

Ecommerce stores have become popular and profitable. Consumers are able to find the clothes they like
through the searching engines, and retail stores can also reduce operational costs by applying ecommerce stores.
Though the technological development of the industry is limited, efficient and improved communication
technologies will allow H&M to capture more markets and build a brand loyalty (Wortham, 2014).
Economic Segment
The apparel consumption of developing countries with a relative high GDP growth rate is likely to keep
increasing rapidly, comparing to developed countries with a low GDP growth rate and a low apparel
consumption growth rate (Singhal, 2012). Therefore, increase of personal wealth may have a positive impact on
apparel industry. However, the rapid economic growth of manufacturing countries results a rising labor costs,
which may affect the low retail prices of H&M.
Industry Environment
A comprehensive understanding of the industry can be provided by using the Porters five Competitive
Forces. First, in fast fashion industry, the threat of new entrants is low due to the costs of marketing, designing,
distribution channels and brand loyalties. New entrants may face barriers created by current players, such as the
economies of scale. Secondly, the bargaining power of suppliers, which consists of raw material suppliers and
manufacturers in foreign countries is low due to the sufficient sources of supply in developing countries. Thirdly,
the bargaining power of buyers is medium to high, as buyers may purchase large relative sales of sellers and
switching costs are relative low for buyers. Further, the threat of substitute products is high, as customers can
easily find substitutes with similar quality and price. Lastly, the rivalry among competing firms is relative intense
due to the price competition, advertising battles and new product introductions among different competitors
within the fashion industry.
Competitors
Three major competitors of H&M can be identified as listed. Through an analysis of these competitors,
H&M will be able to act and respond effectively and promptly.

Zara, one of the worlds largest apparel retailers.

Forever 21, one of the largest private companies in America.

Page 3

Gap Inc., which includes the brand of Gap, Old Navy and Banana Republic.

INTERNAL ANALYSIS
Tangible Resources
Financial Resources
H&M could raise funds through trading stocks. According to H&M Hennes & Mauritz AB Six-month
report 2014, because of in store and online expansions, the stock-in-trade increased by 18 percent in SEK
comparing to previous year (H&M, 2014, Six-month report). In addition, it also shows that profit after financial
items increased by 19 percent in the first half-year. Furthermore, H&M keeps making long-term investments to
increase its competitive advantage and enlarge its market share. These investments will also bring cash into the
company in the future.
Organizational Resources
H&M is aiming to provide valuable information to diverse stakeholders through transparent
sustainability reports. The sustainability reports should be accordance with the GRI G4 guidelines and the UN
Global Compact principles. What is more, there are additional indicators of material included, which are more
convenient for users (H&M, n.d., GRI Index).
According to H&M Six-month report 2014, in the first half-year of 2014, the number of stores increased
by 153 around the world, which resulted from opening 176 new stores and closing 23 existing stores. In addition,
in 2014, H&M planned to open 375 new stores in total, and most of them are in China and US. In the meantime,
H&M will open new stores in South Africa and Peru in 2015 (H&M, 2014, Six-month report).
Intangible Resources
Human Resources
The goal of H&M is to ensure that they have the right people with the right skills in the right positions at
the right time. They have set standards for the recruitment process, and also they hold related training to support
the expansion and growing of the entire firm (H&M, n.d., Human Resources).

Page 4

Innovation Resources
H&M is very innovative because of its particularly fast and frequent new product development cycles.
However, customers of H&M could only participate into sporadic designing process. If customers could have
more involvement in the innovation, the innovation process can be improved. This is because the cooperation
between H&M and customers can give the company an idea regarding the fashion changes of customers (H&M,
n.d., Product Strategy).
Reputational Resources
H&M has been named as the 2014 World's Most Ethical Company (Duggan, 2014). The award was
given by the Ethisphere Institute, an independent research group that promotes "best practices in corporate ethics
and governance". The positive reputation of H&M may also build a brand loyalty among consumers.
Capabilities
In order to analyze capabilities of H&M, there are 3 different functional areas, such as supply chain,
marketing, and management. Table 1 below, highlights these capabilities.
TABLE 1: Capabilities of Different Functional Areas
Functional Areas
Supply Chain
(Effective
procurement
techniques)
Marketing
(Effective promo of
brand-name)

Management
(Effective
organizational
structure)

Capabilities
The using of Index Code of Conduct (ICoC) of H&M to measure its suppliers
sustainability performance is a key integrated working tool in the purchasing processes,
which allows H&M to systematically reward suppliers for good sustainability
performance with better business. By entering such strategic partnerships with suppliers,
buyers and merchandisers will ensure H&M to make influence and positive difference
(H&M, 2013, Conscious Actions- Sustainability Report).
The advertising policy of H&M allows it to consider the impact of advertising around the
world and to convey a positive message. By conducting customer surveys regularly allows
H&M to measure the feedback from the campaigns and to find out what the customers
appreciate. All data collected and used in connection to online shops is held centrally and
subject to strict Swedish data privacy laws, which protects the privacy of customers
(H&M, 2013, Conscious Actions- Sustainability Report).
There are around 170 colleagues working with sustainability in H&M. They work directly
with suppliers to support them in complying with the Code of Conduct and to ensure the
sustainability of the supply chain. The effective organizational structure of H&M allows it
to support the implementation and sustainability in different country offices (H&M, 2013,
Conscious Actions- Sustainability Report).

Page 5

CURRENT SITUATION
Financial Performance
Table 2 below illustrates the main financial data and performance of H&M over the past three years. The
financial picture of H&M looks healthy and grows stably. Comparing to the performance of previous years, a
stable growth of financial position can be expected for future years.
TABLE 2: Three Years Financial Performance of H&M
Financial Performance
2013
2012
Sales (SEK m)
150,090
140,948
Profit (SEK m)
22,526
22,285
Earnings per Share (SEK)
10.36
10.19
Liquid funds (SEK m)
13,918
14,148
Source: H&M Annual Report 2013 and H&M Annual Report 2012.

2011
128,810
20,942
9.56
14,319

Core Competencies and Current Strategy

Based on the business concept of H&M, three main competencies can be discovered. First of all, quality
is the key concept from designing to final products, to exceed customers expectation. Secondly, the design team
of H&M allows it to create a varied range of inspiring fashion for all customers and to maintain the fast fashion
brand image (H&M, 2012, Annual Report 2012). Thirdly, H&M is offering products for consumers at the best
price by its efficient logistics, large purchasing volumes, etc.
To further evaluate the core competencies of H&M, a four-part VRIO framework analysis can be used,
including valuable, rare, costly to imitate and organized to be exploited. These details are as follows:
TABLE 3: Core Competencies and VRIO Analysis
Quality
Yes
No
Yes
Yes
Average/Above
Average Returns
It is not rare to find high quality clothing or

Valuable
Rare
Costly to Imitate
Organized to be Exploited
Performance Implications

Fashion
Price
Yes
Yes
No
No
Yes
Yes
Yes
Yes
Average/Above
Average/Above
Average Returns
Average Returns
clothes at a low price within todays fashion industry.

Therefore, by utilizing resources and depending on strong design team, H&M is combing the core competencies
of quality, fashion design with a best price strategy, to ensure its competitiveness.

Page 6

STRATEGIC CHALLENGES
Constantly Attracting New Customers
H&M pursues cost leadership/differentiation strategy. Although H&Ms low price is a solid foundation
of success, low price gives H&M an image of bad quality (UKEssays, n.d.).
For example, customers would not wear H&M to attend a momentous occasion due to its image of low
price. Additionally, young people are willing to buy H&M, but they will pursue higher price and better quality
cloth when they grow up. Specifically, when a young girl turns to a middle-aged lady or a school girl becomes an
office lady. H&M may not suit them. Thus, it is difficult for the company to attract customers constantly and
build customers brand loyalty.
Dealing with Resources Changes
Due to the changes of economics and resources, if H&M intends to gain sustainable profits in the long
run, it must be suitable to the environmental changes. There are some problems that H&M needs to consider
about, such as climate changes, working conditions and wages of supplier factories.
Pollution Problem
H&M sells clothes made with chemicals which cause hazardous water pollution around the world. Thus,
the company needs to eliminate all uses and discharges of hazardous chemicals throughout its entire supply chain.
Otherwise, it is unable to gain profit in the long run. Also, the way customers take care of H&Ms products has a
major environmental impact. From a life cycle perspective, most energy is consumed when consumers wash and
dry their clothes. H&M should try to work to influence how customers care for their H&M purchases and to
promote the recycling of used garments (H&M, 2011, Conscious Actions Sustainability Report).
Global Strategy Problem
The global strategy of H&M is to centralize and tailor its product strategy to fit the US market. It has
headed for more upscale malls and busy downtown centers and decided to open smaller local stores (IBS Case
Development Center, n.d.).

Page 7

However, H&M is unable to meet various needs of customers in each individual market, so the company
may loss competitive forces and market share comparing with competitors. Another challenge is that it is difficult
to ensure high social and environmental standards in different regions, such as fair wages and overtime (H&M,
2011, Conscious Actions Sustainability Report).
Outsourcing Strategy Problem
Fast fashion industry requires a short life cycle, to satisfy the fast changes of customers preference.
However, a relative longer lead time is needed for an outsourcing strategy and it is difficult for H&M to respond
to the changes. Also, how to optimize multiple product lines becomes a problem. Due to the high volume of
suppliers, control quality and costs in an efficient way are big challenges. Moreover, outsourcing entails unique
transaction costs, such as searching, contracting, controlling, and re-contracting (Quinn & Hilmer, 1995).

Page 8

References:
Duggan, L. (2014). H&M Named One Of World's Most Ethical Companies. Retrieved from
http://www.refinery29.com/2014/03/65053/hm-most-ethical-company
H&M. (2011). Conscious Actions Sustainability Report. Retrieved from
http://about.hm.com/content/dam/hm/about/documents/en/CSR/reports/Conscious%20Actions%20Sust
ainability%20Report%202011_en.pdf
H&M. (2012). Annual Report 2012. Retrieved from

http://about.hm.com/content/dam/hm/about/documents/en/Annual%20Report/Annual-Report2012_en.pdf
H&M. (2013). H&M Conscious Actions- Sustainability Report. Retrieved from

http://sustainability.hm.com/content/dam/hm/about/documents/en/CSR/reports/Conscious%20
Actions%20Sustainability%20Report%202013_en.pdf
H&M. (2013). Annual Report 2013. Retrieved from
http://about.hm.com/content/dam/hm/about/documents/en/Annual%20Report/Annual-Report2013_en.pdf

H&M. (2014). Nine-Month Report. Retrieved from

http://about.hm.com/content/dam/hm/about/documents/en/cision/2014/09/1398775_en.pdf
H&M. (2014). Six-month report. Retrieved from
http://about.hm.com/content/dam/hm/about/documents/en/cision/2014/06/1354053_en.pdf
H&M. (n.d.). Global Expansion. Retrieved from
http://about.hm.com/en/About/facts-about-hm/about-hm/expansion-strategy.html
H&M. (n.d.). Human Resources. Retrieved from
http://career.hm.com/content/hmcareer/en_ca/workingathm/what-can-you-do-here/corporate/humanresources.html
H&M. (n.d.). Product Strategy. Retrieved from

Page 9

http://heroinandmoss.blogspot.ca/p/product-strategy.html
H&M. (n.d.). GRI Index. Retrieved from

http://sustainability.hm.com/en/sustainability/downloads-resources/about-our-reporting/griindex.html
Hennes & Mauritz AB. (n.d.). Our History. Retrieved from
http://about.hm.com/en/About/facts-about-hm/people-and-history/history.html
Hennes & Mauritz AB. (n.d.). Sales Markets. Retrieved from
http://about.hm.com/en/About/facts-about-hm/fashion-for-all/sales-markets.html
IBS Case Development Center. (n.d.). Case Studies on Strategy. Retrieved from
http://www.ibscdc.org/case-catalogues/Case_Studies_on_Strategy(Catalogue_I).pdf
Kumar, K. (2014 September). Copy of H&M Swot Analysis. Retrieved from
http://prezi.com/gystg_pla8dh/copy-of-hm-swot-analysis-porters-five-forces-pestel-analysis/
Quinn, J.B., & Hilmer, F.G. (n.d.). Strategic. Retrieved from
http://www.civ.utoronto.ca/sect/coneng/tamer/Referneces/Industry/startegic%20outsourceing.pdf
Singhal, A. (2012 November). Global Changes In Clothing Consumption By 2020, And Their Impact On
Fibre-Manufacturer Supply Chains. Retrieved from
http://www.itmf.org/wb/media/hanoi/afterhanoi/Singhal.pdf
UKEssays. (n.d.). Price strategy marketing mix of H and M. Retrieved from
http://www.ukessays.com/essays/marketing/price-strategy-marketing-mix-of-h-and-m-marketingessay.php
WiseGeek. (n.d.). What Is the Clothing Industry? Retrieved from
http://www.wisegeek.com/what-is-the-clothing-industry.htm
Wortham, H. (2014 April). H&M produces Eco-friendly Clothing for Conscious Consumers.
Retrieved from
http://sundial.csun.edu/2014/04/hm-produces-eco-friendly-clothing-for-conscious-consumers/

Page 10