Case in: H&M Strategy Shift
This case was written by Wisal Abdulhafid Maina under the direction of Prof.Todorova, EU Business School (Monteux/ Geneva)
DATE 1st May 2018, EU Business School, Quai du Seujet 18, 1201 Geneva www.euruni.edu
H&M was established in Sweden in 1947 and is listed on the Stockholm Stock Exchange. The company focus is on delivering high-quality products at the best prices and in an environmental manner. In addition to H&M, the group includes Mark & Wear Stores, Cos, Cheap Monday, Monki, Weekday, and H&M Home. H&M own more than 4,300 stores in diffrenet 64 markets, including retail markets. In 2016, the company’s sales, with value-added taxes, amounted to about 223 billion Swedish crowns, and the company has more than 161,000 employees.
Despite the successes that H;M has known in recent years, it has gone through a very slow period in 2017. The company lost its dominance over the Swedish stock index, falling from the first list of the largest listed companies in terms of relative weight to seventh place, Witnessed during the last months of the past year.
H;M topped the list of the world’s largest companies, known with its cooperation with many celebrities, which has led to great successes in the past, but recently the company faces heavy loads in terms of sales, also shut down some of its stores around the world. Which question is it the new strategy of the company, or is it actually starting to fade!
Foundation and history
H&M company was founded by Erling Persson in 1947 with the first shop that established in Västerås, Sweden. H&M original company name called “Hennes” which is a Swedish world means “hers”, as the store at the time only sold womenswear. It wasn’t until Erling Persson procured the Mauritz Widforss brand (Hunting apparel) that he changed the name of the company to Hennes and Mauritz to mirror the brand’s incorporation of menswear into the item range. Not long after the merger and the authority rebranding into the shortened H&M, the company has developed itself step by step and started to extend outside of Sweden’s market.
The first worldwide H;M branches showed up in the neighbouring Nordic nations of Norway and Denmark, with shops flying up in the United Kingdom and Switzerland directly after. The company started to offer clothing and underwear in 1973, and additionally tapping ABBA part Anni-Frid Lyngstad to be the first celebrity whose endorser promoting the brand’s cosmetics collection.
As the company entered the 80s, H&M set its sight on assisting their brand to the rest of the world. In 1982 Persson authoritatively gave control of the business to his child, Steffan Persson, who assumed control as the CEO of the brand. Exploiting their proceeding with progress, H&M extended to more outlets over the European countries.
By the 90s, they produced enough buzz and monstrous after among customers that the business was sufficiently certain to book the greatest supermodels of the day to start in their advertising efforts. Famous names, for example, such as Linda Evangelista, Naomi Campbell, and Christy Turlington fronted publications and boards wearing a mix of cool and casual biases from H&M just as easily dressed in the most famous and prestigious luxury brands that have come to light up countless fashion magazines. The brand was additionally one of the first to exploit the web blast when they authoritatively offer internet shopping in early 1998.
H&M has taken its place in the European market and has achieved tremendous success, but it is time to enter the world’s largest market, the US market. In 1999, the first trader was opened in the United States and a new step for the H;M ride.
Adopting to the digital world
H;M has kept far of the technology and developments that have taken place over the past years, as the competition is becoming increasingly intense through the Internet. where H;M is facing digital disruptions from e-commerce players such as Asos, Zalando and other websites, as analysts have argued that H;M is unusually late to catch up.
According to the Euromonitor international, that 14% of the worldwide clothe and footwear sale was from online stores previous year, which worth about $231.7 billion. It’s significantly higher in a portion then the real economy of the world. Sales represent in the world’s most emerging market for digital shopping in these three countries, the United States of America 15.5% in 2016, the United Kingdom 18.7% and in China approximately 25.9% Given the intended interest group of H;M and their competitors ZARA the most carefully wise of all buyers, twenty to thirty-year-old, it raises doubt about why the brand are so behind.
Anne Critchlow says that “The high-value retail market – which H&M is a big part of – it can be profitable only if they focus their sales entirely on the Internet such as Asos or entirely through actual stores such as Primark.” In the case of H;M, cheap prices make it difficult to be compensated by delivery costs. To minimize expenses, it sources around 80 percent of its items from Asia, where long lead times make it harder to respond rapidly to request. In this case, the competition becomes very difficult against the players of the Internet who have higher levels of modernity on their sites and can change the prices and offers on the request of consumers demand or what is the trend at that time.
What happened with H;M new strategy?
H;M committed a big mistake when trying to adapt their new strategy this year which is converting its sales from traditional retailer stores to engage more in the digital market. That had led the company to face a decline in its shares to about 45% over the previous year, as financial specialists stressed that it was in effect left in the tidy by defter online adversaries. The transition process was not well thought out, as the embrace of electronic commerce was not so easy, which led the company to drop in their sales and accumulation of products in stores, that make a large discount. The CEO said that this change in the new strategy made the company’s progress very slow, that led the company to reconsider everything was done during the past year. H&M’s performance last year was a mixed bag, showing improvement and discrimination in certain areas and facing difficulties in other areas. Growth in total sales was 3 percent last year, however, in the final quarter sale plunged by 2 percent in the local currency.
After the hurdles time faced by H;M in 2017, it is planning to close about 170 stores this year (2018) and opening 390 other new ones. Which means it will continue to expand its actual presence, this obviously implies H;M will, in any case, by growing its physical nearness, however it denotes a move far from over a time of fast development.
in-Like their rival Zara, they enjoyed a 6% profit last year, which made H;M facing fierce competition from Internet giants like Asos and Boohoo. The reasons for the slowing down of H;M have varied because of their reliance on an online trade strategy.
Over the past few years, H;M and their biggest competitor Zara have been hugely successful in the fashion industry thanks to their distinctive products that follow fashionable trends. But now the situation is different, there is a disruption over the Internet, that H;M was slow to adapt.
At the moment, and for some time Retail trade will persist one of the biggest markets, but most of the sales are done online, as developments in technology have helped to achieve this.
But in fact, H;M blames online sales that is the reason for their low turnout of buyers to stores, which is stated in its annual report. “H&M’s profits last year have had a negative effect on the very low sales growth of the brand, mostly attributed to the shift in the industry, where online sales are increasing exponentially day by day, But the share of online sales does not compensate for the decline in store sales.” H;M did not disclose its online sales, but it is estimated at 5 percent, which is much less than it should be. This suggests whether H;M is working better if its sales are based on the Internet, so it can get better and go ahead, and where does it fall last year?
H;M was slow to move
H;M’s focus has been largely on its outlet, and this is understandable for the success of the brand over the years. However, we can say that this deep focus slowdown H&M to see the possibilities available via e-commerce.
The beginning of the emergence of H&M over the Internet was early 2010, 10 years after ASOS showed up It seems that the brand was slow to see the opportunity available on the e-commerce, or believe that the trading network was sufficient to monitor competition on the Internet.
Most of the sites were poorly designed at first, with many flaws making it difficult to increase sales on the site. It has improved since then. Where fashion sites have worked over the years with high efficiency, that facilitated the use of the site, and provides many sites an excellent user experience, on mobile phones and computers. Unlike H&M, to be able to compete online, it has to outperform other sites and offer something new. The target market for the company is between teenagers and young adults who use smart phones extensively.
H&M’s Web site is still primitive and boring, as it does not provide users with the easy means to access products such as websites. If, for example, we take the men’s clothing page, the buyer expects to see clearly the options available by category and so on, but what is exactly the opposite.
The difficulties of online for low-margin retailers
With the increasing number of online shopping bouts, retailers are working hard to raise their sales, regardless of the added cost. But if you look at profitability, online sales are not an equivalent substitute for the same goods purchased at the store. Not surprisingly, some of the most significant brands on the main streets, which still do not sell online, are low-margin retailers. For example, if we take the Primark example, they did not resort to the online sales strategy. They felt that Internet costs might not allow them to earn enough profits. They put some of their products on Asos website, but the situation did not last long. The problem is that they are selling low-margin goods. When the delivery and revenue costs are accounted for, it is difficult to make profits. Revenue in the fashion industry is often the highest for any retail sector on the Internet, and the cost of addressing it is a potential problem.
Online operations also have additional costs related to customer acquisition and then care for them. Retailers also need systems to help shoppers manage and track orders, and show inventory availability. Also, there is the cost of logistics and IT coordination with shipping vendors such as ARAMEX and other companies, which is very expensive for such as low margin retailers. But it is not impossible to limit returns as much as possible and encourage buyers to increase the values ??of their shopping cart in the market.
If we take the theory, with the store network, retailers like H&M should be able to use it for their benefit. Attract customers using smartphones in the store, who provide a range of convenient accessories and return some of the ways to join channels, Like the Internet, H&M has been slow in its strategy of multi-channel, meaning it is currently playing with other retailers in this field.
As stated in the company’s annual report and its plans in this area. “We are trying to integrate our physical stores and digital stores to offer to our customers a great shopping experience with services ranging from Click and Collect to Scan and Buy and online returns in store.”
This is where H;M has contributed, adding a click and collection over the past few years, even if it is for a certain fee, plus the returns of the store, It seems to be heading in the right direction. But the delay of H;M in adopting some of these advantages provided by other competitors’ companies for years means that he has probably lost some of the potential sales over the Internet over the past years.
H&M also suffering from the delivery of their product via internet that cost them a huge problems, where they couldn’t delevier the product on time as agreed. this problem has caused Many criticisms in the company’s pages on social media were the buyers are not happy and satisfied about the services provided by the company. Some customers complained that their orders were not deliverd up to 26 days, which was not agreed upon at the time of purchase. The company announced its apology to customers, as it said it had problems with the delivery process, resulting in poor customer performance and loss of income. The problem has also led to a drop in sales of the company, as price reductions have failed to limit inventory accumulation. Delivery problems are at the heart of the company’s strategy shift to online sales and new store ideas. The CEO said that the restructuring of the distribution center through the Internet aims to accelerate delivery times rather than vice versa, and they seek to improve the current standard of the company so as not to exceed the delivery time between five to seven days depending on the region and the state
495301945640Another reason for the decline in sales of H ; M was after the controversy and widespread criticism of social networking sites after the company published a picture that some considered racist as part of a promotional campaign for one of its ready-made clothes for children. They posted on their website in the United Kingdom a picture of a dark-skinned young African boy wearing a famous business shirt with the words “The Coolest Monkey in the Forest”, while the European-born child wears a T-shirt with the words “Jungle Expert”, leading to many negative reactions. The company is accused of racism.
It has caused a lot of losses to a company in some countries such as South Africa, where some people have vandalized shops and launched demonstrations to stop selling H ; M products in the country. Many celebrities have also commented on the matter, including the famous African-American rapper of African origins such as “Weekend” to end the contract with them for advertising and accused them of trading in racism. Because of this announcement, the company faced a drop-in sale, especially by dark-skinned customers, and boycotted the product for a period, making the company apologies and try to cover the ad.
The success of fashion website in 21st century
The ability to buy online is great, especially as we are at a time when not everyone has enough time to go shopping and losing hours to buy one thing, this feature is wonderful for the modern world in which we live. Whatever you are looking for, the chance is high that you will be able to find it in just seconds from many different online retail stores that we own.
What make the fashion retailer website so successful?
The fashion and beauty websites have already surrounded the market in online retailing. It’s frequently the first (and in some cases the main) name that pop up to the mind when more young adult consumers mention online shopping.
If we take the example of Asos, which was discovered in 2002 as it really moved with the times, in addition to searching for worldwide markets to rise the proportion of their sales. They were on of the first retailers to adopt social media sites, and set themselves up as a global online society for Fashionable customers, they have embraced more technology by being one of the first fashion sellers to create an on-the-go shopping app. They have huge collections covering more than 850 brands, meaning it’s easy to find most of the stuff out there, which is really the secret of attracting customers to them. Available products carry different prices, from high-end luxury to affordable prices. Asos is one of the most popular sites that has opened the doors for many of the rising and coming designers to get their collection from the ground, and it is a great website to pursue unique vantage items as well. They have already achieved a formula with young clothes and fashion apparels, where they offered plenty of shopping options from one place.
The success of H;M in the past years has been amazing, as they have been able to maintain their high level of sales and raise the efficiency of their performance over the years. But this was not enough for developments in the fashion market and changes in consumer tastes. The H;M strategy to improve their online sales has been a fateful change for a company, and here comes the question of whether this move is going right for a company, if yes? Will this strategy achieve sales comparable to previous years?
H;M’s access to e-commerce late was also a big mistake, leading to increased competition and difficulty in reaching competitors at the standard time they were looking for. H&M also made several mistakes on its website that failed to achieve its full online trading efficiency, as it was not the time to commit such errors, which led to a decline in sales and a slowdown in overall performance. Many of the company’s errors have caused critical situations that are difficult to overcome easily, making them questionable. How can H;M improve its website and meet the desires of buyers? If possible, will we see any improvements this year or will the curse last for years?. H;M case is still under investigating and we do not know the future of the company yet, which makes it an opening case to all opinions and suggestions until the company decided Whether they want to pursue the same strategy and change it in the future.
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