Table of Contents
Introduction
As one of the world’s leading fashion companies, Sweden-based multinational retailer Hennes & Mauritz AB is known for its comprehensive offerings of affordable fashion-forward apparel. To attract consumers in various different segments, the group has created a diverse portfolio with eight independent brands (H&M, 2018). This report will focus on the company’s best-known flagship H&M brand, and aim to produce a critical analysis of its current competitive strategy.
H&M’s Slump in Sales and Profits
According to Fashion United (2017), the success of H&M over the past decade can be attributed to the wider success that fast fashion has had across the globe. As being the pioneer of the industry, it is one of the first retailers who had observed and responded to consumers’ growing desires for instant gratification. The brand’s successful implementation of the cheap chic strategy had allowed it to gain huge popularity among consumers who are fashion-conscious and demanding for affordable trendy items.
After years of strong sales growth, however, H&M is found to be struggling against consumers’ changing taste. Its in-store sales were reported to be extremely weak in the forth quarter of 2017 due to the industry’s digital shift and the brand’s poor assortment composition (H&M Press Release, 2018a). This has caused inventory build-up, and forced H&M to sacrifice its profitability through carrying out aggressive promotions to clean up the stock.
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Moreover, the extreme weather at the start of 2018 was particularly pointed out as a factor impacting the sales of H&M’s unsold winter garments and spring collections (H&M Press Release, 2018b), which has led to the group’s lowest first quarter profit in 16 years (Bloomberg, 2018). However, weather cannot really explain the namesake brand’s unusually steady decline because all of its competitors were equally affected; while none of them has reported to have such significant drop in sales and profit.
H&M’s Competitive Strategy
In order to find the real causes behind H&M’s recent weak performance, it is essential to understand the determinants of consumer buying behaviour for fast fashion and to what extent H&M’s competitive strategy has responded to such needs and wants. According to Choi’s research (2017), pricing, product design and quick response service are the most fundamental factors affecting fast fashion consumption. To survive and stand out from the market, H&M must surpass the competition in these three aspects by being able to deliver the latest fashion trends at a strategic initial price within the shortest possible time.
Cheap Chic Strategy
As the pioneer of the industry, H&M used to be good at designing and implementing the well-known cheap chic strategy. The brand did outperform the market for more than a decade by competing with price as well as product design as a source of real differentiation. However, its longer supply chain lead times, which are nearly double those of its major Spanish-rival ZARA (Reuters, 2017), has become a notable weakness since fast fashion is turning to be ultrafast.
According to Fung Global Retail & Technology (2017), H&M’s pressure to satisfy consumers’ growing desires for immediacy is not only from traditional fast fashion retailers, but also other ambitious new entrants such as Missguided and Boohoo.com who are able to deliver products from design to sale within only two weeks. The slower and less flexible supply chain means that H&M is being less likely to keep pace with today’s rapidly changing trends, which causes a serious or even fatal weakness that affects its competiveness due to consumers’ heavy emphasis on product design and quick response.
As a result of H&M’s inability to compete on these two dimensions, the brand has been forced to compete on price instead (Hitt et al., 2015). To attract lower-income consumers, H&M’s offerings are priced from £3.99 to £229.99, and are already on average 60 percent cheaper than ZARA’s. However, its pricing strategy does not seem to work due to the rise of budget competitors in recent years.
For example, Britain’s Primark is growing aggressively through selling similar styles as what H&M offers, but with significantly cheaper prices which are 40 percent lower (Petro, 2016). Primark’s rapid expansion throughout Europe and US has made H&M lose its competitive advantage of being affordable, which left the brand struggling to position itself in the market.
Sustainability
Unfortunately, H&M has become the squeezed middle; its cheap chic is not quite as cheap or chic as it once used to be (Felsted, 2017). The intensifying competition has further pushed the brand to compete on something else. Eventually, the idea of sustainability was chosen by H&M because of consumers’ seemingly growing emphasis on organisations’ social responsibility and ethical practices. Through implementing various sustainability-related campaigns and programmes for almost five years (Choi, 2014), H&M has been trying to develop a source of perceived differentiation by building a unique brand image to compete with its rivals; however, this strategy is not turning to be successful either.
It is actually unsurprising because being sustainable is not a key determinant that why consumers are buying into fast fashion. According to Muthu and Gardetti’s research (2016), although the younger generation are increasingly aware of the environmental ethical issues, they tend to separate sustainability from their actual fashion purchases. Therefore, even if H&M’s green practices may help it create a positive perception, they will not significantly boost sales or generate profits for the brand.
Conclusion
In summary, H&M’s current competitive strategy is not effective enough. Its implementation of the traditional cheap chic strategy is found to be losing its competiveness, due to the brand’s longer supply chain and emergence of strong budget competitors. Moreover, H&M’s emphasis on sustainability is believed to be misguided and inappropriate because it is not fundamentally desired by the major fast fashion consumer. To stand out and outperform the market, H&M must shorten its supply chain lead times and price its products more strategically to fulfil consumers’ even higher expectations towards pricing, product design and quick response service of fast fashion brands.
