H&M Assignment Sample

(HENNES & MAURITZ)

Introduction  

In 1947, Hennes & Mauritz was founded in Vasteras, a Swedish town that has become famous for its fast-fashion stores for men, women, and children. It has been in existence for the last 70 years and has grown considerably. Known for its high-quality clothing and multifaceted selection, it is the second-largest apparel company in the world. H&M’s business strategy aims to provide fashion and quality at the lowest price possible in a sustainable manner (Arrigo et. al. 2018). The retailer has 2,206 stores in 43 countries and focuses on its customers. When H&M entered the apparel market, Zara challenged H&M due to Zara’s rapid growth. Economics theories present various viewpoints on how to select a business model for a firm, describing why and how firms expand depending on their internal and external environments, which was important to us. This report presents H&M’s micro and macro environment of H&M, impact of covid-19 on the company, examine government policies, and consider improvement.

Figure 1: Logo of H&M

(Source: H&M, 2021)

Micro/Macro Analysis

The organization’s capacity to serve its customers is affected by many variables, including suppliers, marketing, channel firms, customers, competitors, and the public (Varadarajan et. al. 2020). Each variable has a direct impact on the organization. Micro describes the interaction between firms and the dynamics that govern their relationship. There are macroeconomic conditions, which are conditions which exist throughout an economy as whole rather than in a specific industry or region. Macroeconomic conditions generally encompass GDP, inflation, employment, fiscal policy, spending and monetary policy. Porter’s Five Forces model is used to study H&M’s Micro Environment and PESTEL Model is used to study H&M’s Macro Environment.

Porter’s Five Forces

1. New Competitors Threat – In the garment business, there is a significant entrance threat. The entry barrier is getting lower and lower. New competitors will not have to invest large sums of money to succeed. Furthermore, there is an abundance of suppliers available in this industry. This will, of course, entice many people to form their own companies and compete with H&M. By providing designs to be made and sold directly over the internet, new entrants can easily begin their firm (Teece al. 2017). It was simple to administer, and it has helped them save a lot of money as well.
2. Suppliers’ Bargaining Power – The fact is, suppliers are weak in this industry. There are many suppliers for companies to choose from in this industry. In addition, switching costs are low, which does not pose an issue to H&M in switching suppliers (Triponel al. 2020). By increasing globalization and international trade, the number of suppliers will grow globally, and producers will have more options to outsource their production to foreign nations with low wages.
3. Buyer’s Bargaining Power – As international trade and franchise structures open up, buyers can easily obtain clothing from different countries as there are numerous clothing retailers all over the world. Because there are so many options to choose from in the apparel industry, purchasers have considerable bargaining power. It also has a low swapping cost for the buyer, and there are many different brands’ apparel stores nearby or in the same area for the buyer to select from.
4. The Threat of Substitute – From the above example, it can be seen that the threat of substitutability is significant because, in the garment industry, there are many good substitutes. Compared to H&M, Gap offers a diverse product range at a reasonable price, while H&M focuses on providing stylish but reasonably priced clothing. Therefore, H&M’s major competitor is also capable of providing good quality products at an affordable price. In addition, the cost of substitution is relatively low.
5. Rivalry and its intensity – H&M’s products and those of its competitors are similar in the apparel sector, where there are many competitors. As a consequence, switching costs are low for buyers. Case studies show that slow growth lowers demand in the apparel business, leading to increased competition.

Figure 2: Porter’s 5 Forces of H&M

(Source: Global Logistics & Supply Chain Management of H&M, 2021)

PESTEL Model and Their Negative Effects on Economy and Company during Covid-19

An external marketing environment consists of macro-environmental (external) factors that impact a business, organization, or organization sector and is analyzed and monitored by marketers (Makgopa et. al. 2017).

Political Factors

H&M operates in numerous countries, so it goes without saying that it’s a global brand. One may view this as a great win for H&M, but it is also a window into global political tensions. Countries where H&M franchisees are located, like Egypt, Turkey, and Lebanon, are especially unstable. As long as global politics remain stable (which is wishful thinking), H&M will face a difficult task, as each nation has its own regulations and rules which international enterprises need to follow.

Economic Factors

H&M has also suffered from the Covid-19 pandemic. Consumer buying habits have changed drastically since virus spread as supply chains were severely affected. World economy faced a recession due to this disease (Fernandes et. al. 2020). In 2020, H&M will lose 18 percent of its net sales due to a lockout scenario, which affects about 80 percent of its stores worldwide. During this tough period, the company focused heavily on internet sales, which couldn’t completely eliminate the deficit, but kept them afloat.

Social-Cultural Factors

H&M Foundation gave the US $500,000 to WHO (World Health Organization) to fight effects of Covid-19 (Kim et. al. 2021). Because the company that have been affected by this pandemic, they are aware of how critical it is to be considerate of environment and people. As a result of their employment in ready-made garment industry, women in Bangladesh were among most affected by the pandemic.

Technological Factors

H&M’s parent company has long been striving to improve its supply chain by incorporating most recent technological advancements in order to make it efficient (McMaster et. al. 2020). A new high-tech logistics hub that will serve as a model for others was recently constructed in the United Kingdom after they invested heavily in this area in 2020.

Environmental Factors

To reduce costs and waste, H&M sends relevant merchandise to many nations where it has stored to take advantage of the weather conditions in the country where fashion products are sold. H&M, however, is currently having trouble precisely predicting emerging weather conditions to ship right supply of garments due to recent climate changes and unusual weather patterns around the world.

Legal Factors

H&M was fined by the Hamburg Commissioner for Data Protection and Freedom of Information on October 1, 2020 for €35,258,707.95 (roughly $41.2 million). A large portion of the company’s employee data was discovered to have been made public by its subsidiary in Hamburg, Germany (Luo et. al. 2019). Personnel were constantly interrogated about their whereabouts and activities in order to obtain sensitive information. Personal and private facts were handled recklessly.

Considerations for Improvement

Analyze some issues or claims about the H&M Company which needed considerations or implications for improvement and for doing better in future. There are materials which leave a smaller footprint on the environment than those used in the production of fabrics and textiles in the fashion world. Considering H&M Material Ethics, we source sustainably whenever possible.

Material Ethics

As part of H&M Group’s commitment to sustainability, ensure that raw materials used in products are sourced in a sustainable way and that social and environmental impacts are taken into account throughout the entire sourcing process (Moore et. al. 2017). Material sourcing and manufacturing must be conducted in accordance with both local and international laws, and biodiversity and ecosystems cannot be damaged or destroyed as a result. In order for the H&M Group to remain profitable, raw material supply must be regulated in an ethical manner. Neither fragile nor endangered species should be exploited.

The process of evaluating and categorizing materials:

By creating a material categorization framework at H&M Group to help product teams make better sourcing decisions. It will be an essential tool for reaching goals around materials. Textile Exchange’s animal welfare and material ethics policies, as well as the Preferred Fiber & Materials Matrix approach, influence the categorization of materials (Hartmann et. al. 2019). Use third-party lifecycle assessment data to determine which materials are environmentally friendly. Material sustainability indexes (MSIs) based on LCAs for specific materials and external standards based on LCAs, such as the Material Sustainability Index (MSI) from Sustainable Apparel Coalition (SAC). By using third-party assessments, we can promote industry alignment and make it easier for our stakeholders and consumers to compare performance.

Considerations For improvement

The problems will grow proportionately as more clothes are produced unless improvements are made to how clothes are made. In addition, mechanically recycled cotton is exempt from the general requirement of 50 percent, unless the standard used to certify the material specifies higher criteria. As a result of the recycling process, fibre shortening produces a higher recycled content, resulting in quality concerns. For mechanically recycled cotton, the minimum content is instead 20%, which is still a significant step forward in sustainability compared to virgin cotton since recycled cotton offers considerably better sustainability characteristics. The H&M Group has developed recycling technology to address these issues.

• Boost the development of chemical and mechanical recycling technologies. Chemical recycling, however, may yield fibres with a higher quality than mechanical recycling as technology progresses. Mechanical recycling, for example, produces fibres that are shorter and have a lower quality than virgin fibres.
• Create guidelines and methods for making clothes that can be reused or recycled. The Sustainable Apparel Coalition has created an index for assessing the total life-cycle costs of footwear and apparel.

Impact of Covid-19 on the economy of Australia

The government and economists might have been disappointed three months ago if they had been told that the economy would grow 0.7% during the June quarter. When the recession started in October 2001, employment was picking up, government-subsidized spending boomed in construction and retail, and inflation was the biggest concern. There are a number of COVID-19 positive cases in the community, which has caused the outlook to change. These restrictions have led to a 4% contraction for the current quarter.

• While quarterly growth slowed to 0.7 percent from the 9.6 percent increase in the June quarter of last year, the lockdown-depressed June quarter boosted the GDP by 9.6 percent in the June quarter. The domestic final demand for goods and services increased by 1.7 percent, reflecting 1.1% growth in consumer spending, 2.3% growth in business investment, 1.7 percent growth in housing investment, and 1.9 percent growth in public demand.
• The official economic data were consistent with last year’s mid-year earnings reporting season, when a 50% increase in listed firm profits was reported due to a boost from resources and banks. Almost 75% of companies reported improved profits. The big plus was a massive return of capital to shareholders, with 89 percent of companies increasing or sustaining dividends, with nearly $40 billion in dividends paid out and more than $20 billion in shares bought back.

Impact of Covid-19 on H&M

• H&M’s net sales decreased by 18% by the end of the fiscal year due to the pandemic (Dung al. 2020).
• We slowed or stopped several sustainability activities, including clothing collection programmes, business model scaling, our circular product development guideline, and our microfibre strategy, as well as evaluations of supplier factories in person. It has been postponed for now, but it is planned to resume the development of global science-based biodiversity guidelines in 2021. When the discussion is resumed, H&M will adjust their biodiversity goals in line with these guidelines.
• The opening of many stores was delayed or cancelled in 2020, and we had to close permanently or remodel many more stores than we expected.
• H&M has been in close dialogue with all its partners in order to find a sustainable, wholesector solution, which included factory closures and reduced future orders.

Government Economic Policies

In addition to establishing government budgets, tax rates, interest rates, and money supply, as well as national ownership and regulating wages, and a number of other economic interventions, governments also have an economic policy (Phan et. al. 2021). There are many economic policies, we discuss one of the government economic policy below:

Tax Policy

H&M strives to keep its tax policy in line with the laws and regulations of the countries where it operates. All taxes and charges are paid based on local regulations. Tax is an important part of H&M’s social responsibility as a good corporate citizen. Each of the countries where the H&M group operates follows its respective tax laws and regulations. Since the company’s founding, H&M has practiced a conservative and cautious tax policy. According to OECD guidelines, profits are allocated and taxed where their value is created. To maintain a sustainable tax rate, mitigate tax risks timely and efficiently, and comply with the rules and regulations of the countries in which H&M operates, our tax policy should reflect and support our business.

Positive Impact on H&M

By increasing taxes on a good, the government changes the supply curve to the left, and prices increase for consumers and decrease for sellers. Tax increases have no effect on the demand curve, nor do they change the elasticity of supply or demand. Wealthier people might have to contribute to the less fortunate due to higher taxes.

Negative Impact on H&M

The automatic stabilization of the economy based on taxes and discretionary tax policies can help mitigate the negative effects of an economic slump (Georgeta et. al. 2019). The same reasoning may be valid when tax agencies tolerate a higher level of noncompliance during a crisis, as this will probably give the economy a boost.

Recommendations

It could be recommended that H&M redistributes a portion of its supply chain functions to independent agencies. Procurement re-appropriation does not mean the company has lost control over the sourcing and buying process; rather, it enables the company to consider its core competencies and become a market leader by changing quality and standards.

• In order to control product quality and supply reliability, H&M needs to figure out how to outsource all production activities.
• For increased lead times, final goods need additional inspection time.
• Investing in multiple suppliers would be a smart move, as they only work with upstream suppliers.

Conclusions

Even though there have been a lot of hurdles and a difficulty in the garment industry, H&M has developed as one of the leading apparel firms. As a result of adapting to trends and challenges, they were able to follow the direction of sustainable production, first by outsourcing their materials from start to finish, following environmentally friendly practices, and listing their suppliers on their websites. In addition to offering the best possible experience for its customers, H&M continually improves its online presence year after year. H&M is a great success, from one store in 1947 to more than 35000 stores in 2021. All is because of trust in its employees and management.

References

Arrigo, E., (2018). The key role of retail stores in fast fashion companies: The H&M case study. In Contemporary case studies on fashion production, marketing, and operations (pp. 121-137). Springer, Singapore.

Dung, T.T.T., (2020), November. COVID-19 Pandemic Impact on Franchise Industry and Franchise Dispute Resolution. In Research Technologies of Pandemic Coronavirus Impact (RTCOV 2020) (pp. 239-244). Atlantis Press.

Fernandes, N., (2020). Economic effects of coronavirus outbreak (COVID-19) on the world economy. Available at SSRN 3557504.

Georgeta, A.A., (2019). AUTOMATIC STABILIZATION-ARGUMENT FOR THE REDUCTION OF DISCRETIONARY MEASURES IN PUBLIC POLICIES. Social-Economic Debates, 8(1), pp.1-12.

Global Logistics & Supply Chain Management of H&M. (2021). [Online]. Accessed Through: < https://www.ukessays.com/essays/international-business/global-logistics-supply-chain-management-of-hm.php>. Accessed on 25^th November, 2021.

H&M. (2021). [Online]. Accessed Through: < https://en.wikipedia.org/wiki/H%26M>. Accessed on 25^th November, 2021.

Hartmann, N.B., Huffer, T., Thompson, R.C., Hassellöv, M., Verschoor, A., Daugaard, A.E., Rist, S., Karlsson, T., Brennholt, N., Cole, M. and Herrling, M.P., (2019). Are we speaking the same language? Recommendations for a definition and categorization framework for plastic debris.Sage

Kim, S. and Woo, H., (2021). Global fashion retailers’ responses to external and internal crises during the COVID-19 pandemic. Fashion and Textiles, 8(1), pp.1-26.

Luo, C. and Wang, Y., (2019), November. Game Theory in the Fashion Industry: How Can H&M Use Game Theory to Determine Their Marketing Strategy?. In International Workshop of Advanced Manufacturing and Automation (pp. 633-638). Springer, Singapore.

Makgopa, S.S. and Daniel, T., (2017). External environmental considerations in the planning of strategies of car dealerships. Environmental economics, (8, Iss. 1), pp.83-92.

McMaster, M., Nettleton, C., Tom, C., Xu, B., Cao, C. and Qiao, P., (2020). Risk management: Rethinking fashion supply chain management for multinational corporations in light of the COVID-19 outbreak. Journal of Risk and Financial Management, 13(8), p.173.

Moore, J.E., Mascarenhas, A., Bain, J. and Straus, S.E., (2017). Developing a comprehensive definition of sustainability. Implementation Science, 12(1), pp.1-8.

Phan, D.H.B., Iyke, B.N., Sharma, S.S. and Affandi, Y., (2021). Economic policy uncertainty and financial stability–Is there a relation?. Economic Modelling, 94, pp.1018-1029.

Teece, D.J. and Linden, G., (2017). Business models, value capture, and the digital enterprise. Journal of organization design, 6(1), pp.1-14.

Triponel, A. and Sherman, J., (2020). Moral bankruptcy during times of crisis: H&M just thought twice before triggering force majeure clauses with suppliers, and here’s why you should too. Business and Human Rights Resource Centre, 1.

Varadarajan, R., (2020). Customer information resources advantage, marketing strategy and business performance: A market resources based view. Industrial Marketing Management, 89, pp.89-97.