The clothing business is a diverse ever-changing fashion industry. H and M however has managed to be found over 60 years ago and stands as a billion-dollar multi nationwide company ( H & M history). The clothing business can be challenging because fashion is constantly changing. Although its humble beginnings begin with only selling woman’s clothing, now the company globally sells clothing for all genders and ages (H;M history). H and M competes against a lot of other retailers and still manages to remain in the market. The clothing industry is monopolistically competitive because firms have differentiated products and market power.
H and M creates their revenue by selling clothing, accessories, shoes etc. to male and female of all ages. This is how they make money through their consumers. The clothing industry is a highly competitive environment. There are hundreds and hundreds of other retailers out there, especially in the malls all over America where H and M stores are usually located. Location is never a problem for this company, because whatever a consumer cannot find within their stores, their online site can deliver the same products and then some for consumer wants.
When it comes to this industry, a lot of other competitors like Express for example sell similar clothing or just as trendy merchandise. A big difference between H and M and Express is that Express sells their clothing merchandise at a much higher price than H and M. There are a large number of competitors like Express and therefore all sellers try and create a monopolistic competition to state that their clothing is the most “fashionable”. When it comes to pricing H and M has always had a constant turnover with product merchandise. For example, H and M has much reasonable pricing than Express and other high price retailers. How is H and M able to afford and determine their lower pricing? Tun Zaw (2018), fast fashion is an idea of moving large volumes of merchandise from the designer tables to the showroom floor to their store floor with little time as possible. H and M achieves this goal by having higher merchandise turnover and by constantly resupplying the product pipeline with the latest fashion trends. This is how H and M determines there pricing, because they are able to sell clothing a lot faster than other competitors. Other competitors most likely sell less at a higher price.
Firms can enter and exit this market easily because it is imperfect competition that sells similar or identical merchandise and product. Most if not all clothing firms have a small amount of market power. Some firms do have more market power than others due to the fact of name brands and who also represents the company like celebrities for example in order to sell their product as “better”. Again, the natural barriers to entry of this market are low. This is due to the fact that anyone can mimic merchandise or start a fashion trend to make it appeal to the consumer. Startup costs would be relatively low because someone could sell their merchandise online through their site or others like eBay. If firms like H and M were to exit this industry, the loyal consumers would go elsewhere to find reasonable pricing that sell similar fashionable clothing. This also applies to other clothing retailers if they were to exit this industry. This makes exiting this industry quite easy.
H and M follows a constant flow of new fashion trends. The fact they get their new merchandise out faster than other competitors gives this retailer an advantage over and fraction of the cost of others as well. Another strength the company has is its diversified global presence. It has stores in over 60 countries across 6 continents. This global presence helps reduce business risk by entering more markets across the world to create revenue. In addition, the company sells a variety of products including apparels, cosmetics, shoes and accessories. This gives the consumer more of a variety for the consumer to purchase. H;M in 2015 showed a growth in revenue of 19.4% over the fiscal year of 2014. A stronger financial performance will show investors to see the financial flexibility and growth to the company (Hitesh, 2018).
From a personal experience, I have noticed that H ; M quality is sometimes not up to par like other brands. With affordable quality that H ; M gives its consumers, sometimes affects the quality of their merchandise. If you shop at H ; M, then you will notice that the company itself has a lot of 3rd party suppliers that give them their merchandise to sell. You can see this by checking out the tags on clothing within the stores and see who actually created it and where I came from. This is sometimes not so good to have so many suppliers, because they have very low control over production.
Since the beginning of opening its first store within the 40’s, H & M has gradually adjusted accordingly to its times as well as its expansion of the company. Hitesh (2018), The company has added over 300 stores in the fiscal year of 2016. In addition, H & M is always partnering up with athletes and celebrities to be an ambassador for the company’s clothing. Zaczikiewics (2018), This being said, H ; M actually could focus more on its e-commerce like other retailers do. For example, allowing people in the United States to purchase clothing on the H ; M site that is strictly for Europe only. If H ; M could make it more accessible for US citizens to purchase that style from Europe then that gives the consumers more choices and thus creates a better chance of increasing revenue.
Reiterating what I said earlier, e-commerce is an advantage but can also allow new entrants. Online allows newer or current brands to be present on the same or similar platform like H ; M. This can could create an impact on brands like H ; M, if the other entrant knows exactly what to do, but do it better. Although H ; M is always on the fast fashion trend, the apparel industry is a tough one. Competition is everywhere and so therefore H ; M has to be aware of what the next 10 steps or so in order to maintain ahead of the game. As time goes on labor cost is always on the rise. This is inevitable. The cost will always affect the profitability of a company. As for H ; M, developed countries can increase the cost of laborproduction for its industry.
Bargaining Supplier Power:
H ;M has a numerous number of manufacturers and suppliers that produce what they need in order to give the consumer what they want (About H ; M). This being said, the bargaining supplier power is actually quite low. The fashion industry alone has an abundant amount of manufacturers ; suppliers and thus have more options to source like H ; M does with its business. In addition, H ; M opening up cheap labor markets in Asian countries allows the company to ensure low costs and better quality if needed. Switching costs within Asian markets are considered relatively quite low. This benefits H ; M the greatest, because having a variety of suppliers contributes to the company as whole.
Power of Buyers:
The power of buyers can tricky. The bargaining power of buyers that H ; M face is high because there are so many other retailers out there. An example of a few main competitive retailers against H ; M are Zara, gap, and UNIQLO. UNIQLO is a Japanese that operates its business there and other countries as well. Chu (2018), Just like H ; M, UNIQLO is just as fast retailing in terms of constant fashion turnover. The switching cost between these retailers and much like other is little or no switching costs.
Threat of Substitutes ; Rivalry.
Howland (2018), E-commerce and new brands each should grow 25%, and sales in newly opened stores should add about 4% within the next couple or so years. Competition can impact H ; M’s online platform sales, but the company wants to develop a better online sales strategy to rise above its competitors. Rivalry is high and so is the threat of substitutes. Substitutes for H & M is high because the products they sell can be like any other companies’ merchandise. This is where the identical “Fast Fashion” marketing strategy comes into play that other companies like UNIQLO perform. Rivalry is at an all time high. This is because there are a great amount of small and large retailers out there. There are name brands that are luxury all the way down to an everyday consumers department store like Target.
Threat of Entrants:
Furthermore, the threat of entrants can be low. In order to gain economic large sales like H ; M this would be difficult for another competitor to reach that level. This is more of a global perspective since H ; M operates in business around the world. Within the fashion industry, it is difficult to try and differentiate products. This also leads to investors. Why would investors choose their already big time retailer over a new one with large startup cost and no reputation of being “fashionable”. Brand identification itself causes a barrier to entry just because of the big names out there.
Below is H ; M compared to its main competitor, Zara. Zara does not solely own stock. It has a parent company that owns named Inditex. This can be common in the retail world due to the fact of different owners in different countries with numerous products. It is apparent that H ; M dominates the other two competitors by far in revenue and net income.
H ; M Inditex (parent company of Zara) The Gap
Revenue 200,004,000 25,336,000 15,855,000
Net Income 16,184,000 3,368,000 848,000
Assets (Last 2-year average) 102,570,500 10,022,500 4,441,500
Stock Holder Equity (Last 2-year average) 60,474,500 13,105,000 2,922,000
Return on Equity .267616 .257001 .290212
Profit Margin .080918 .132933 .053484
Asset Turnover 1.949917 2.527912 3.569739
Leverage 1.696095 .764784 1.520020
Comparing in store prices, Zara sells their merchandise higher than H ; M ; The GAP, and in times have better quality over them as well. Looking more closely into numbers though, H ; M has the least ROE. This may be due to the fact that H ; M heavily relies on third parties to produce and fund their business for distribution. Although H ; M’s ROE is second highest, I do not think H &M has too much to learn from its competitors other than Zara. Zara is operated in now in 96 countries (Forbes, 2018), H & M is only in 70 ( About H&M). H & M should look closer into its operations management team in order expand. Perhaps they should sell some of their assets in order to gain newer ones in different markets. On the other hand, H & M should consider utilizing its stock holder investments in order to expand its online every market they have instead of just some them. This would help the company grow and thus see a return on its investments.
H & M would be nothing without its Marketing Strategy. Throughout the years this how the company has reign in the retail market for as long as it has. This company markets to a its main customers. Its main Customers are millennials. Millennials are the consumers seeking out to be trendy and fashionable. They also make shopping as “Social Pleasure” (About H & M). In addition, Millennials are usually middle-class consumers. With affordable and constant trendy merchandise that is how the company captures the purchase from them. Furthermore, the company ranges their merchandise for all ages and both female and male. This gives the company a wide range of what they can sell and how much can they sell it to their consumers and potentials.
Customer loyalty is every retailers’ main goal. It creates revenue. H ; M however, works off its already low customer pricing. Also, H ; M gives promotions and sales to consumers during holiday seasons and holidays. As a customer of H ; M, they also offer 15% per transaction for bringing in a bag of any type of 3 clothes or more. This is a great way for the consumers to recycle their old clothes for their “want” to save money.
Perceptual mapping is another strategy H ; M considers on using for its fast turnover rate of merchandise brand. This company seems to run off a consistency of what new fast fashion they can bring to the floor first. They also determine cost, what is in and what is not, location, age, etc. they determine location because each country, state, etc. is different in terms of fashion. The company needs to gauge what merchandise fits each demographic area. Age is another factor because they need to analyze what age group buys more of which merchandise. For example, does age group 18-24 buy more of this type of fashion trend or that trend.
Overall, H ; M is a company that works on improvements with already established techniques and newer ones already on the way.