BUSINESS MODEL Of H&M

H&M Business Model

H&M, ZARA and Uniqlo are three well-known names in the fast fashion industry. The most remarkable thing about these brands is their unconventional approach to fashion retail. Widely different from the traditional fashion retailers, these brands have made a place in consumers’ hearts with their unique approach. The approaches taken by Uniqlo and Zara differ widely and while the first has mainly relied on technological innovation, ZARA depends on its supply chain and cost leadership.  Zara has an innovative supply chain that allows it to deliver products in real time and respond to the latest fashion trends. H&M’s approach lies somewhere between Uniqlo and Zara. Its fashion cycles are longer than ZARA and it has still managed to respond to the changing trends. After Inditex, Hennes and Mauritz (H&M) is the second largest apparel retailer of the world.

The secret of H&M’s success like Zara is its fast fashion model. Fast fashion means reduced time between the design and delivery process. New styles reach the stores faster from the designer’s table. With its 3924 stores open globally (4351 as per 2016 annual report of H&M), the brand is operational across 61 markets in six continents.   H&M is also using its e-commerce platform to reach its customers across 23 markets.  It has expanded rapidly and opened 413 net new stores in 2015 and entered five new markets.  It has been in US since 2000 and opened its largest new store in NewYork covering an area of 6000 square metres.

H&M has opened many new stores in other parts of the world too including Asia. It does not own its stores but uses leased properties. There are several fashion brands operating under the H&M brand.  Its H&M, COS, & Other Stories, Monki, Weekday and Cheap Monday are all distinct fashion brands that have a differentiated brand identity. The pricing scheme differs from one to another brand across the spectrum. They offer varying styles at varying prices. These brands make every type of fashion from timeless classics to the latest in line. In 2015, the brand launched its H&M beauty.

Its designers create its fashion in Stockholm. Production is outsourced to more than 800 suppliers. Mostly the products with longer lead times are made by the Asian suppliers and the ones with shorter lead times by the Europe based suppliers. Its production offices are strategically placed close to the suppliers.

These production offices also act as liaisons between designers and suppliers. They derive information from both the ends to select suppliers that would be best to work with.  They also audit the suppliers to monitor their compliance with its Sustainability commitment. 80% of H&M’s inventory is manufactured in advance whereas 20% of it is produced based on the current market trends. From the factories the ready products are sent to the logistics centers which distribute them to the nearby stores.

H&M has a complex supply chain but it has used a well-developed IT system which integrates its production chain and allows real time communication. Stores are connected to logistics and warehouses by a Central Inventory Management Software that makes it easier to order and replenish the stores. This central inventory management system is used by the head office to monitor the sales trends and make production and design decisions on its basis. In this way, H&M has erected a business model that allows it to respond faster to the market trends. This business model is faster plus highly responsive.

The brand is highly flexible and uses its central IT system to monitor customer trends. This flexibility is a source of advantage and allows for its 20% of manufacturing to be done in shorter lead times. Its replenishment centers also add to its flexibility by monitoring each store’s inventory level and then responding in quick time. Close relationships with the suppliers guarantee lower prices of raw materials and control costs.  In this way, H&M’s strategy lies somewhere between that of ZARA and Uniqlo. However, research is just as critical for H&M and also a source of competitive advantage for it. It is not just H&M, ZARA and Uniqlo are also focused on customer preferences to remain competitive.

At the core of H&M’s concept is quality fashion, fast and sustainable at best prices. It sells collections for women, men, teenagers, children and babies.  H&M’s fashion is created by a team of designers, buyers and pattern makers. This team brings new ideas and influences from new trends in films, art, exhibition, fashion shows and street style. H&M produces a diverse collection from which customers can choose based on their personal taste and lifestyle.

Today’s customers are more inclined towards the sustainable brands. H&M has started including more sustainable material in the production of its fashion and fabric. Organic cotton and recycled polyester and wool are being included across H&M’s product range to produce sustainable fashion.

H&M considers it important to form long lasting relationships with the suppliers. Trust, transparency and responsibility is important in its supplier relationships. The focus is also on supplier development and sustainability. Its global expansion has generated new opportunities for suppliers and workers. In 2015, it hired 16,000 new employees. The total number of employees working for H&M has reached 148,000. Another important area where H&M has excelled is that of gender diversity.  76% of the employees working for H&M are females. They also hold 72% of the positions of responsibility like country managers and store managers.

In the past few years, H&M has expanded to several new markets including India, South Africa and Peru. It has utilized the power of ecommerce to deepen its reach among its customers and markets. Its website is easy to navigate, fully mobile adapted and highly interactive. H&M has continued to improve its website and increase the number of products and services for its customers.

In 2015, it extended its presence to ten of its existing markets including Portugal, Poland, the Czech Republic, Romania, Slovakia, Hungary, Bulgaria, Belgium, Switzerland and Russia.  By the end of 2015, the brand was available online in 23 countries and its plan for 2016 was to expand its presence to further nine of its existing markets. While continuing on its expansion spree, the brand has retained its focus on three things – quality, sustainability and high profitability.

Brands by H&M:

H&M: H&M offers good quality and sustainable fashion at affordable prices. It makes both the latest in fashion and lasting classics that can be worn year after year.  The brand makes a wide range of products including sportswear, underwear and cosmetics, accessories and shoes, as well as home textiles and decorative items. This product range is refreshed and updated continuously. In 2015, it also launched a new product line of beauty and make up products named H&M beauty.

& Other stories:  This brand offers a wide range of shoes, bags, jewellery, beauty, and other fashion items for women under one roof.  The brand offers a range of styling possibilities from masculine tailoring to feminine chic. & Other stories is sold in in 30 stores and 13 online markets. It was launched in 2013.

Cheap Monday: Cheap Monday is an H&M brand influenced by street fashion and youth subway cultures. Foundation of this brand is the modern denim rage which is complemented by a vast range of clothing and accessories for both sexes at affordable prices. It is sold through 2000 retailers in more than 35 markets.

COS: COS is sold through 153 stores and in 19 online markets. It is a fashion brand for men and women that want modern and well-coordinated collections of high quality timeless pieces. In every aspect of its business, the brand is known for quality and detail as well as high quality of customer service and nice packaging. Its stores are also known for convenient and appealing environment.

Monki: Monki is primarily aimed at young women but it sells style for all ages. Its products are inspired by today’s fashions but with a twist of Scandinavian and Asian street style.

Weekday: It is a modern fashion brand that offers international fashion. Weekday carries in-house brands and a selected range of styles by external designers.

Sources used:

https://www.forbes.com/sites/gregpetro/2012/11/05/the-future-of-fashion-retailing-the-hm-approach-part-3-of-3/#2f8581924a60
http://www.investopedia.com/articles/markets/120215/hm-vs-zara-vs-uniqlo-comparing-business-models.asp
https://rctom.hbs.org/submission/hm-how-fast-fashion-translates-into-low-prices-and-success/

Annual Report 2015

http://sustainability.hm.com/en/sustainability/commitments/choose-and-reward-responsible-partners/supply-chain.html

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