Synopsis of H&M’s Strategy and Competitive Position

H&M’s Strategy and Competitive Position

H&M, originally from Sweden, has transformed into a global apparel retailer in more than seventy-four countries. It was created by Erling Persson in 1947. With investments in its supply chain and technology, H&M has gained a reputation as one of the industry’s preeminent fast fashion brands. Providing customers with the latest affordable style is essential to H&M’s business strategy. As businesses in this sector expand, the global community’s attention has turned to fast fashion. Zara, a major competitor, places a design premium and quickly responds to shifts in consumer taste and the fashion industry (Peñarroya-Farell and Miralles, 2022). Uniqlo’s extended lead times emphasize the importance of technology and accurately gauging customer preferences. H&M is seen as a middle-ground company since it prioritizes customer trend research and prediction while maintaining some operational flexibility. However, despite their differences, all these businesses place a premium on understanding and catering to their customer’s tastes.

The Real Competitive Threats Exposed to H&M

Impending Recession: Clothing is something everyone needs, but fashionable accessories, shoes, and undergarments are a treat. Retailers like H&M will experience a significant drop in sales and profits, and possibly even fail, when Europe and other regions enter a recession.

Intense Competition: H&M’s rivals include established and up-and-coming labels, such as Zara, Macy’s, the Gap, and Boohoo. All of H&M’s rivals are working to steal customers away from H&M’s products and grow their market share.

Increase in Counterfeits: Unfortunately, counterfeit goods are most prevalent in fashion. Profits from H&M’s high-end designer labels may fall in the future due to the escalating global trade in counterfeit goods.

Rising Operation Costs: As the price of labor and commodities rises around the world, merchants are seeing a steady decline in their profit margins. Rising operating and production costs are squeezing H&M’s capacity to profit.

Trade Tariffs: H&M is a prime candidate for tariffs because it sources so much of its production from Asia. After Brexit, the United Kingdom may decide to go after H&M because it is a Swedish firm.

Global Pandemic: Global corporations like H&M rely on a steady supply of raw materials and finished goods to operate successfully. In the case of another global pandemic in the future, lockdowns and quarantine may lower H&M’s sales and earnings by disrupting the flow of commerce.

Resources, Capabilities, and Competitive Advantage Relative to Competitors

When evaluating H&M’s competitive advantages, students should remember the business’s CEO, Karl-Johan, and how H&M can maintain and bolster the strategic skills in which the company excels. The real test is whether H&M can transform its short-term competitive edge and regions of competitive parity into a longer-term, more stable advantage. H&M may benefit from students’ insights into the risks of losing its competitive edge to copying and the strategies it might employ to counteract those dangers.

However, H&M’s competitive advantage depends not just on its strategic management skills but also on the actions of its competitors and the state of the industry as a whole. As a result, they may begin to think about developing alternative strategic abilities (Higgins et al., 2018). To combat the “strategic skills erosion,” H&M may experiment with new methods. H&M began as a minor company with novel ideas and a fresh perspective on the fashion business, from which it developed superior strategic capabilities. H&M can achieve this right now and has the resources to learn the necessary new skills.

The Positions Defendability and Sustainability in the Long-Term

H&M has taken several positive steps toward creating a more sustainable, position-defensible, and long-term business model. It employs eco-friendly materials like organic cotton and recycled polyester in some products, and it sells a line called Conscious that’s produced from sustainably sourced materials and stuff people leave off at the store’s recycling bins. It includes making everything eco-friendly; that’s the only way to guarantee that wonderful clothing and home decoration will always be accessible (Ullah, 2021). To be a sustainable, fair, and equitable business that uses its size and scale for good by pioneering the transition to a renewable, circular fashion industry through technological innovation. To do this, they have collaborated with various in-house and outside specialists to establish a comprehensive plan.

Assessment of H&M’s Resources and Capabilities

Resources Possessed by H&M

Physical facilities- These facilities include production offices, distribution hubs, and storage facilities, and their primary function is to coordinate with contracted and approved suppliers and factories worldwide.

Intangible assets – The H&M brand name has a solid reputation and equity, and the company’s information technology systems are constantly updated to better match supply with demand and track changes in customer tastes based on sales trends.

Human resources include a dedicated and highly motivated staff, where employees’ personal traits matter considerably more than their formal qualifications and credentials, and excellent leadership, exemplified by three generations of the Persson family, whose legacy and influence are crucial to H&M’s culture.

Financial resources- The Persson family’s long-term dedication and full ownership guarantee H&M a solid financial foundation.

The H&M Resources and Capabilities and Overview

H&M’s ability to successfully implement the same shop idea in other countries, together with the company’s strong brand and market position, is a major contributor to the company’s competitive edge. The organizational culture at H&M, for example, was heavily influenced by the formidable character of founder Erling Persson and subsequently inherited. All of these aspects are deeply ingrained in H&M’s business model and have a rich historical background, dating back to the very beginning of the company.

These founders practically transformed the fashion subsector of the garment industry by positioning the H&M brand as competitive with high fashion in terms of quality and pricing. New employees worldwide are introduced to the H&M culture and principles defined by these executives (Sánchez Planelles, 2022). The consistent growth of H&M can be attributed to the company’s ability to successfully implement its business and cultural models in new locations worldwide. So, there are obvious connections between H&M’s culture, leadership, the brand’s market standing, and the brand’s ability to be replicated.

VRIO Framework

The VRIO framework assesses whether a company’s internal resources and capabilities can provide a competitive advantage over the long term. It’s useful for assessing a business’s assets and pinpointing its distinct advantages in the market. Value, rarity, uniqueness, and organizational support are the four pillars on which the VRIO framework rests.

H&M can use the VRIO framework to determine what it does well and where it can improve to maintain its competitive edge. For instance, the sustainable sourcing practices and fast fashion model that H&M employs give the company a significant and durable competitive advantage (Thomas et al., 2020). However, the company’s inbound logistics and operations may need tweaking to keep its edge in the market.

A VRIO analysis can also help H&M spot holes in the system that sustains its resources and capabilities. This could be due to the company needing to put more money toward developing its workforce or its technology systems.

The Value System and H&M International Strategy

H&M’s business is self-funded; thus, the company’s worldwide strategy and value system prioritize the franchise and wholly owned subsidiary as entry points into the expansion strategy. When entering a new country or market, H&M takes a different approach. H&M’s growth strategy involves opening between 10 and 15 percent additional stores annually (Cappa et al., 2020). Cheap Monday, H&M Weekday, and other sub-brands of H&M have expanded along with the company. H&M wants to enter the market via licensing and a wholly-owned subsidiary. One of the entrance gates that H&M is targeting is a completely owned subsidiary in Singapore or Malaysia since those countries are relatively politically stable environments in which to establish a business.

Political stability in Singapore and Malaysia has provided H&M with a competitive edge, allowing the company to operate there with low risk and continuous profit margin. H&M is pursuing a completely owned subsidiary in regions like the Americas and Canada to gain (potential) control of the chain’s retail outlets. H&M has ambitions to increase product availability in Asian nations like China and Ethiopia. H&M plans to continue its rapid global expansion, and one of the ways it plans to do so is by forming a completely owned subsidiary in China or Ethiopia, two countries with enormous economic and consumer markets. To lower the unemployment rate, it is recommended to use a completely owned subsidiary.

The Main Primary Activities

Inbound Logistics

Inputs, such as raw materials, are often handled in inbound logistics. This job also necessitates interaction with third-party businesses like distributors. Inbound logistics includes receiving, storing, and distributing goods inputs. Material storage, stock management, vehicle scheduling, and supplier returns are examples.

Operations

Operations Conveyor belts in manufacturing facilities are often utilized during this stage. Hence, operations activities are the transformation of inputs into the finished output. Machining, packaging, assembly, equipment maintenance, testing, printing, and facility operations are all examples of such activities.

The Outbound Logistics

It is not enough to complete a product; it must also reach the end user. The company’s efficiency determines whether the goods can be sent immediately or needs to be held for a while. Outbound logistics entails the processes of accumulating inventory, warehousing it, and delivering it to customers. Warehouse management, material handling, driving routes for delivery vehicles, and scheduling orders are all examples.

Marketing and Sales

The existence of a market for a product is not guaranteed because it is manufactured. Sales and advertising become relevant at this point. Marketers and salespeople are responsible for increasing product awareness and generating sales interest among potential buyers. Sales and marketing efforts are designed to make the product accessible and encourage consumers to purchase. Such instances include marketing, sales, channel relations, selection, and price. The Marketing Funnel is a useful framework for organizing the various steps involved in advertising.

Service

After-sale support is as crucial in today’s economy as advertising. Dissatisfied clients can quickly voice their opinions online, which could have far-reaching ramifications for your business’s brand. Having effective methods of customer service is, thus, crucial. Providing service to improve or preserve the product’s value after it has been sold and delivered is the focus of this value chain stage. Services include setting up, fixing, teaching, supplying, and adjusting products.

Support Activities

They span the core operations and work to optimize efficiency by sharing inputs like money, time, and materials, as well as resources like hardware, software, and personnel. Hence, the supporting activities can be broken down into purchasing, research, and development (R&D), HR administration, and basic office maintenance. Procurement, technological advancement, and human resource management are dotted lines to show how they can be related to key operations and support the complete value chain.

Types of Support Activities

Procurement

Procurement refers to acquiring inputs for the firm’s value chain rather than the actual inputs. All actions that provide value require inputs, and this includes support activities. Raw materials, supplies, and other consumables are examples of inputs, but fixed assets like machinery, laboratory equipment, office equipment, and buildings all fall into this category. As a result, procurement is essential since it supports other value chain processes beyond merely inbound logistics.

Technology Development (R&D)

Technology is an integral part of any high-value activity, whether in the form of expertise, standard operating procedures, or process equipment. Most businesses utilize a wide variety of technologies. Efforts to advance technology can be divided into two broad categories: product and process improvement. Technologies such as those used in communication, accounting automation, product design study, and customer service are all good examples.

Human Resource Management

Human resource management includes finding new employees, evaluating their performance, and rewarding their efforts. HRM influences a company’s competitive advantage by shaping the hiring and training costs, employee skills and motivation, and the quality of the company’s output. Several businesses, especially those in the IT and advisory service sectors, place such a premium on their employees’ abilities that they have established dedicated HRM divisions tasked with finding, hiring, and developing the brightest and finest new graduates.

Firm Infrastructure

Strategic management, planning, finance, accounting, legal, government affairs, and quality management are all components of a company’s underlying framework. The value chain as a whole, rather than individual activities, is typically supported by infrastructure. Overhead is a financial term that describes the total amount spent on a company’s infrastructure. Yet, one should consider the potential of such actions as a major source of competitive advantage. For all, strategic business decisions are frequently derived from larger strategic ones.

Improvement Strategies in areas H&M has temporary advantages

Despite its global network of suppliers, H&M should enhance its procurement procedures to cut costs and increase efficiency. The business may consider nearshoring or reshoring to reduce transportation expenses and turnaround times.

H&M can collaborate with vendors worldwide because of its streamlined design process. But, the business might investigate cutting-edge technology to improve efficiency and reduce production expenses. H&M could put money into automation and digital technology to boost the effectiveness of its production procedures.

H&M enjoys high brand recognition and customer loyalty, but it could benefit from enhancing its online marketing and sales strategies. Online shoppers may benefit from the company’s potential investment in cutting-edge technologies like augmented and virtual reality.

H&M provides its employees a pleasant work environment and competitive pay and benefits, but the company should do more to help its workers grow professionally. If the organization is serious about attracting and retaining top people, it should investigate innovative strategies for talent management, such as diversity and inclusion programs.

The Future of H&M’s Competitiveness

Sustaining and Strengthening H&M’s Competitive Advantage

Many organizations utilize strategies to gain an edge in the marketplace. A corporation has a competitive advantage if it can produce its goods and services at a lower cost while maintaining or improving quality (Chen et al., 2019). H&M, for example, has endured a remarkable course of development over its many years in business and established a firm foundation for future growth and prosperity. In contrast, the company needs to maintain and strengthen its competitive advantage by maintaining possession of a set of exploitable resources;

Cost advantage: Delivering excellent value and quality without increasing the price. Providing exceptional value and quality without raising prices can give a company a considerable and long-lasting competitive edge. If they can successfully implement price strategies that take advantage of economies of scale, their competitors will be unable to steal away too much of their market share. Because of this, competitively cheap costs are a crucial example of a durable competitive advantage. They must maintain the ethos of “fashion and quality at the best costs” to make fashion accessible to everybody. There will be price competition for the company.

Value advantage: The company must provide a unique and high-quality product or service.

Focus advantage: The Company should not specialize in serving a narrow market segment; instead, it should adapt its offerings to appeal to consumers across socioeconomic lines. The future and the various types of clients must be taken into account while making decisions. Realize that the company’s success hinges on its product’s distinctiveness.

Skilled labor and management: The product or service quality will improve, and managerial choices will be made more efficiently if the workforce and management are well-trained. A better leader may make better choices for the expansion of the business, giving the organization a long-term competitive edge.

H&M Temporary Advantages

High-fashion and lower prices – Their business model, which had served them well for quite some time, was quickly undermined by the success of a major rival: Zara. it is the flagship store of the Spanish company Inditex, which surpassed H&M in market capitalization to become the largest fashion retailer in the world on the strength of its rapid expansion, especially in emerging markets. H&M must increase its focus on emerging areas if they want to keep up with the competition and keep from being overtaken as the market leader.

Presence: H&M plans to create a certain number of stores per year but to reach more people, it may need to re-engineer the Zara model and expand into many more countries. H&M already has a presence on Facebook, Twitter, Instagram, and Google+, and they hope to incorporate their customers into their everyday operations through these channels (Kreiser et al., 2021). The H&M app is useful since it facilitates excellent customer interactions through which input on new product lines and advertising campaigns can be gathered. H&M can improve its relationships with its customers by releasing non-fashion-related CSR initiatives that benefit the communities where its stores are located. It might be a medical help program or a scholarship fund for bright but financially disadvantaged pupils.

Business Model: According to the case study, H&M ensures the quality of all its products, from trousers to lipstick, before they hit store shelves. H&M’s approach to product differentiation, which involves sourcing essentials and then putting their spin on them, is an advantage here. With today’s increasingly internationalized fashion industry, however, it’s easy to replicate their looks. Thus, H & M must make significant efforts to ensure its designs are not easily replicated.

Bargaining Power of Supplier: H&M has the advantage because, as a large company, they have the leverage to negotiate advantageous terms with their suppliers. Some believe, however, that this advantage may be eroded due to rising rivalry and the emergence of many new organizations in the quick fashion area since it will become relatively easy for suppliers to turn elsewhere for more business if the terms offered by H&M are not to their liking.

Development of Further Capabilities

Business Expansion: In today’s ever-changing company setting, it is crucial to maintain concentration on the winning strategies that will ensure continued success. The CEO of H&M must pay close attention to the internationalization of the company’s operations. The case study reveals that H&M has yet to penetrate Asia and Africa’s markets fully. H&M must expand its capacities to serve a wider range of customers to maintain its competitive edge in these expanding regions.

Brand Identity: H&M’s main problem is that it no longer connects with its original customer base. H&M was popular among young people, but now it’s no different from any other clothes retailer. By creating new brands geared at certain groups or revitalizing the entire marketing strategy, H&M can reposition the brand.

The barrier to new entrants: The rate at which new competitors degrade an incumbent’s competitive advantage depends on the ingenuity or imitation of those new entrants. If it wants to keep up with the competition, H&M needs to put up barriers, such as differentiation mechanisms that can deliver preventative and deterrent responses (Rienda et al., 2021). Deterrence and preemption are two strategies that reduce competitors’ motivation to copy or innovate. H&M must evaluate how well its current business model can adapt to the rapidly changing fashion industry.

Technological Advancement: The commercial and technological developments that drive today’s business climate make it highly unpredictable. H&M must improve its operations through technological development rather than increasing its shop count. There is room for improvement in the ‘click and collect’ paradigm, which combines online and offline shopping experiences.

Continuous Improvement: Competitors pose the biggest danger to H&M’s market dominance. The case demonstrates that H&M competes head-on with Zara and that Zara has raised concerns about the long-term viability of H&M’s business model. The company can boost its competitive standing by consistently working to enhance its operational capabilities. H&M must develop new skills to be relevant in the modern corporate world.

References

Cappa, F., Cetrini, G. and Oriani, R., 2020. The impact of corporate strategy on capital structure: evidence from Italian listed firms. The Quarterly Review of Economics and Finance, 76, pp.379-385. https://doi.org/10.1016/j.qref.2019.09.005

Chen, C., Gu, T., Cai, Y. and Yang, Y., 2019. Impact of supply chain information sharing on the performance of fashion enterprises: An empirical study using SEM. Journal of Enterprise Information Management, 32(6), pp.913-935. https://doi.org/10.1108/JEIM-04-2019-0104

Higgins, D., Jones, P. and McGowan, P., 2018. Creating Entrepreneurial Space: Talking Through Multi-voices, Reflections on Emerging Debates. In Creating Entrepreneurial Space: Talking Through Multi-Voices, Reflections on Emerging Debates (Vol. 9, pp. 1-6). Emerald Publishing Limited. https://doi.org/10.1108/S2040-72462018000009A015

Kreiser, P.M., Kuratko, D.F., Covin, J.G., Ireland, R.D. and Hornsby, J.S., 2021. Corporate entrepreneurship strategy: extending our knowledge boundaries through configuration theory. Small Business Economics, 56, pp.739-758. https://doi.org/10.1007/s11187-019-00198-x

Peñarroya-Farell, M. and Miralles, F. (2022) Business Model Adaptation to the COVID-19 Crisis: Strategic Response of the Spanish Cultural and Creative Firms. Journal of Open Innovation.https://doi.org/10.3390/joitmc8010039

Rienda, L., Ruiz-Fernandez, L. and Carey, L., 2021. Analyzing trademark and social media in the fashion industry: tools that impact SME performance and internationalization. Journal of Fashion Marketing and Management: An International Journal, 25(1), pp.117-132. https://doi.org/10.1108/JFMM-03-2020-0035

Sánchez Planelles, J., 2022. Measuring the success of new business models with an environmental perspective: from the circular economy to servitization (Doctoral dissertation, Universitat Politècnica de València). http://hdl.handle.net/10251/181474

Thomas, L.J., Brooks, S. and McGouran, C., 2020. Antecedents of value co-creation activities for online fashion brands. Journal of Strategic Marketing, 28(5), pp.384-398. https://doi.org/10.1080/0965254X.2018.1477823

Ullah, N., 2021. Fast-Fashion Labels Industry: Strategy Evaluation of H&M.