Impact of Macro-Environmental Factors on H&M's Business

The assignment highlights the influence of macro-environmental factors such as changes in consumer behavior, increasing competition, and rising labor costs on H&M's business operations. It provides an analysis of how these factors have affected the fashion retail industry and proposes potential solutions for H&M to maintain its market position. The assignment also references relevant literature and research studies on the topic.

RETAIL THEORY AND
PRACTICE

TABLE OF CONTENTS
Introduction to retail........................................................................................................................1
Introduction to the company............................................................................................................1
Key relevant changes within the UK fashion retail.........................................................................2
Relevant changes within the micro environment.............................................................................3
Suggest and discuss strategies and tactics that could be used.........................................................4
Recommendations............................................................................................................................6
Conclusion.......................................................................................................................................6
REFERENCES................................................................................................................................7

Introduction to retail
Retailing can be defined as a process of selling services or goods to consumers through
multiple distribution channels in order to earn profit. It involves direct interface with customers
from design stage to product offering stage to offering delivery and post delivery service to the
customers. There are various kinds of retail businesses such as: fashion, grocery, department
stores etc. Out of all these retail businesses, fashion retail business is one of the most common
business (Martino and et.al., 2017). In fashion retailing cloths are designed, manufactured and
sold. So it can be said that business of buying cloths from manufacturers and selling it to
customers is known as fashion retail business. Fashion retail industry is one of the most
demanding industry as profit in this industry completely depends upon understanding
consumer’s needs and desires and responding with appropriate products. Without understand
customers desires it is not possible to run a successful fashion retailing business.
Introduction to the company
H&M also known as Hennes and Mauritz AB is a Swedish multinational retail clothing
company in fashion retail industry. H&M is one of the most famous clothing brands known for
their fast fashioning clothing for women, men, children and teenagers. H&M was founded in
1947 almost 72 years ago and was founded by Erling Persson. The main headquarters of H&M is
in Sweden and is present at more than 5000 locations with worldwide presence. Main products
sold by H&M is accessories and clothes. They are one of the most famous fashion brands known
who employ more than 150,000 employees. They have both physical bricks and mortar stores as
well as online presence. physical bricks and mortar stores have various subsidiaries like Monki,
Weekday, Cheap Monday, COS, ARKET and Other Stories (Mo, 2015). H&M and is associated
subsidiaries are present in more than 62 countries both online presence and retail stores but
online shopping is only available in almost 33 countries. H&M’s main mission statement is
“Fashion and quality at the lowest price” and their current objective is focused on growth, sales
and expansion. They are the second largest global retail stores known with high brand
recognition. Their total retail sales is more than $22.4 trillion dollars and is continuously
increasing year by year. Their main competitors are ZARA, UNIQLO, GAP, TRENDS and
many more. Other than this there are various newly emerging fashion retail organizations who
are giving a tough competition to H&M as this industry is a fiercely competitive industry.
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Key relevant changes within the UK fashion retail
PESTLE Analysis
Retail industry in UK is continuously evolving with continuous changes. There are
various macro environmental factors that are affecting this industry in many ways. PESTLE
analysis can help in understanding these changes in fashion retail industry (Ratcliffe, 2018).
PESTLE analysis focuses on factors such as political, economic, social, technological,
environmental and legal.
Political Factors: Political factors can be one of the biggest sources of uncertainty in
fashion retail industry. Decision of UK to leave EU (Brexit) has affected this industry in various
manner as there is high uncertainty of trade restrictions in Europe which affecting the profit
margin and business of many organization. This has disturbed operation of various fashion retail
organization who operates both in UK as well as in Europe. Due to Brexit political tension and
instability both are rising uncertainty level before fashion industry.
Economic Factors: Due to Brexit value of UK currency has strike its lowest as compared
to dollar in last 31 years. It has also affected reputation of London as financial hub of Europe as
many investors are threatening to pull out money of all of their property funds. Due to this
fashion retail industry organizations are getting affected in drastic manner as most of their
investors are backing out and are not ready to invest in UK business (Grant and et.al., 2018).
This has also affected spending habits of UK’s consumers due to which UK fashion retail
industry business is decreasing.
Social Factors: One of the main social trends which is rising is demand of plus size
clothes because of rising obesity in UK population. It has been observed that more than 50
percent of UK’s population comes under the category of obese people due to which demand of
plus size is increasing. This demand has become a growth opportunity of fashion retail
organizations. For top retail organization it is one of the biggest opportunities for them to start
investing in plus size cloths.
Technological Factors: Accelerating growth of e-commerce is another growth
opportunity for fashion retail industry organizations. This growing demand of e-commerce or
online presence of retail stores has increased competition for larger fashion retail organization.
But it has also increased tough competition for all brick and motor businesses as well because
most of the people today prefer to shop online (Baker and Saren, 2016). Top fashion retail
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organizations like ZARA, H&M are using this as a growth opportunity in order to expand their
business. But there is another side of this i.e. various other e-commerce website such as Amazon,
Asos etc. has increase competition for already established brands
Legal Factors: Recently there had been a change in employment regulations in UK
which has affect fashion retail industry (Matheson, 2016). Introduction of new workplace
pensions legislation is affecting organizations in this industry in many ways as due to this
legislation it has become a compulsion for all the organizations to contribute at least 3 percent to
their employee’s workplace pension for all the eligible British workers. Other than this
compliance with modern slavery act especially for retail industry organizations has also affect
organizations dealing in this sector.
Environmental Factors: Most of the consumers today are becoming environmentally
conscious and because of this most of the consumers demand organizations to adopt
environmentally friendly practises like using recycled materials or paper packaging (Plevoets
and Van Cleempoel, 2016). This has affected fashion retail industry and most of the
organizations in this industry are trying to adopt these changes like many bigger brands sell their
clothes either in paper or cloth bags. Some of the fashion retailers have already launched their
sustainable clothing lines in which most of their cloths are made up of organic cotton and other
environment friendly materials.
Relevant changes within the micro environment
Due to above discussed factors there has been various changes in macro environment for
example with competitors etc. these changes can be identified with the help of SWOT analysis.
SWOT analysis of H&M helps in identifying strengths, weaknesses, opportunities and threats of
the organization.
Strengths: One of the major strengths of H&M is that they have high band value with
strong global presence as they are one of the largest global fashion retailers (Chopra, 2019).
They offer high quality products as quite affordable price. They have their retail stores in more
than 60 countries and online presence in more than 33 countries. Another one of their main
strength is that their delivery time is quite low.
Weaknesses: One of their major weaknesses is that they depend upon third party suppliers
for their merchandises. They outsource product manufacturing to almost 800 suppliers and due to
this they have quite lower control over their production. Due to this they many times buy large
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volume which further lead to overstocking due to which later then need to sell cloths in
discounted rates (Koski, 2017). Dependence on third part can also affect their brand image i.e. if
any customer had bad experience with the brand then it can affect their overall brand image.
Opportunities: One of the main opportunities for H&M is growing preference of online
shopping. H&M can use this opportunity as their expansion plan as various emerging
opportunities will prefer this and support H&M within their online shopping (Rashid, 2017).
Preference of consumers for environment friendly products can also become a growth
opportunity for H&M and can start manufacturing environment friendly products like using
organic cotton etc. this can be a growth opportunity for H&M.
Threats: Increasing competition in this industry is one of the major threats for H&M and
more and more luxurious brands like ZARA, GAP are expanding their business and increasing
competition for H&M. H&M’s latest homeware business has not been a success for them
especially in Europe which has affected them in various like lowered sales, brand position is
affected and many more (Holm and Vo, 2015). Another threat for H&M is because of Brexit i.e.
due to Brexit unemployment in UK is increasing which is affecting spending power of their
customers which directly/indirectly affecting their sales.
From this it can be said that H&M’s major threat is increasing competition and online
shopping. H&M’s main competitors are Zara, Hugo Boss, Gucci, Burberry, Chanel, Christian
Dior and many more.
Suggest and discuss strategies and tactics that could be used
According to the macro environment analysis there are few factors that have been identified
as biggest influence on fashion retail organizations like H&M are: online shopping, growing
competition, environment friendly products and changing fashion trend. There are various
theories or strategies that can be used by retailers like H&M to analyse tactic or strategies that
can be used by them to enhance or expand their business by analysing competitive landscape.
Porters five force model is one of the most commonly used strategic management tool that can
be used by organizations in strategic planning. Porters five force model focuses on five forces
such as: Threat of New Entrants, Bargaining Power of Suppliers, Bargaining Power of Buyers,
Threat of Substitute Products or Services and Rivalry Among Existing Firms.
Threat of New Entrants: Threat of new entrant is quite high in this as this industry does not
require huge capital investment and many individuals are focusing and starting their new
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clothing lines. In addition to this there are many manufacturers available who are contributing or
supporting such new commers to enter into this market or it can also be said that access to
manufacturing and distribution network is quite easy in this industry (Grant and et.al., 2018).
Due to this competition in this industry in increasing continuously. Other than this UK’s
government policies is also playing a supportive role and encouraging free entry for new firms
due to which many new players are focusing on entering into this industry.
Bargaining Power of Suppliers: Bargaining power of suppliers is quite low in this industry
as there are many suppliers available with very little differentiation and margin. In addition to
this due to globalization and increasing international trade retailers in this industry are getting
more options to source products from foreign manufacturers. So, it can be said that this threat is
quite low as there are various manufacturers that are available to at low price to supply goods to
organization like H&M. This one of the main advantages for fashion retail industry and loss for
manufactures of this industry as they do not enjoy much profit in this industry.
Bargaining Power of Buyers: It is quite high as there are excessive number of retailers
present in this industry due to which switching cost of buyers decreases. In fact, switching from
one brand to another for purchasing is quite low. This factor affects brands overall sales because
buyers of their products are their end customers because of whom retailers enjoy huge profit or
loss. Because of this it becomes a compulsion for retailers to focus on their buyers demand and
offer them exactly what is desired by them. Retailers like H&M need to continuously update
their products according to the latest fashion trend. In order to attract more customers retailers
can differentiate their products on the basis of quality, price, range, style or offers.
Threat of Substitute Products or Services: there are no substitute for apparels but there
are lots of substitute available to retail for buyers (Chopra, 2019). There are various online as
well as offline retail stores or channels that provide a range of products at almost similar price to
the buyers. For H&M threat to substitution is moderate as they have both online and offline
presence. There are only few substitutes available that become a threat for H&M such as ZARA,
ASDA etc. H&M continuously need to introduce new products, offers, discounts to their
customers so that they can attract new customers and threat of these substitute can be reduced.
Rivalry Among Existing Firms: threat to rivalry is quite high for H&M as there are large
number of similar retailers present in this industry including both large and small firms.
Increasing number of retailers in this industry has increased due to which competition for H&M
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has intensified. Well established existing organizations are the main rivals that give a tough
competition to H&M and increases threat to H&M of maintaining their position of leading retail
organization. For this H&M needs to focus on their marketing strategy in order to maintain their
customer base and attract more customers.
Recommendations
There are various ways through which H&M can improve their position and meet all the
challenges specified above. It is important for them focus on all the challenges and bring
improvement within their business strategies in order to overcome or meet those challenges.
Here are few recommendations that can be used by H&M to overcome all the issues or
challenges that are faced by them. H&M can focus in expanding their online presence in
developing countries as well. This will help them to extend their customer base and strengthen
their online presence in developing countries as well. H&M can tie up with top e-commerce
websites like Amazon in order to strengthen their online presence as well as increase their
overall sales. This will also help them to increase their customer base and reach new customers.
H&M can also focus on starting manufacturing their own products. This will help them to
control their production as well as this can also help them to produce more environment friendly
products and maintain quality of their products and overall cost of their product can also get
decreased. As today most of the customers prefer to buy eco friendly products, with good quality
and that are available within their budget. For this their own can start their manufacturing in
developing countries like China, India etc. as labour cost in such countries is quite low and
affordable.
Conclusion
From the above assignment it has been summarized that there are various macro-
environmental factors that affect business of an organization. These factors are the main reason
because of which business of fashion retail organizations is getting affected. In past recent years
various changes has been observed in this industry and most of the changes are only because of
these macro environmental factors. Due to these factors competitions for H&M has also
increased, way of doing business has also increased. It has also been analysed that there are
various tools, theories or strategies that can help H&M to focus on all the challenges faced by
them and build a strategy that can help them to expand their business and grow.
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REFERENCES
Books and Journals
Baker, M.J. and Saren, M. eds., 2016. Marketing theory: a student text. Sage.
Chopra, K., 2019. Indian shopper motivation to use artificial intelligence: Generating Vroom’s
expectancy theory of motivation using grounded theory approach. International Journal
of Retail & Distribution Management. 47(3). pp.331-347.
Grant, D.B., and et.al., 2018. Relationship between sustainability and risk management in
fashion supply chains: A systematic literature review.
Holm, T.L. and Vo, T.T.T., 2015. Supplier evaluation criteria: A comparative case stydy
between the fashion retail industry and the subsea industry (Master's thesis).
Koski, P., 2017. No, I'm not shopping for my girlfriend! A Millennial perspective on gender in
fashion retail.
Martino, G., and et.al., 2017. Supply chain risk assessment in the fashion retail industry: An
analytic network process approach. Int. J. Appl. Eng. Res. 12. pp.140-154.
Matheson, K.B., 2016. An ethnographic analysis of the slow fashion industry within Denmark¿-
Factors contributing to sustainability in a highly visible industry (Master's thesis).
Mo, Z., 2015. Internationalization process of fast fashion retailers: evidence of H&M and Zara.
International Journal of Business and Management. 10(3). p.217.
Plevoets, B. and Van Cleempoel, K., 2016. Heritage, adaptive reuse and regeneration in retail
design. In Retail Design (pp. 122-142). Routledge.
Rashid, A., 2017. The Impact of Country of Origin on Retail and Wholesale Brands in the UK
Fashion Industry (Doctoral dissertation, The University of Manchester (United
Kingdom)).
Ratcliffe, A., 2018. An Exploration of the Gaps Between Theory and Practice in Fashion Retail
Segmentation: A Developmental Paper.
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