Strategic Management of H&M: Analysis and Review

This report conducts a strategic review of H&M, analyzing the external and internal environment, evaluating strategic choices. Includes PESTLE framework, Porter's Five Forces, VRIO analysis, and SWOT analysis.

Strategic Management

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
PESTLE framework of H&M......................................................................................................3
Porter’s Five Forces for analysing Internal Environment............................................................4
VRIO Analysis of H&M..............................................................................................................5
SWOT Analysis of H&M............................................................................................................7
Strategic Options.........................................................................................................................8
Strategic Selection.......................................................................................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Strategic Management denotes to identify and describe strategies that can be used by manager to
attain the better performance and competitive advantage at the organisation. In other words, it
can be described as bunch of decisions and actions which the manager of the company
undertakes which decides the outcome of company’s performance.
Hennes & Mauritz is a multinational retail company dealing in fast fashion clothing for children,
teenager, women and men. It has its operations in various countries across the world, selling its
clothing online and offline, and is the second largest multinational clothing retailer.
This report conducts the strategic review of H&M, analyse the external and internal
environment, evaluating the strategic choices of the company.
PESTLE framework of H&M
Pestle analysis helps in analysing the H&M’s business tactics, and several external environment
factors such as environmental, legal, social, political and economical factors which impacts its
business. Discussed below are the factors which influence the business of H&M –
Political – H&M is a well known global company having its operation in several countries
across the world for eg. UK, Asia, Taiwan, Singapore etc. Every country has its own political
systems and rules and regulations that are to be followed by the company strictly otherwise the
company cannot sustain in that country (Perera, 2017). H&M understands and follows the rules
and regulations of the country but the political instability like Brexit in UK impacts the business.
Economical – Economical Factors such as GDP, inflation, Employment, recession etc. Have
great influence on the business of the company. The rising purchasing power in some countries
contributes in the revenue of the company. Inflation in Europe is increasing which bring hike in
demand of the buyers and this provides company advantage of getting more profits.
Social – H&M have its operations in UK, social factors are related to customers and the
increasing awareness about the company in UK makes H&M more transparent towards them.
Company with the proper research attract the customers by knowing the socio cultural difference
existing in the country, it formulates and bring strategies related to that(Chen and Fang, 2019).
Technological – Every multinational company is now focusing on the technological
advancement to benefits itself like H&M. Company has its presence online on its own website
and also has its own app for the smart phone users. To increase its customer base online it

keepon providing new features that attract customers which provide them more easier facility in
ordering company’s product.
Legal – H&M in UK follows the all the laws set by the country such as minimum wage payment,
laws related to taxes, tariffs, customer protection, safe working-environment to employees etc. so
that no legal factors affect the company’s operation as facing legal issues also effects the image
of brand.
Environmental – Company has its responsibility or obligation to give back to the environment as
it is using the resources provided by the nature. Also because of the pressure from the
government and public in UK, H&M contribute its part as corporate social responsibility by
planting as many plants as possible in the country and recycling the leftover stock.
Through the help of PESTEL analysis it can be identified that if the company makes it research
and development team stronger, they can help company with the rising opportunity of expansion
to new locations as company have the good financial resources and advanced technology. H&M
also needs to take care that it follows the rules and laws set by the countries government because
any disturbance in that can also lead to cancel its licence by the government.
Porter’s Five Forces for analysing Internal Environment
The Porter’s Five Forces is framework which is used on the strategic business management. This
business model helps H&M in easily identify and analyse the competitive market, also helps in
understanding the current trends and strategies which can help the company to grow more.
Negotiating Power of Suppliers (Low) – H&M is a big multinational company and have
operations in various countries, company needs suppliers from different geographic locations in
order to purchase the raw materials at lower prices and it also works to strengthen the supply
chain management with the cost effective business. It can be analysed the bargaining power of
supplier is basically low as there are more supplier in the fashion industry in compare to any
other industry.
Negotiating Power of Customers (High) – H&M always come up with the well established
marketing, and provide innovative, best quality and unique products focuses on creating loyalty
of its brand along with huge customer base. Low cost production due to large customers, helps
company in providing the products to customer at low price, this strategy of company attracts the
buyers.

Existing Rivalry in Industry (high/strong) – As there is many rivals in the clothing retail
industry, but the H&M always try its best to distinguish itself from its competitors by providing
the best and unique collection with best quality at affordable prices(Hitt, M. and Duane Ireland,
R., 2017). Company always does a detailed market research and comes up with the well-
established business marketing strategy, to target new potential customers apart from the existing
customer base and focus on the supply demand situation to prevent overproduction.
Threat of Substitute (High) - The treat of substitute in the clothing retail market is medium to
high for the clothing sector. Due to the availability of the various competitors in this sector the
risk of substitute is higher than other sectors. There is no direct substitute for its own apparel but
the local companies’ tries to copy styles. It does not affect the higher-class people but as they can
easily afford its product but its copies are sold with the local sellers, with have the negative
impact on its design. Company focuses on providing only best quality products at reasonable
prices to its customer. H&M business strategy which is customer centric and cost conscious
outperforms rivals.
Threat of New-Comers (Low) – Company generally outperforms new entries in the company
with the help of its cost effective strategy and by taking advantage of economies of scale.
Company focus on customer retention more. However, clothing business does need huge
investment but because of the competition surviving in this industry is difficult and also the
customer loyalty is rare so the products can be easily replaced as the switching cost is
low(Xuejie, Chang and GuangHao, 2019). H&M has created its brand name and that’s why
customer’s faith is on the company, otherwise it is difficult for the new-comer to establish such
huge brand name and develop faith among the customers.
With the analysis of Porter’s Five forces, it can be concluded that H&M have more potential of
growth as it have gradually developed the financial resources which helps the company in
grabbing the opportunity. And any new comer in the industry needs good finances to reach this
position and company already has its brand value developed, so it will be easier for company to
increase its product range such as by offering clothes for large size people(Potential growth
opportunity). As well as, it can be analysed that the high rivalry in the clothing market so H&M
always have to come up with some innovative strategies to attract its customers and offer
products which are unique and of set standards which can help in lowering the customer’s power.

VRIO Analysis of H&M
VRIO analysis helps in analysing the resources of the company and examine whether the
resources provide sustained competitive advantage, the resources of the company are categorized
into four categories – Valuable, Rare, Imitable and Organisation –
Valuable Rare Imitate Organised
Financial
Resources
Yes Yes Yes Yes
Human Resources Yes Yes No No
Patents Yes Yes Yes No
Distribution
Network
Yes No Yes Yes
Valuable – H&M’s financial resources are extremely valuable as these resources help the
company in investing into the opportunities that arise and in combating the external threats.
Company’shuman resources are valuable resource as they have highly trained and skilled
workforce and which help in increasing the productivity and outcomes for the company. H&M
also tries to motivate them and retain them. Company always comes up with their exclusive
design so patents are also valuable resource for the company which helps them in selling
products without any competitive interference. Its distribution network and products are also
valuable resources for the company(Durand, Grant and Madsen, 2017). H&M needs to work on
the cost structure and research and development as they are not the valuable resources and
working them may lead to higher growth in the future.
Rare – While analysing the rare resources of the company, it can be found that financial
resource, products, patents and distribution network are the are resources for the company.
Powerful financial resources are possessed only by few companies in the industry and H&M is
one of them, no products of the company are designed by most talented designer so they are also
rare resources for the company, because of the highly talented workforce and who help in
formulating strategies and designing the products are also rare resource. Patents of the
company’s product will also be included in rare resources as without this there are high chances
for the competitive interference. Good distribution channels are also possessed by only few firms
in the industry and cannot be easily possessed by the competitors.

Imitable – As identified by the VRIO analysis, financial resources are the most costly to imitate
as these profits are acquired by the company after the prolonged profits of the year. New entrants
in the industry and rivals would need the similar profits to accumulate such financial resources.
The product for the company is not that costly to imitate can be acquires by the competitors with
significant research and development (Jugdev, 2019). The employees of H&M are also not costly
to imitate because other competitor can also train them to improve their skills. Companies can
hire their employees by offering them high packages, benefits, work-environment and growth
opportunities. Patents and distribution network are easily also very difficult to imitate as
distribution channels are gradually created and developed over the years.
Organisation –
The financial resources and the distribution channel of the company is well organised, financial
resources are used to invest strategically at right place, grabbing the opportunities and combating
threats, that is why these are source of competitive advantage for H&M. Distribution channel
helps in reaching out customers ensuring that all products are delivered on time available to
online customers and on its outlets.
Therefore, it can be concluded that the financial resources and distribution channel of the
company are of the prime importance as they help in sustained competitive advantage (Future
Strength). Employees of the company provide temporary competitive advantage (Future
Weakness) company should definitely focus on their retention, cost structure do not provide any
advantage and research and development give competitive disadvantage (Velikorossov and et.al.,
2020).
SWOT Analysis of H&M
On the basis of above tools and analysis, swot analysis of H&M is done -
Strength – The major strength of H&M is that it has an effective marketing business strategy and
gives advantage of huge merchandise turnover. Company uses the fast model strategy which
allows fast delivery from designer table to showroom floor. Company has its operations in
various cities across the world and its presence reduces the risk and enhances sustainability and
strengthens stability. Its customer-centric approach helped company in developing brand value.
H&M offers wide and unique variety of products which help them in attracting more customers.
Company always strives to become best viable fashion retail by offering high quality at

affordable price. In the digital age, company is giving tough competition to its rival by having
online presence on various online shopping platforms and is getting huge revenue from its online
operations.
Weakness – H&M prime weakness is that is does not manufacture by itself rather it outsource
most of its production to many suppliers in Asia and Europe. This strategy of company has
contributed in success but still company is over dependent on the supplier (Potyshniak and et.al.,
2019). Company came into some controversy related to its product which was misunderstood as
that promotes racism and was boycotted. One of the key weakness of the fashion industry is that
it really need to be fast with the changing trends anytime the company lose this battle customers
are gone. Fashionistas are attracted to new and radical designs but not to the existing fashion
trends.
Opportunities – Clothing retailers are stable and earn good who provide wide varieties of
products. Company to increase its sales more should invest more in improving the bottom line by
offering the sports apparel for all. H&M is far behind to Zara in compared to the terms of
exploitation of online business (e-commerce channel) and revenue, company has really good
opportunity in this digital age to grow more and do maximum exploitation of e-commerce b
increasing its online customer base (Bonilla, del Olmo Arriaga, and Andreu, 2019). H&M has
the greatest potential for growth in the emerging markets of Asia and Africa, the growing
middle-class market is interested more in the company like H&M as it provides the good quality
at affordable prices. To evade the barriers of entry in some markets, companies can enter in that
market by doing merger and acquisition with the existing valuable brands in that country.
Threats –Clothing is considered to be a necessity, but it cannot be avoided that the Europe and
some of the other regions are slidely into recession, Fashion retailer companies like H&M may
undergo sharp decline in their sales and profits. Increasing competition in this sector is also one
of the key threats to company, H&M is facing tough competition from Zara and many
competitors. Every rival is trying their best to increase their market share by reducing the
demand of H&M products(Dobbs, 2014). Rising operational cost will lead to decline in the profit
of the company, trade tariffs in the various countries are the potential threat for H&M. The
global pandemic, covid-19 impacts the company’s business as the H&M depends on the
interrupted flow of raw materials.

Strategic Options
Company can formulate great strategies for its growth and expansion –
1. Company has a great strategy of cost effectiveness and customer centric approach but to
expand its business in various other places, company needs to focus on research and
development and then come up with such strategy which can compete and make the
company leader in Europe.
2. Company should focus more on digital marketing and social media marketing to attract
the potential young generation, who can give good business to company, by adopting
strategies like – win a chance to trip, discount, freebies it can attract and develop faith in
the young generation.
3. With the help of SWOT analysis done above, it can be analysed that company have
opportunity to diversify its product and increase its revenue, basically company is focuses
on providing the high quality basic clothing but with the response of customer(Arrigo,
2018). H&M should diversify its product range and must start offering sports and lounge
wear clothing also.
4. Company has its presence on various online websites and its own website and app, but to
provide more flexibility to customers, company should tie up with the emerging websites
in different countries to increase its online customer base and provide ease of shopping to
its customers.
Strategic Selection
H&M have good opportunity to keep its existing customers and attract new customers, by using
the social media platforms like Instagram, Twitter, Facebook etc as these platforms have the
good amount of traffic these days and by offering different discounts and other social media
strategies to attract the potential customers such as providing them discount coupons, freebies,
tag and receive free gift, as many like as many surprise gifts on sharing will advertise and
promote the company and drive traffic on its page, which is the best strategy in the digital age to
attract customers.
By using this strategy company can analyse, that what types of customers are attracted from
which place they belong and what are high with purchasing as social media platform provide the
feature of cookies, it can help in growth of the company on basis of customers and promotion.

CONCLUSION
The following report above uses various frameworks to analyse the different environment of the
H&M, for the firm’s external environment PESTLE framework is used to explains what are the
factors which affect the company from external sources. To analyse the company internally,
Porter’s five forces model is used. And to know the resource and capabilities VRIO analysis is
done through which it can be known that what are the types of resources and in what category it
can be classified. On the basis of these frameworks or tools, SWOT analysis is conducted and
what are the strategic options with H&M and the best strategy that can be adopted for its growth
is selected and justification is provided.

REFERENCES
Books and journals
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.
Bonilla, M.D.R., del Olmo Arriaga, J.L. and Andreu, D., 2019. The interaction of Instagram
followers in the fast fashion sector: The case of Hennes and Mauritz (H&M). Journal of
Global Fashion Marketing. 10(4). pp.342-357.
Chen, X.J. and Fang, G., 2019, May. Analysis on green marketing strategy of clothing firm: take
H&M for example. In Proceedings of the 2019 International Conference on
Management Science and Industrial Engineering (pp. 146-150).
Dobbs, M.E., 2014. Guidelines for applying Porter's five forces framework: a set of industry
analysis templates. Competitiveness Review.
Durand, R., Grant, R.M. and Madsen, T.L., 2017. The expanding domain of strategic
management research and the quest for integration. Strategic Management
Journal. 38(1). Pp.4-16.
Hitt, M. and Duane Ireland, R., 2017. The intersection of entrepreneurship and strategic
management research. The Blackwell handbook of entrepreneurship. pp.45-63.
Jugdev, K., 2019. The VRIO Framework of Competitive Advantage.
Perera, R., 2017. The PESTLE analysis. Nerdynaut.
Potyshniak, O., and et.al., 2019. Assessment of the effectiveness of the strategic management
system of investment activities of companies. Academy of Strategic Management
Journal. 18(4). pp.1-5.
Velikorossov, V.V., and et.al., 2020. Strategic management.
Xuejie, C., Chang, Q. and GuangHao, Z., 2019, August. Research on Innovation supply chain
Management in Fast Fashion Industry——A comparative analysis of ZARA and H&M.
In 2019 3rd International Conference on Education, Culture and Social Development
(ICECSD 2019). Atlantis Press.
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