International Business Strategy 1: H&M Competitive Challenges Analysis

This report provides a comprehensive analysis of the competitive challenges faced by Hennes & Mauritz AB (H&M), a Swedish multinational clothing retail company. The report examines both the internal and external environments impacting H&M's sales, particularly in the context of increasing online competition. It delves into factors such as changing customer preferences, competitor strategies (Zara), technological advancements, and inventory management issues. The analysis highlights the impact of these factors on H&M's performance in both physical stores and online sales. The report also provides strategic recommendations for H&M, focusing on digital era development and improved inventory management to enhance its competitiveness and adapt to the evolving market landscape. The analysis considers the importance of customer satisfaction, technological integration, and efficient supply chain management.

International Business Strategy
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Overview of the report
Every organization works in an uncertain environment where different factors affect its
working and success. Some of these factors belong to the internal environment of
business, which is controllable and some of them represent the external environment of
the business that a business does not have any control over. Due to these factors, a
business often faces many kinds of challenges where strategic challenges seem most
important to cater as the same lead decisive influence on an entity's likelihood of future
success. For this report, Hennes & Mauritz AB, which is a Swedish multinational clothing
retail company, is selected as a client. The subjective client is facing competitive
challenges and the purpose of this report is to provide a recommendation with respect to
increment in the sale while focusing on external and internal business environments.
Further to state that the report is addressed to the senior manager of the business.
H&M and strategic challenges
The company has established in 1947 and at present selling clothes of all categories
worldwide (about.hm.com, 2020). As of 2019, the company has its operations at nearly
5076 locations. The company has its headquarters situated in Stockholm, Sweden. The
company is hereby facing significant competitive challenges and due to the same
seeking consultancy. The problem is not new to the firm and since the start of 2017; the
same is continuously facing issues with online selling whereas competitors like Zara
have good business online. It is looking after ways to provide online services without
disturbing margins. There are certain reasons for this situation. For instance, the well
known $5 T-shirts, as well as other bargain wears are likely to be less profitable while
pursuing string top-up line growth where the company would be expected to provide
those extensive services which an online shopper asks for. Analyst Société Générale
has reviewed the situation and doubted whether the company has scope to provide
services such as free delivery or return without disturbing the profit margin (Ringstrom,
2018). The issue is not only with its online sales strategy but the situation of physical
stores of H&M is also not good. In the past couple of years, the company has slow

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down the strategy of physical store expansion. The situation may better understand by
having a look after the following diagram:-
In the annual report of 2017, the company itself blamed online retail for decreased
footfall in stores (about.hm.com, 2017). Here it is clear that customers are being smart
and moving to online shopping where H&M is not doing good in comparison to its
competitors. Secondly, due to increased online sale trend, the physical sale of the
company has also been affected negatively. How prevalent the online sale is being can
be imagined by the fact that among total clothing sales of the UK in 2018, 24%
represented the online appeal market (Charlton, 2020). Nevertheless, the company has
understood the need for changing online selling strategy and a result of the same, online
sale of the same increased by 30% in 2019, yet the situation is not up to the mark and
the company continues facing competitive challenges (Rigby, 2019). The problem is not
local but the same is international and exists in many countries. Apart from Sweden,
H&M is also facing competitive challenges in the UK.

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From the above-mentioned details, it is far clear that the sales situation of the company
is not going well, especially when it comes to online sales in comparison to its
competitors.
The international external business environment
As discussed above the challenge, which the company is facing, is international hence,
it becomes necessary to look after the aspects of the international external macro-
environment, which are relevant to the subjective strategic challenge. These aspects are
those that the company has no control on but the same is affecting and contributing to
the given strategic challenge. These aspects and factors to H&M are mentioned as
below:-
Customer choices
The very first external factor is the customer. Changing the fashion demands of
customers in the international market is one of the major factors influencing sales of the
business. Due to changing customer needs company had to announce the closure of its
160 stores as an unsold inventory of $4 billion left over there (Kent And Crump, 2019).
Customers these days are being smart and do not compromise with their choices as
they have the option of different firms and brands. Here this is to state that customer
choice and perception are two aspects where H&M needs to understand how to address
the target market. The situation is being more significant in the international market as
choice differs according to the nations. It is not necessary that what UK citizens are
liking, shall be liked by US citizens too. In such a situation, changing the demand of
customers and failure to understand the same is one of the major causes that affect the
issue of decreased sales.
Competitor’s strategy
While discussing the aspects contributing to the strategic challenge of competition,
market competitors are important to discuss here. In the international market, the
company is facing competitive challenges, as the competitors of the company are way

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ahead of the H&M in terms of management of stores as well as providing online service
to the customers. Prices of competitors as well as quality are better than H&M and
therefore customers used to purchase products of the customer. For instance, the main
competitor of the company is Zara, which is a Spanish multinational company and the
world's largest apparel retailer. In the first quarter of 2018, H&M faced struggle and
operating profit of the same has been dropped out by 62% whereas on the different side
Zara is doing well for many reasons (Tyler, 2018). Zara has found ways to resolve the
inventory issues, which is the lead issue in H&M. Further, as per the report presented by
Business Insider's Mary Hanbury, H&M has certain brand issues in the opinion of the
analyst. In the US, out of 48% online sale of a sample group of 6 retailers, H&M only has
a share of 10.5%, whereas forever 21 was ahead with 12% and Zara with 20.5%
(Cheng, 2018). Online e-commerce giants such as Asos, Amazon, and Boohoo provide
free and easy returns and therefore customer used to attract them more frequently
(retail-insight-network.com, 2019).
Political factors
While working in the international market, H&M is likely to be affected by political factor
also where the same decide policy and practice of business and industry. There are
certain restrictions on export, imports, as well as the relocation of production facilities.
The company seeks to increase profit margin by reducing the cost but relocation of
outsourcing and manufacturing is a continuous issue.
Aspects of the internal environment
Technological advances
This is another aspect of the external business environment. Every company needs to
understand the way in which its customers use technology. The factor becomes more
crucial in the context of H&M, which deals with online selling. The company is not paying
enough attention to the technological aspect where customers are seeking to buy
products online. The user did not have good experience of using H&M online services
on either desktop or mobile. To be competitive, the company is required to match its

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rivals for user experience. There are many issues on the website of the company due to
which customers face the issue and ignore using the same in the future.
(Charlton, 2020)
The site works on an international basis and customers across the world make their
perception accordingly. For instance, the company's mobile site in the UK has a very low
speed that further contributes to the poor customer experience and lastly affects online
sales negatively. In comparison to the competitors, H&M is not able to respond to the
technical issues quickly.
Physical resources

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The physical management of inventory at H&M stores does also represent a poor
picture whereas the stores of competitors have reported being cleaner and managed.
Here it is clear that the positions of competitors are good at online as well as physical
selling. Business insider has conducted a review of physical stores of H&M where many
inventory issues find to be there. The sale racks found messy and cluttered. In addition
to this, customers also found products random that was on sale. The rest of the store
also did not find as manage as it was intended to. It clearly shows that the employees of
the stores are not eligible enough to manage the same property. This aspect of the
internal environment affects the sales of the company. On the different side, it also
contributes to the competitive challenge where other clothing stores are well managed.
The topic of the discussion here says that H&M seems one step back in comparison to
its competitors and this is to state that this internal aspect of store management is one of
the biggest reasons for the same.
Lack of management
As discussed earlier too, the company has failed to manage the inventory properly. The
subjective issue has contributed to the decrement of the sale as well as profits. Supply
chain management of the company is weak and the overall management is also not
strong enough to tackle this challenge. The main reason behind this issue is the
company has insufficient solutions at the back end and the same is not able to make
those investments, which are beneficial in the long term. The auditing of inventory
stores, as well as warehouses, is one of the weak areas that affect overall stock
management of the company (Elia and Kondracki, 2018).
The above-mentioned factors are some of the major external and internal factors that
contribute to the competitive challenge. The external factors are not in control of the
company but internal factors can be treated well. However, it does not mean that H&M
cannot do anything about these factors. The competitive challenge is a strategic
challenge where the company needs to rethink its current strategy and by adopting new
policies and practices as well as by altering the current one, the situation can be done
well. Here it is necessary to clarify it that in addition to the above-mentioned factors,

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many other aspects of internal and international external environments exist. The
discussion has been made only on those factors that are related to the competitive
challenge. In the next section of the report, some major recommendations would be
made, adopting that challenge can be addressed, and H&M can be ahead of
competitors in terms of customer choices as well as sales.
Recommendations
Development of the digital era
One of the main reasons due to that H&M facing competitive challenges is its poor
technology where the same fails to provide good support to customers. In its mobile
app, H&M is required to provide clear bifurcation of cost as well as the detail of
timescales that would affect customer's choices. The loading speed of the subjective
app is also slow and this is another area where the company has a huge scope of
improvement. The company needs to improve its internal information technology team
that can work to regulate updates on the mobile app as well as on official websites. This
would directly affect customer satisfaction as well as experience and it is expected that
this action would leave a positive impression on customers. This recommendation is
completely related to the online selling business. Here to state that the recommendation
is made in the first place as the same is facing major competition in online dealings.
Inventory management
Here the reasoning needs to understand. Competitors of H&M can provide stock on-
demand as they have good inventory management. In addition to this, they keep limited
stock at a time considering the pattern of sales and demands of customers. It does not
only prevent blockage of the fund but also make a firm enable to invest those funds in a
more profitable area. H&M needs to develop an inventory management team enable to
check the inventory requirements at stores (erply.com, 2020). Unsold inventory is one of
the major issues for the company that also affects customer perception. The study of
sales trends, as well as a timely audit of stock, seems a good recommendation to make
here. This audit would inform management of what to produce when to produce and

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how much to produce. It would increase the profitability of the company and ultimately
affect its market position in the clothing retail industry.
Resource Management
The overall success of the company does not only related to the online sale. Moving the
discussion towards the physical sale status of the company, H&M has a variety of tasks
that can be done in this area. Firstly, for visitors, it should be easy to look after the
products they are seeking. Physical management is an obvious thing to do here. H&M
needs to take an overlook of the store and to identify the issues due to that customer
avoid visiting these stores. The company can redesign its store or can use signboards to
make the search for cloths easy for customers. Here another thing that can do is to
study and review stores of other competitors and can make changes accordingly. It will
increase customer satisfaction and is also likely to set a good image in the minds of
customers.
Cost reduction
Not only H&M but every company sets the price of products while adding a profit margin
to the cost. Here it is clear that to reduce final products, the company needs to reduce
either cost or profit margin. Many methods are using that cost may be reduced. It is
advisable for the company to review its expenditure sheet and to audit the frequent
expenses. By doing this, this company would be able to identify those expenses that are
not necessary to occur and can be stopped in the future. This exercise would enable
H&M to reduce the prices of the final product, which would further attract customers and
increase sales. It would take H&M ahead to the competitors. Despite every other aspect,
a customer purchases that product which seems profitable to him/her and where the
same has to pay a low price for the products. This recommendation would increase
sales of the company and would be able to stand in competition with other firms.
Delivery of extraordinary services

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This is an extraordinary effort where H&M has to think over the services, which the
same can offer to the customer. Here this is necessary to state that these services
should be exclusive. H&M can think over different options such as an additional discount
or any other kind of after-sale support such as warranty or guarantees on products. In
conjunction to this, it is also advisable for the company to review its marketing strategy
and to adopt new and different selling and marketing tactics.
Conclusion
To conclude this report, it is to state that various factors are affecting sales of H&M
directly as well as indirectly. The aspects of internal as well as external business
environments discussed above are the reasons behind the competitive challenges that
the same is facing. Dealing with these issues is not impossible and by following the
above-mentioned recommendations, the company can go way ahead to its competitors.
The main factors due to that competitors are ahead are poor technological support,
outdated inventory management techniques and mismanagement of physical stores are
some of the major areas where competitors are doing well. In such a situation, H&M
does not only require addressing these issues but also needs to develop an additional
strategy to counter any other potential competitive challenges related to sale, pricing,
quality of the product or any other.

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References
about.hm.com. (2017) H & M Hennes & Mauritz AB. [online] Available from:
https://about.hm.com/content/dam/hmgroup/groupsite/documents/en/cision/
2018/01/2110334_en.pdf [Accessed on 09/03/2020]
about.hm.com. (2020) The H&M group the first 70 years. online] Available from:
https://about.hm.com/content/dam/hmgroup/groupsite/documents/en/Digital%20Annual
%20Report/2017/Annual%20Report%202017%20Our%20history.pdf [Accessed on
09/03/2020]
Charlton, G. (2020) What’s the problem with H&M’s online strategy? [online] Available
from: https://www.theukdomain.uk/whats-the-problem-with-hms-online-strategy/
[Accessed on 09/03/2020]
Cheng, A., (2018) H&M's Problems Won't Be Solved By Growing Online Sales. [online]
Available from: https://www.forbes.com/sites/andriacheng/2018/02/01/ecommerce-isnt-
the-only-thing-hm-needs-to-work-on/#17cdff641d55 [Accessed on 09/03/2020]
Elia, N., and Kondracki, C. (2018) Sitting on $4.3 Billion of Unsold Inventory, H&M
Falling Victim to their Low Tech Approach to Inventory Management. [online] Available
from: https://www.vdcresearch.com/News-events/emob-blog/H-M-Falling-Victim-to-
their-Low-Tech-Approach-to-Inventory-Management.html [Accessed on 09/03/2020]
erply.com. (2020) In the success stories of H&M, Zara, Ikea and Walmart, luck is not a
key factor. [online] Available from: https://erply.com/in-the-success-stories-of-hm-zara-
ikea-and-walmart-luck-is-not-a-key-factor/ [Accessed on 09/03/2020]
Kent , S., and Crump, H. (2019) Inside H&M’s $4 Billion Inventory Challenge. ? [online]
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retail-supply-chain [Accessed on 09/03/2020]
retail-insight-network.com. (2019) H&M global restructure signals the need for change.
[online] Available from: retail-insight-network.com/comment/hm-global-restructure-
signals-need-for-change/ [Accessed on 09/03/2020]

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Rigby, C. (2019) This is your 1 complimentary article for this month Become a member
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Ringstrom, A. (2018) H&M quarterly sales rise but doubts about turnaround weigh.
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Tyler, J. (2018) We visited H&M and Zara to see which was a better fast-fashion store -
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[Accessed on 09/03/2020]