Assessment of H&M's Competitive Advantage in the UK Fashion Market

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RETAIL THEORY AND PRACTICE
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Table of Contents
Introduction......................................................................................................................................3
Introduction to the company............................................................................................................4
Key relevant changes within the fashion retail sector of UK..........................................................5
Relevant chages in competitive market...........................................................................................8
Strategies and tactics that could be used........................................................................................10
Recommendation...........................................................................................................................13
Conclusion.....................................................................................................................................14
Reference list.................................................................................................................................15
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Introduction
Fashion retail industry plays an important role in developing the economy of the UK. The
population of this country is increasing day by day, which has also increased the demands of
fashionable clothing. Fashion market of this country has gone through several key changes that
will be discussed in this study. The study will have the purpose of providing an overview of
significant changes in the fashion retail sector of UK. The growth of the fashion industry is
dependent on the external environmental factors thus the macro environmental factors of this
country will be analysed in this study in order to have a better understanding of the growth
dynamics. The key relevant changes in the H&M will be discussed to present a better perceptive
(H&M. 2019).
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Introduction to the company
H&M is a Sweden based fashion retail company. This company is reputed for producing fast-
fashion clothing for men, women, and children. The company has more than 4500 stores in 62
countries. H&M earns revenue of £30 billion annually. The company employs around 148000
people around the world. H&M has 35 online markets. This shows that the company has used
technology for bringing changes in their business operation. Erling Persson established the
company in 1947 (about.hm.com. 2019). This company is considered as the second largest
global fashion retail chain. The shops for this company were previously named Hennes and it
used to specialise in women clothing. Later the name of the shop was changed to Hennes &
Mauritz. The company started to exhibit both the men and women wear in their retail stores.
The company started the online business operations in 1998 that helped the organisation to
expand its business. Some of the selected stores of this company started to source fashion
collection from the popular designer Karl Lagerfeld in 2004. This was beneficial for bringing
changes in the organisation. Later the organisation also sourced from other popular designers and
launched own labelled fashion collection in 2006. The first retail store of this company was
founded in London in 1976. This was the first retail store outside Scandinavia. Celebrity
endorsement was one of the most important steps taken by the company. The company
collaborated with a popular pop star so that they can be able to attract more teenage customers of
the company.
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Key relevant changes within the fashion retail sector of UK
There are around 192000 fashion retail sectors in UK. Currently, more than 5 million people
work in the fashion retail sector of this country. Fashion industry of this country has a total
market share of 7%. According to a report, the value of fashion retail industry of this country is
66 billion pounds. More than 4 million people work in the fashion retail stores in the UK
(fashion united.uk. 2019). Competition in the UK market has been increased. Burberry, Marks &
Spencer and ZARA are the most important competitors of this company, which are grabbing the
market share. Online fashion stores also source products from 850 fashion brands of UK. Thus, it
can be said that the company is facing tough times. Customer’s demand is being changed so that
the fashion sector is recruiting more employees to address the demands. It is said that 52% of
total employees are female.
The macro environment of this country has played a great role in changing the fashion industry
of UK. The macro environment will be analysed using the PESTEL framework in this section:
PESTEL analysis
Elements Description
Political Recently Britain has decided to cancel the EU
membership, which has shaken the political
condition of the country. It is said that fashion
brands can lose up to £6.8 billion while
exporting and importing products. H&M will
also lose the chance of expanding business in
other countries. New rules will be introduced
due to this condition, which may increase the
extra expenditure of the company. New tariff
and non-tariff measures will be responsible for
causing bulk damage (Vézina, 2017).
According to the reports of Creative Industries
Federation London, the free movement of such
products will slow the UK economy. More
than 10000 employees work in the fashion
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retail sector of this country that will not be able
to work anymore. This will slow down the
production and servicing process of the
company.
Economical The country is considered as the fifth largest
economy in the world. This shows that the
company will be able to generate higher
profitability from this country market.
Recently the economic condition of this
country is influenced negatively due to Brexit.
Economic recession has been increased, which
will leave a negative impact on the buying
behaviour of the customers. The current GDP
of this country is $44,177 per capita that has
been decreased by 2% already (Dhingra et al.,
2016). This shows that the prices of the
products will increase. H&M will have to
foresee a less number of customers in the
stores.
Social According to the studies, the citizens of UK
live a high standard of life. Teenagers are
being more fashion concerned so that the
company has a chance of increasing the
customer base by providing fashionable and
high-quality products. The company has
created more job opportunities for women that
have been beneficial for developing the brand
name of the company. Currently, people tend
to select more luxurious and designer
collections. This will be beneficial for H&M as
this company collaborates with designer and
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exhibits designer clothing at their outlet.
Cultural diversity in the UK has been
increased. This unlocks opportunities of
diversifying the product portfolio by
manufacturing and modifying traditional
clothing.
Technological In modern ages, technological trends are being
changed being changed regularly. IoT and
other technologies have brought changes in the
fashion retail industry of UK. Teenagers of this
country are more likely to shop online. Social
media platform is used as storefronts. H&M is
a fast fashion industry, which continuously
develops its service infrastructure. This will
help the organisation to address the demands of
the modern generation. Clienteling Point Sale
software is being used by other fashion retail
sectors of UK (Licht and Ghosh, 2018). The
organisation will be able to provide one-on-one
service with the help of this software.
Environmental In contemporary times, government are being
more concerned about the environmental
factors. Carbon emission of this country has
been increased to 6.50 metric tons. The
government has published some rule for
preventing pollutions. The company has the
chance of using renewable energy sources,
which will be beneficial for reducing carbon
emission (Twidell and Weir, 2015). The
company also has the chance of producing
clothes from recycling materials. Corporate
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image of this company will also be developed
due to this. H&M provides the employees with
clean and safe drinking water in the workplace
so that will help the company to achieve brand
equity.
Legal The UK government has published several
consumer protection laws and employment
laws. The employment laws are responsible for
managing the relationship between business
owners and employees. Equality act 2010
empowers the employees to fight against
discrimination in the workplace (gov.uk.
2019). The working time regulation act helps
the employees to face similar working
environment at different organisations. The
organisation follows such laws, which has
helped them to achieve employee satisfaction.
The company has developed a hygienic
working environment for its employees. It can
be stated that the organisation also follows the
Health and Safety act. The consumer
protection act 2015 empowers the consumers
to complain against any unfair means of trade.
Data protection act help will help the
organisation to protect authenticity.
Table 1: PESTEL analysis
(Source: created by the learner)
Relevant changes in competitive market
Fashion industry of this country has gone through several significant changes. Competition has
also been increased due to such changes. The competitive market is analysed using Porter’s Five
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forces model.
Porter’s five forces analysis
Competitive rivalry: Development of the fashion retail industry has increased the competition
in the UK market. Competitors of this organisation are ZARA, Burberry, Tommy Hilfiger,
Marks & Spencer’s and others. Other competitive brands have also gained popularity worldwide.
The organisation will have to face high risk, as the products of the other industries have also
achieved a large customer base (McCormick et al., 2014). The competition is becoming intense
day by day. Thus, it will be difficult for the company to earn a sustainable profit.
Threats of substitutes: The substitutes of this company are other fashion-clothing brand. ZARA
is competing with this company in term and product quality and price. The supply chain of this
company is managed well than other competitive organisations. ZARA, Burberry is a luxury
fashion brand. H&M provides highly fashionable clothing at a comparatively lower price so that
the company has a moderate risk, as the customers of this country are more likely to purchase
luxurious goods. This force poses a moderate threat to H&M.
Bargaining power of Buyer: Buyer power poses a high risk for the company. The fashion
industry is being developed day by day and the demand s of buyers is changing. Other
competitive brands of this company have developed different strategic plans to attract such
customers. Customers can anytime switch from one brand to other brand, as the switching cost is
zero. Companies or groups that buy products in bulk have direct bargaining power, which can
affect the revenue generation, process of the organisation. Thus, it can influence the buying
behaviour of the customers. Individual customers also have some indirect bargaining power, as
there are multiple replacement options are available in UK.
Bargaining power of supplier: H&M is a large sized organisation. The organisation has gained
popularity in the markets of UK and other countries. More suppliers are willing to work with this
organisation so that the power of suppliers is relatively smaller (Habib et al., 2015). Lack of
diversity has been the reason behind the weakness of the suppliers of different countries. Most of
the products of this company are its own labelled goods. The company also sources products
from other brands. H&M has the bargaining power so that shows that this force poses a
comparatively low risk to the company.
Threats of new entrant: H&M has a moderate risk from this force. The fee for entering a new
market is very high for a new entrant in the market. H&M is already established in the UK
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Industry Rivalry
Bargaining
power of
suppliers
Bargaining
power of buyers
Threat of
substitutes
Threat of new
entrants
fashion market and it has gained experience in this field. New entrants will not be able to
compete with such existing companies. However, new entrants come with innovative ideas in
recent ideas and the switching cost of customers is also negligible so that new entrants also have
the chance of being established quickly. The fashion industry itself poses either high risk or high
reward to the companies. This can influence the business operation of favourably or
unfavourably.
Figure 1: Porter’s five forces model
(Source: created by the learner)
The organisation has changed their delivery chain in order to reach more markets. H&M has also
used technologies, which has helped them to expand businesses online. These are the biggest
strength of the organisation. The company will be able to unlock more opportunities with the
help of such developments in supply chain. Hence, it is observed that there are some threats also
which should be overcome by developing strategic plans.
Strategies and tactics that could be used
There are some theories that are beneficial for identifying the changes in the retail organisation.
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These theories are discussed below:
Cyclical retail change model: this theory is one of the most important theories, which is
beneficial for bringing changes in the organisation. This theory covers the significance of three
cycles, which are trade-up, vulnerable phase and entry stages (Borusiak, 2014). In the entry
stage, the fashion retailers enter the market and use the low pricing policy. Later the organisation
changes its policies in order to increase market penetration. H&M used to provide high-quality
products at a lower price, which has helped them to increase their market penetration. Later the
company changed its policies and started to operate in the luxury segment. This shows that the
organisation has used the cyclical retail development model in their business structure.
Environmental evolution: This theory refers to the impact of environmental factors on
developing the businesses of a retail organisation. The fashion retail industry of this country has
been evolved as the environmental approaches have been changed. Sub-urban areas of this
country have been developed and the trends of customers have been changed. Fashion retail
companies have been able to open new stores in order to address the changing needs of
customers (Miotto and Parente, 2015).
It is observed from the macro environmental analysis that the political factors such as Brexit will
leave a key impact on the organisation. According to the reports, leaders of this company think
that Brexit will leave a negative impact on this company (Chen et al., 2018). Currency is
considered as the biggest factor, which can directly manipulate the retail business. The economic
condition of this country has been affected due to such an unstable political condition. Reduction
in GDP has changed economic condition of the country. The company will have to reposition
their products due to such changes in the environment. The company should invest more in
developing the customer experience of this country. The company has gone through various
changes such as the distribution channel of this organisation has been developed. The discount
retailer provides service in both its domestic country and host country so that the developed
delivery chain has helped them to manage such conditions (FERNIE and PERRY, 2018). The
company should not invest in business expansion as it can leave a negative impact on the
organisation.
Another important factor is the environmental factor. The company should immediately try to
reduce the carbon emission and manage the wastages. In this way, the company will be able to
maintain their corporate image. Otherwise, this can pose threats to the business as the
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government is also becoming serious about such factors. The company should use JIT inventory,
which will help them to manage wastages (Chen and Sarker, 2017).
Recommendations
Some tactics are suggested below to guide the company:
a. The company should use JIT inventory to manage their wastages
b. The management of this company should use RFID technology while manufacturing their
products
c. Research and development process will be beneficial for addressing the changing needs of the
company
d. The company should conduct research on the macro environmental factors of the country
e. The recent economic condition of the country has been changed so that the company should
develop repositioning strategy in order to cater to all the customers of this country
f. The brand needs to differentiate its product line so that they can be able to keep their current
market position
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