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Hennes & Mauritz AB, abbreviated to H&M, a Sweden-based global fashion retail company, was established in 1947, serving a business concept of offering good-quality product with the best price along with making sustainability (H&M, 2014a). H&M is the world second largest fashion retailer. In 2013, H&M has opened 356 new stores and expanded into five new markets: Chile, Indonesia, Serbia, Lithuania and Estonia (Passport, 2014).
H&M is a pioneer of ‘fast fashion’ which inspired by the trendy catwalk fashion and transformed them into affordable fashion frequently. Rather than being followers, it perceives the bid of consumer-lead (Passport, 2014). H&M manages its brand with a combination of Uniqlo’s and ZARA’s marketing strategies, which are using long product development cycles and building efficient supply chain (Petro, 2012). This report will critically evaluate the supply chain and logistics management strategies of H&M.
Which markets have been targeted and why?
Demographically, H&M aims to target younger age groups, especially those who aged 18 to 30 and are sensitive to the latest fashion and trend. H&M fundamentally advocates for offering quality products with the unbeatable value and a high frequency of launching new products (H&M, 2014a). It has divided its customers based into two distinct groups which are practical customers and trendy customers. The former requires basic and comfortable garments while the latter seeks for fashionable and sartorial products.
The number of “global middle class” will expected to expand to 4.9 billion by 2030, compared to 1.8 billion in 2009, significantly contributing by Asia (Pezzini, 2012). The upsurge of the middle class in Asian countries are believed to be sufficient to cope up with the impetus for world demand (Kharas, 2010). Kharas (2010) also stated that the rebound of consumer demand would depend not only on USA, but also Asian countries, especially China and India. Therefore, geographically, H&M not only targets at the Western Europe, where generated almost 71% of revenues in 2013, but also widely targets at USA and Asia Pacific (Passport, 2014). Figure 1.1 indicated that there is significant increase sales in both North America and Asia Pacific.
What has been Zara’s approach to Supply Chain Management?
H&M employs 160 in-house designers who officially work together with pattern makers and print designers to create H&M a wide variety of products. They strive to find the right balance among fashion, quality and best price as well as involving sustainability awareness. Although H&M collection are centrally planned, it does not own any factories instead of outsourcing from 800 independent suppliers, approximately 40% in Europe and 60% in Asia (Petro, 2012). In addition, H&M has set up 21 production office outside Sweden, 50% of them are based in Asia and 50% of them are based in Europe (Tokatli, 2008). Due to geographic and lead time priorities, H&M still persists in choosing Europe as production countries rather than China (Goransson et al, 2007).
H&M develops a long-term partnership and works closely with these suppliers to ensure its product quality. These suppliers are examined and evaluated twice a year to determine their performance and keep maintain good communication in order to respond to changeable demand (Siegle, 2013). Moreover, H&M requires all its suppliers, subcontractor and business partners to sign the Code of Conduct which is implemented in every aspects of the organisation. Full commitment with the Code must be fulfilled throughout the supply chain.
H&M seldom works with middlemen. It strategically works with its production offices that are closely located to its suppliers and served as the second hub of information flow. From choosing suppliers, handling production process, reviewing sample to checking quality, H&M can maximise its efficiency to be more responsive to customers demand.
H&M basically launches two seasonal collections each year, producing approximately 2000-4000 items on average (Tokatli, 2008). Sub-collections have also been offered within each season in order to continually update its inventory. Usually, the main collection would be long-lead time items whereas the sub-collection would be short-lead time items (Petro, 2012). H&M will produce 80% of its products in advance (Cha, 2013) and the lead time of producing the remaining 20% may vary, generally from two weeks to six months (Saini, 2007).
H&M also develops its production plan six to twelve months in advance, coordinating with the purchasing process accordingly. This planning system helps to achieve its belief in exceeding customer expectations and contributing sustainable work in the supply chain. The process from designing products to retailing takes only 20 days to complete (Saminather, 2007).
H&M has developed an IT system which connected each store with corporate logistics, procurement systems and the central warehouse (Petro, 2012). This system enables the visibility of the entire process to every departments that involved. As a result, a more securable and effective management can be applied across all channels.
What market entry strategies have been adopted and why? How do H&M manage their marketing channels?
Its expansion target is to open 10%-15% new stores per year and this can be implemented by its marketing strategy that is increasing like-for-like sales (Passport, 2014). In spite of reporting that H&M like-for-like sales figures have been declined for five consecutive months, it still plans to open 350 new stores in 2014 (Milne, 2013). Despite the concern that excessive store numbers could affect H&M’s cachet, but the rapid growth of consumer demand is highly enough to support its expansion (Passport, 2014). In fact, H&M has 3511 stores across 55 countries in 2014, compared to 3132 stores across 53 countries in 2013 (H&M, 2014a), accounting for 379 additional stores.
H&M’s expansion strategy in emerging markets is through establishing wholly-owned subsidiaries in order to maintain its direct operational control (H&M, 2014a). All H&M stores are run by H&M, therefore, franchising would not be its favourable method. Nevertheless, some excepted markets necessarily need collaboration via franchising. For instant, H&M reached a franchise agreement with Kuwait-based company, M.H. Alshaya to expand market in the Middle East. This partnership ensures a great success in bringing H&M’s spirit to a new market.
Joint venture can be considered as a dominant option for multinational enterprise (MNE) to discover emerging markets (Zhou and Xu, 2012). H&M adopted a 51:49 joint venture with Mumbai-based firm Tata Group. This allows H&M to better understand the know-how of local market before accessing to foreign markets, meanwhile, the Indian government regulates 100% foreign direct investment (FDI) in single brand retailing, unleashing market liberalisation (Passport, 2014). These two opportunities inevitably assist H&M to enter Indian market. It aims to invest €100 million for opening 50 stores in India, focusing not only in major cities such as New Delhi and Mumbai, but also other cities like Ahmedabad and Jaipur (Passport, 2014).
H&M has chosen vertical integration as one of its business strategies to better control the whole supply chain. From manufacturing to assembling, merchandising to retailing, all these processes are under its control. It works closely with its production offices, suppliers and buyers. While finish designing at Stockholm headquarters, its partnership suppliers will seek for the most suitable raw materials and matched them for assembling. H&M places bulk order to minimise the risk of price fluctuation and enjoy a certain level of economy of scale (Goransson et al, 2007). Then, the production offices will arrange for merchandising. H&M stores do not prepare any buffer stock, but are replenished from the nearest distribution centre. 90% of H&M’s goods is transported from the suppliers’ warehouses to distribution centres via Hamburg, the main transit point of H&M, by rail or sea (H&M 2014a). Those garments are generally served with price tags and ready for sale (Hasan and Alim, 2010).
How is the brand differentiated and how is it positioned?
H&M identifies a sustainable competitive advantage for its brand through providing augmented products. The purpose of creating augmented products is to add value to supplementary elements, aiming to exceed customer expectation (Crassous and Gassmann, 2011). H&M realises the fact that customers are not well-prepared to pay extra money for sustainable value, but it is believed to be a leading trend in the future (H&M, 2014b). Hence, H&M emphasizes offering the best price, not the cheapest price, certainly involving a part of sustainability. It would never compromise the commitment of providing fashionable and quality products with the best price.
H&M is positioning itself as an ethical company that produce fast-fashion and ethics simultaneously (Siegle, 2012). For example, H&M has invested heavily in sustainability in order to remove the label of ‘disposable’ fashion manufacturer (Passport, 2014). It realises how important the natural resources to them, thus, it makes use of 13.7% of organic cotton over total cotton use. According to Textile Exchange (2014), H&M is listed as the world top users of organic cotton. It also changes its linear production model to circular production model to serve conscious fashion. H&M no longer focus on making short-term profit, it has stated the importance of developing long-term sustainability to be a significant differentiator (H&M, 2014b). For instant, H&M has collaborated many non-governmental organizations (NGOs) such as Fair Labour Association (FLA) and Fair Wages Network to develop a criteria for benchmarking sustainability to entire industry (H&M, 2014b).
Furthermore, the transparency of H&M’s supply chain is another key differentiation from other fast fashion retailers. H&M made an effort of creating supply chain transparency by publishing its supplier’s factory list. H&M is one of the few fashion companies to publish its supplier factory list (Doward, 2012).
Is Country of Origin (COO) significant?
COO could influence on customer-based brand equity, especially in B2C markets. It has added values to the brand and the perceived quality, one of the factors of brand equity, has been recognised as a driving force in order to generate brand awareness (Chen et al, 2011). However, the strength of the link of COO across products may differ as the variation in product categories can be hard to identify (Tseng and Balabanis, 2011). For example, the credibility of French perfumes and Russia vodka are high, compared to the credibility fast fashion. The latter is more concern with the style of fashion rather than COO. Thus, the Swedish original roots may not be significant in inspiring H&M collection that what target customers are expected. In comparison to Sweden, Milan, Paris and Tokyo are more likely to be defined as global fashion cities (Jansson and Power, 2010). Therefore, H&M’s COO is unlikely to be significant in influencing customer purchasing decisions.
Have there been issues of supply chain ethics or provenance?
H&M’s commitment is to be ethical through its value chain, steadily rooted in its belief. A great efforts have been paid with awarded the world most ethical company (H&M, 2014b). In spite of adhere to be ethical, some unexpected issues might occur under its vertical control. However, H&M tried its own best to best solving those problems. For example, a Bangladeshi factory that making clothing for H&M and other companies prone to fires due to poor safety standard (Hickman, 2010). H&M alleged that it only bought a small portion of garments from this factory. However, it appointed representatives to visit that place immediately to support those affected and their families. H&M has regularly audited this factory and announced that this factory has attained the Code of Conduct. Following this unwanted incident, H&M produced a series of short films, concerning fire safety and other ethical issues in order to enhance workers’ vigilance (Siegle, 2012).
Another example was 288 Turkish workers were suffered from verbal harassment during H&M’s external assessment. H&M followed up this circumstance and settled down by giving proper training to their supervisors and putting less pressure on them (Fair Labour Association (FLA), 2009).
In conclusion, this report has evaluated the supply chain and logistics management strategies of H&M. Vertical brand, H&M achieves its best prices promise by employing in-house designers, having no middlemen, choosing its own suppliers, utilising resources in every part of business, and the most important aspect is having effective logistic management within the supply chain. The highly responsive supply chain distinct H&M from its competitors, enabling H&M to react quickly to the up-dated fashion trend. The selected suppliers not only responsible for manufacturing quality product, but also ensuring the processes are operated under good ethical conditions.
Sustainability plays an important role in implementing H&M business strategy. H&M works very hard to be recognised as an ethical company. These remarkable achievements will obviously lead an increase in brand reputation and customer confidence Therefore, it is essential for H&M to continuously place sustainability as its primary objective to clearly become H&M’s competitive advantage.
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