Global Sourcing

GLOBAL SOURCING H&M & OTHER STORIES

PAIGE CLAY

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This report is going to investigate the company behind the newly announced brand, ‘& Other Stories’. Looking into the history of H&M, marketing strategies, competitors and how ‘& Other stories’ is going to be relevant across the markets. Opportunities, competitors and how H&M’s business concept and ideas will be taken through to ‘& Other Stories’ will be analysed.

Through research of H&M, learning of their marketic strategies, who they compete against and retail methods, I am able to understand the workings of a successful business. I decided to look into H&M’s newest brand, & Other Stories. I will then create a promotional film based on their ideas, this would be something the brand could use at the launch, in store or as an online marketing tool.

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Due to economic uncertainty in 2011, customer demand decreased and competition for customer spending increased.

The retail market was categorized by markdowns and as a result H&M did well.

Sales including VAT increased by 8 percent in local currencies.

Sales in comparable units decreased by 1 percent.

The strengthening of the Swedish krona over the year meant that most of the sales countries’ currencies depreciated against SEK. This is compared to the previous year where this had a negative effect when converting sales from local currencies to the company’s currency, Swedish krona.

Where sales in local currencies increased by 8 percent, this was only 1 percent in Swedish krona.

Market and sourcing conditions were demanding. Cost inflation increased sourcing costs for 2011. Cotton prices continued a steep accent, reaching very high levels, having an effect on purchasing costs. Despite this, H&M abided by their strategy of strengthening customer offering and market position in

relation to competitors.

These investments, along with higher purchasing costs, affected H&M’s gross profit, which amounted to SEK 66.1 billion corresponding to a gross margin of 60.1 percent, compared to 62.9 percent the previous year.

H&M is present in four continents; in 2011 sales were strong in larger markets such as the US, China, Russia and the UK. Sales developed well for other brands too, particularly COS. Germany is the largest market for H&M with around 23 percent of sales. The UK and US showed the strongest sales increase in the year. Online, catalogue and franchise sales also developed well, with approximately 70 stores via franchise in nine countries.

The gross margin has been affected by a large number of factors, the situation in the sourcing markets proved a challenge, as well as a number of long-term initiatives underway. These include strengthening their buying organisation, IT investments and opening new store chain & Other Stories.

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& Other Stories is the brand from the global company H&M. H&M (Hennes & Mauritz) was founded by Erling Persson in 1947, with the first store named ‘Hennes’ open in Västerås, Sweden, selling womenswear. With 2,800 stores across 48 markets, with Germany being their largest market, followed by the US, UK and France. H&M is an ever-expanding company.

The H&M group also includes brands: COS, Monki, Weekday, Cheap Monday and & Other Stories. Each of which express their own style.

H&M’s business concept is to give the customer unbeatable value by offering fashion and quality at an affordable price. To ensure this is maintained, they have to be cost-conscious at every stage, buying from the right markets and having a broad understanding of design, fashion and textiles. Quality is of great importance at H&M; as well as ensuring goods are produced with minimal environmental impact under good working conditions.

H&M’s growth target is to increase the number of stores by 10-15 percent each year, at the same time increasing sales. This growth continues with an emphasis on quality, sustainability and high profitability.

Expansion is continuing at a fast pace in 2013, with 325 new stores planned and the highest rate of expansion in China and the US. Sustainability is an important part of H&M’s customer offering. H&M invest into sustainable resources and work to achieve a

sustainable development for people and the environment. Their work is recognised by leading bodies in the area of sustainability and they cooperate with organizations such as Unicef and WWF. Each H&M store is always located in the best business locations combined with the most favorable market terms. To ensure maximum profit and success H&M assesses the market’s potential factors such as: demographic structure, purchasing power, economic growth, infrastructure and political risk.

Over the last 5 years, H&M’s sales have increased by 61% and profits by 47%. The Gross profit of 2011 was 66,147 followed by an increase to 71,871 in 2012*, with sales strongest in the US, Canada, China and Russia. Long-term investments relating to new brand & Other Stories, as well as IT and online shopping, have created cost increases and have not yet created any revenue. However these investments are considered important in securing future expansion and profits.

Gross profit, thousands* & Other stories will be launched in ten European countries in spring 2013 with the first stores opening in Denmark, France, Germany, Italy, Spain, Sweden and the UK. It will also be launched online at stories.com in 10 European countries.

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The target customers of H&M are those who are knowledgeable in fashion, with an individual style, looking for an affordable outfit whilst still being on trend. They ideally want affordability without the sacrifice of quality; H&M manages to offer this balance to their consumer. H&M divides their range into numerous sections, tailored for different needs. For example the Divided range is modified for a younger, fashion savvy customer. Whilst their classic tailoring section would be for the older, working customer. H&M’s other brands such as COS, Cheap Monday and Monki all target a specific customer, whilst & Other Stories will be channeling the ideas from H&M, with widely varied collections to meet the needs of different customers. & Other Stories will offer a diverse range of lines from masculine tailoring to feminine chic, with endless styling choices.

Customers will be able to create their own personal story and individual style. H&M’s aim is to design products the customer will invest into their wardrobe, within a wide price range. & Other Stories’ price range will vary between prices at H&M to the price point of fellow brand COS.

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H&M has it’s own team of designers, buyers, pattern makers and assistants whom are all in the know of the latest fashion, trends and what the H&M customer wants. Together they are responsible for producing the right mix of merchandise. Figures from past seasons along with up-coming trends are factors that determine the final composition of the different concepts. Customer demand varies in the different markets and stores and the previous season’s sales provide guidance. The size and location of the store is taken into account, high fashion garments produced in limited quantities are mainly sold in big cities, whilst basics are ordered in larger volumes and distributed to several more stores.

The store experience and display windows are of great importance to H&M. With the stores changing constantly, H&M offers a varied shopping experience guiding customers around the different departments. Each store is an inspiring experience, making every customer feel comfortable in that environment. The premises for a new store are often picked because of the location, with the interiors team working to make each store unique yet still recognizable as H&M. The displays at H&M, both the windows and in store are constantly changing.

The layout of the display creates an association without taking the emphasis off the clothes. New guidelines are created in the large test store at H&M Head Office in Stockholm. The displays combine clothing with accessories providing inspiration for the customer.

Store layout and window displays will also be of great importance at new brand & Other Stories. The unique style and use of space in the stores will create a varied and inspiring shopping experience for customers.

Attention on displaying styling tips, grouping accessories with dresses and make up to go with an outfit will all aid the customers’ shopping experience as well as increasing sales.

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H&M is expanding through it’s online and catalogue sales. Hm.com provides inspiration and gives the customer the opportunity to shop the collections from home. H&M’s website features up to date articles from Paris fashion week to sustainable fashion, showing the consumer their inspirations and activity within the company.

H&M fails to include the same diverse selection of product on the website as is in it’s larger stores, the customer doesn’t get the same experience online they would in store, there is more focus on the visual merchandising and retail experience, as the physical stores are H&M’s main sales channel. H&M are looking to launch shop online in the US in Summer 2013, having delayed this due to security and logistics issues. & Other Stories has created a hype around the brand through the use of social networking sites Facebook, Twitter and Tumblr as well as the press. Making customers aware of the launch and what to expect. The new brand will be launched in store and online simultaneously for the first time in the company’s history.

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H&M initiated collaborations with designers and celebrities in 2004, starting with Karl Lagerfield.

Collaborations in subsequent years have included Viktor & Rolf, Stella McCartney, Madonna, Roberto Cavalli, Comme des Garcons, Matthew Williamson, Jimmy Choo, Sonia Rykiel, Lanvin, Versace, Marni and David Beckham.

Through this huge range of collaborative work H&M are able to tap into new markets, reaching customers loyal to these designers and celebrities.

These collaborations create a lot of press and excitement, with the Marni collaboration selling out in less than an hour in New York and having to limit shoppers to ten minutes each in London.

Versace for H&M was a major design collaboration, launched in 300 stores and online in November 2011. Offering

garments for men and women and selected interior items, Donatella reinterpreted the best patterns and prints from Versace’s archive.

Prior to the launch Donatella claimed ‘It is so exciting to collaborate with H&M and have this opportunity to reach their many customers’.

This shows how collaborations benefit both the designer and H&M. This continuous success H&M has from their collaborations could lead onto & Other Stories following a similar path. However, the ideas of H&M compared to & Other Stories differ. Where H&M focus on offering fashion and quality at affordable prices, & Other Stories aims to provide ‘lasting wardrobe treasures within a wide price range’. Meaning there is less focus on trends, and more focus on tailoring to the diverse customer base.

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H&M uses its various advertising campaigns to communicate its business concept of ‘fashion and quality at the best price’. H&M’s marketing has a major impact and so it is important they convey a positive image.

The advertising campaigns are produced in Sweden by H&M’s marketing department in co-operation with creative professionals located in the major fashion hubs of the world. H&M’s campaigns are designed to be clear and inform the customer what is new at H&M. H&M’s advertisements are largely identical in all markets, but the media strategy is adapted to local requirements. H&M manages to feature models with different looks and cultural backgrounds to appeal to women, men, teenagers and children. The models must follow the advertising policy and must portray fashion in a positive and healthy manner.

The H&M team travels all over the world finding out about new art, film and food, going to trade fairs meeting trend forecasters and speaking to customers, all for inspiration for the new season. They also look into trends from the catwalk, and have just showcased the Fall/Winter 2013/14 collection on the catwalk at Paris fashion week. Showing they are becoming actively involved with the fashion shows.

A current strategy of H&M is marketing to the consumer through a mobile marketing campaign. Launched in 2006, and still used today, customers receive SMS coupons and mobile banner advertisements are shown on media sites. This helps drive membership of the H&M club and promotes the latest collections.

H&M has established a strong social media presence through their pages on Facebook, Twitter, Instagram, Google+ and YouTube. Millions of H&M followers share ideas and get answers quick. H&M regularly updates these pages as well as uploading fashion videos and reports to YouTube weekly.

The online market is increasingly growing, particularly due to a growth in mobile shopping via smart phones. H&M launched their iPhone app in August 2010, through the H&M apps; customers can explore the new collections, campaigns and purchase products on the go.

With new brand, & Other Stories already gaining a strong following through social media pages, this will continue to grow after the launch. & Other Stories have already posted a series of images onto their Tumblr, showing the audience the progress of the brand and keeping them up to date.

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H&M has three main competitors, Arcadia Group Limited, Industria de Deseno Textil and The Gap inc. Arcadia, the leading British retailer, with fashion chains including Dorothy Perkins, Miss Selfridge, Topshop, Wallis, Burton and Topman. With a Topshop flagship store in New York, Topshop is considered to be H&M’s main competitor. Topshop utilizes e-marketing tools such as Facebook, Twitter and YouTube, as does H&M. However Topshop also offers student discount, this is a strong tool in attracting their target audience. H&M could benefit from this, increasing the customer base at this age range.

The second competitor, Industria de Deseno Textil (inditex) is a Spanish company specializing in disposable fashion, selling on a global scale in 70+ countries. This company consists of fashion retailers, Zara, Oysho, Pull and Bear, Bershka, Zara home, Massimo Dutti, Stradivarius and Uterque.

Zara is H&M’s main competitor, as it would be for & Other Stories. Zara and H&M work with different models, both proving to be successful for 21st century retail. Zara is always up to date with the latest consumer trends, delivering new product twice a week to its stores. Getting product from design to sales floor in less than 15 days.

In comparison to this, H&M manages to merge fast fashion trends along with products with longevity. H&M offers two main collections each year, with sub-collections containing trendier, short lead items. Both Zara and H&M have a deep understanding of their customers’ wants and needs. With Zara, responding to consumer desires as an integral part of its competitive advantage, whilst H&M focuses on researching and predicting emerging trends. & Other Stories will be under strong competition as it launches. With its competitors being similar to those of H&M, innovative marketing strategies will need to be in place to appeal to their target audience. With a varied collection targeted at a diverse audience, the campaigns would also have to vary, whilst remaining clear and simple, focusing on location, price point and quality.

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Strengths H&M are successful in delivering their business concept, fashion and quality at affordable prices due to the reduction of the middleman and H&M buys their apparel fabrics in bulk from the suppliers.

H&M’s stores are situated in highly profitable cities around the world, meaning they achieve the most benefits of the company. H&M have maintained success through collaborations with designers and celebrities, making them stand out compared with some of their competitors.

Weaknesses Having delayed the launch of Internet sales in the US for the second time in 2012, H&M is failing to offer online shopping in more countries.

H&M are falling behind rival Inditex in online sales, despite having a head start. However H&M is now expected to launch online sales in the US in Summer 2013, planning to then reach out to markets such as China.

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& Other Stories have many opportunities as a new and exciting brand. With a concept to tailor to every customer’s needs there is opportunity for expansion globally, just as COS and other brands have. & Other stories could thrive against its competitors as the customer now looks for quality and staple items to keep forever, rather than fast fashion that’s here today and gone tomorrow. The variety and styling inspiration & Other Stories provide for their consumer will draw in a large number of customers. The focus on accessories and beauty will also help maximize sales.

Opportunities H&M is situated across 48 markets, meaning there is opportunity for further expansion in new and existing markets.

Expanding its stores to Europe and Asia and the US, creates interest from high fashion designers such as Versace who choose to collaborate with H&M, meaning they can expand their market. H&M can improve their quality of clothing and attract a larger number of customers.

H&M should also look into offering customers varied discounts and special offers for example student discounts.

This is something competitors such as Topshop are active upon, whereas Zara fail to deliver this service, therefore H&M could have an advantage in sales from this.

Threats Cotton is the single most important raw material in H&M’s garments, however with already an increase in sourcing costs, H&M could be in danger due to the decline in world cotton production. Cotton production is expected to decrease by 11 percent in 2013-14 due to lower cotton prices and increased appeal of competing crops. The decline in cotton production along with the rise of cotton consumption would raise the price of cotton and reduce the availability of this raw material. Therefore could affect the company’s profitability.

Another threat is unfavorable weather. With H&M’s lines launched on the basis of normal weather patterns, changes and uncertainty from the norm could affect sales. H&M may need to rethink the collections they launch and how to accommodate with unreliable weather patterns.

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In conclusion, H&M is successful in delivering fashion and quality at an affordable price. H&M has achieved global presence with 2,800 stores across 48 markets, and is looking to continue expansion in new and existing markets. The company is available online and is taking advantage of this through expansion into the US and China and should look into building customer engagement and loyalty online. This would be achievable through use of blogs, social networking sites and up to date news and fashion.

H&M have invested time and money into the launch of new brand & Other Stories. From the success of other brands COS, Cheap Monday, Monki and Weekday, they are hoping for this success to continue. This investment along with improving marketing and IT areas is intended to further strengthen H&M’s market position in the long-term. H&M will continue to stand strong as a major competitor within retail, with new opportunities arising and the introduction of & Other Stories. & Other Stories launches 8th March 2013.