Now that we have taken a look at both the external and internal strategic analysis,
I will now take you through 2 key financial ratios which demonstrate H&Ms
key competencies and core business.
Firstly, conducting a profitability analysis across its key competitors over a 3 year
time horizon, we found that H&M consistently remains the industry leader in
gross profit margin, edged out narrowly by Fast fashion giants, the Inditex group
for the past 3 years.
This illustrates how H&Ms cost management strategies have successfully boosted
the firm value in the long-run.
It is also worth noting that from the investor management point of view, due to
their consistent profitability, H&M was able to pay out annual dividends for the
past 2 years, boosting investor and shareholder value.
Secondly, we conducted an activity analysis of inventory turnover in to key
industry players over a similar time horizon of 3 years.
We have chosen inventory turnover ratios as an appropriate comparison, as we
have defined h&m to be in the fast fashion industry, where we compare the
speed at which its inventory is able to be sold is key to the success of its
competitive advantage.
However, we found h&m to have the lowest inventory turnover among its fast
fashion competitors. While an inventory turnover of above 3 is rather impressive,
it is indicative that h&ms profit margin is likely highly attributable to low cost,
rather than high revenues. As a low inventory turnover is indicative of a lower
sales, or higher inventory value propotionally, benchmarking against key industry
players. For the case of H&M it is likely to be the extremely high inventory values,
due to its mass production method in order to reap economies of scale.
Key factors could also include, producing in bulk in order to reap economies of
scale as a cost management strategy, hence resulting in high wastages and high
inventory obsolescence while maintaining costs low. This is indicative of several
gaps in its business strategy which we will address further on in our presentation.
Now moving on to its international strategy,
H&M is a brand with strong global presence across all continents, hence it is
important to consider the strategic importance of its international strategy.
Apart from its main brand, the H&M group also owns smaller niche fashion
brands such as COS, Weekday, Cheap Monday, MONKL, H&M Home, &other
stories.
The H&M group plans to open approximately 430 new stores net in the
2016/2017 financial year. Kazakhstan, Colombia, Iceland, Vietnam and Georgia
are planned to become new H&M markets. In addition, H&M plans to continue its
online roll-out into six new markets: Turkey, Taiwan, Hong Kong, Macau,
Singapore and Malaysia.
The H&M group plans to launch one or two new brands in 2017.
New growth target: to increase the H&M groups sales by 10 15 percent in local
currencies per year with continued high profitability.
The spillover effects of an extremely fast STM are 2 pronged.
Firstly, quick response to local trends and demands, on a seasonal and monthly
basis
Secondly, the ability to detect and predict new market opportunities (in terms of
consumer taste and preference)
-> mainly attributed to its sophisticated and talented team of fashion designers
for its fast fashion products
Global Integration: LOW
Outsourced manufacturing to lower cost of production
Current establishment consists of franchised production offices
Low degree of control over production quality and speed
CURRENTLY, H&M ADOPTS A TRANSNATIONAL STRATEGY