H&M Strategic Recommendations in Depth

MSc Business and Management

Corporate Strategy Unit

Student Name: Vasiliki Evangelou

Due: 27th of March 2015
Word Count (excluded References and Appendices): 3401
 H&M Strategic recommendations in depth | Vasiliki Evangelou

Table of Contents
1 Executive Summary ................................................................................................................. 3
2 Introduction ............................................................................................................................ 3
3 Identification and Evaluation of Growth Strategies ............................................................... 4
3.1 First direction of Growth- Investment and Growth ......................................................... 4
3.2 Second direction of growth ............................................................................................. 7
3.3 Third direction of Growth- Internationalization .............................................................. 9
4 Identification and Evaluation of Strategies for Internal Improvement and Turnaround ..... 10
4.1 Areas for improvement:................................................................................................. 10
4.2 Performance management principals ........................................................................... 11
4.3 Hoshin Kanri ................................................................................................................... 12
4.4 Business Process Re-engineering ................................................................................... 13
4.5 Balanced scorecard ........................................................................................................ 14
4.6 Benchmarking analysis ................................................................................................... 16
5 Final Recommendations ....................................................................................................... 17
6 References ............................................................................................................................ 19
7 Appendices ............................................................................................................................ 21
Appendix A- First direction BCG Model ............................................................................... 21
Appendix B- First direction GE McKinsey matrix ................................................................. 22
Appendix C- First direction Ashridge Portfolio Display ........................................................ 24
Appendix D-Second direction Blue Ocean strategy ............................................................. 25
Strategy canvas ......................................................................................................... 25
Four actions framework ............................................................................................ 26
Appendix E-Internationalization .......................................................................................... 27
Market Selection Process................................................................................................. 27
Entry and Growth process ............................................................................................... 29
Appendix F-BSC Scorecard ................................................................................................... 29
Appendix G-Benchmarking .................................................................................................. 31

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1 Executive Summary
This report explores the identification and evaluation of the strategies that H&M might
adopt in order to increase its investments and growth, by utilizing BCG model and
prioritizing the investments by exploiting GE McKinsey, Ashridge model. Moreover, for the
growth of the company, among the available frameworks, the one of Blue Ocean Strategy
was implemented because a free slot of innovation was identified. Furthermore, H&M’s
internationalization opportunities were identified by assessing the attractiveness of the
market through PESTEL analysis, CAGE framework and competitive characteristics. Besides,
the report provides a detailed analysis of potential areas of internal improvements and
implementation strategies.

Therefore, the analysis highlights the final recommendations that H&M should adopt for
gaining a sustainable competitive advantage. The company should invest, firstly in
sportswear growth, secondly, in the introduction of products in the market segment of over
60 aged population, thirdly, in the expansion of internationalization by entering the Indian
market and finally, in increasing the presence of H&M’s sub-brand names.

2 Introduction
The purpose of this report is to identify, assess the opportunities within the global fast
fashion industry which is classified as very intense and recommend strategies that can lead
H&M to gain a sustainable competitive advantage within the market. Although, the core
strategic business units, that generate high profits, are women, men and kids’ clothing,
H&M should enter new market segments and introduce new products in order to compete
against its rivals. Moreover, even though the company is a big multinational company,
however, there are markets where it has zero or weak presence. Furthermore, the
organization should reconsider processes or activities that follows for improving their
effectiveness on business performance.

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3 Identification and Evaluation of Growth Strategies

3.1 First direction of Growth- Investment and Growth
H&M retails a variety of products, therefore, its SBUs are identified as it follows in Figure 1.
The identification of the following strategies was effected by the general division that exists
within the global fast fashion industry and by the available data which are provided by
reliable sources in order to produce the report.

Figure 1. H&M Strategic Business Units (Johnson et al., 2014, p.59)

According to the above division, the global fast fashion industry generated revenues of US
$2026 billion in 2013 reaching an increase of growth rate 3% from 2012 when its revenues
were US $1974bn. Moreover, H&M constitutes a profitable company in the market which
met a significant growth rate of 7% between 2012-2013 (Figure 2) by holding approximately
the 1% of the market share in the global industry (Global Apparel, 2013).

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Figure 2. Revenues for the Global Apparel Industry and H&M worldwide (Global Apparel,
2013)

In Appendix A, B and C a detailed analysis can be found regarding BCG model, GE McKinsey
matrix and Ashridge portfolio display. An overall assessment of the company’s growth
direction follows below (Figure 3) which was produced according to the mentioned
frameworks.

As core strategic business unit of H&M is indicated the section of womenswear, which has
the highest profits and concentrates 50% of total revenues, whereas in the global industry,
womenswear encloses 34% of profits (Market size statistics, 2015). Its growth rate might
mean that it might require a significant investment and will consequently be a cash user.
However, because the womenswear market has high market shares, it will generate large
amounts of cash. Thus, H&M in order to maintain its position in terms of profitability it
should expand its market and increase customer loyalty in womenswear unit that may lead
to the increase of buying frequency. In addition, menswear is considered as ‘cash cow’ since
is the second highest profitable unit (Market size statistics, 2015). According to the Ashridge
portfolio display, both of these units continue to add value to the company and might
remain at the core of future strategy, thus, they are classified as ‘heartland businesses’.

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Consequently, H&M should utilise womenswear and menswear sustainable profits as ‘cash
cows’, firstly in order to support kids’ wear, which even though is classified as ‘question
marks’ and performs the highest growth rate +13% (2012-2013), however, it is threatened
by private label products, where grocery retailers have invested in the improvement of kids’
clothes quality (H&M Hennes & Mauritz in retailing, 2014). Additionally, this business unit is
not an unknown area for the organization, since it is located in the ‘edge of heartland
businesses’. Furthermore, H&M should improve hosiery that is located to ‘question marks’
and performs the second highest growth rate +12% (2012-2013) of the organization that
might be a worthy investment because hosiery has benefited from the recession due to
their affordability and popularity as gift items.

Furthermore, in the global apparel industry sportswear constitute the 12% of total sales and
possess a very dynamic part, whilst, in H&M this category holds the 1% of total revenues
and has the lowest growth rate of 4%. The increasing tendency of customers to be more
health aware might be a potential opportunity for the organization to provide customers
with sportswear in fast fashion industry. Finally, fast fashion retailers, such as GAP, attempt
to enter vigorously the sportswear market, whereas, sportswear colossus, such as Adidas,
enter the fast fashion industry with a variety of offered lines. Therefore, the lines between
sportswear and fashion are difficultly distinguished (H&M Hennes & Mauritz AB, 2014).

When it comes to footwear and apparel accessories both are identified as harvest, showing
low levels of attractiveness, consequently, H&M should be focused on maintaining these
lines, in order to fulfil the broader needs of its customer base and mitigate competition, by
allowing customers seeking goods in other sources. Even though hosiery, apparel
accessories and footwear are areas well-understandable for the company, there is designing
and marketing experience, however, they are considered as supplementary products of the
main units of clothing and might not generate high amounts of profits (H&M Hennes &
Mauritz in retailing, 2014).

Thus, the company may develop on kids or sports clothing and hosiery by introducing
products diversification, increasing the range of seasonal products markets or segments and
encouraging the purchasing frequency.

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Figure 3. BCG Model, GE McKinsey Matrix and Ashridge Portfolio Display (Lynch, 2006)

3.2 Second direction of growth

H&M can minimize the intense competition within the industry by developing suitable
strategies. Looking the global fast fashion industry and H&M, an intense competition is
identified, therefore it is crucial for H&M to look for ways that would enable the company to
compete against no one but themselves. Consequently was found that the best strategy is
the one of Blue Ocean (Figure 4).

In Appendix D the strategy canvas and the four actions framework are explored. The
strategy canvas is implemented by taking into account the following critical success factors
for assessing H&M performance with this of closest rival (Zara & Gap) including: price,
number of stores, location, marketing, new launches, quality, online services, ease of
shopping, return policy, time and effort, product variety and product quantity and products
for +60 aged population. In order to draw the strategy canvas, Porters’ Five Forces,
resources and core competencies were considered, however, the rating of the performance
was an estimation looking at the results related to each factor.
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The analysis points out the following suggestions related to the Blue Ocean Strategy:

Looking at H&M’s closest rivals, one can note that fast fashion retailers provide customers
with a variety of products for different segments, seeking to expand their activities in
existing markets. However, there are areas that might be covered within the overall apparel
industry but have not been explored by fast fashion retailers. Although fast fashion is a well-
structured industry, there is a lack of customization in the offered products or services that
might give H&M the opportunity to expand its businesses, in order to attract new customer
segments.

H&M and its competitors are focused on providing products and services for young and
fashionable populations. However, the strategic review highlighted that, it is expected that
the proportion of global population aged 60 will increase by 21% and especially in Europe
the percentage will reach 35%. Furthermore, the company might be influenced by this
target group that will hold the superior spending power of customers. Hence, H&M should
influence this segment by launching orientated products for over 60-age population.

However, in order to succeed in its core customer base (young and fashionable) retention,
who trust the brand name as a fashion retailer, H&M may introduce large scales of products
focused on over 60 aged population, by creating a new sub-brand name in order to maintain
customers’ perception for the brand, whereas all the manufacturing process will remain as
is.

Figure 4. Strategy canvas (Johnson et al., 2014, p.59)

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3.3 Third direction of Growth- Internationalization

Even though H&M constitutes a big multinational company that operates in many countries
across the world and its vision is to increase annually the number of stores by 10%-15%
(About our commitments, n.d.), however, there are markets that have not been yet
approached. Based on the analysis of resources and core competences, H&M has a
significant experience in implementing globalization strategies, which is proved by the fact
that it operates in 55 markets. Moreover, its recognisability as brand name facilitates the
company, in order to penetrate in new markets, having the trust of its customers and
stakeholders. Thus, strategic review reveals that the organization has zero presence in
Indian market.

In Appendix E an integrated analysis, which explores the market selection and entry/growth
process, can be found. Moreover, an overall assessment of this analysis is being exploited
below.

India experienced a significant growth rate in apparel industry in 2012, estimated at US$48
billion and even though the global industry life cycle is identified at the mature stage, Indian
apparel market is in growth phase. As well as, various governments’ initiatives, such as
measurements for 100% direct investment by foreign countries in opening new companies,
facilitate the decision making of large organizations entering India. Although, it might be
considered as an unapproachable market because of the different social norms, according
to the social-cultural factors of PESTEL analysis (Appendix E), Indian population is highly
impacted by the western lifestyle and particularly on clothing style (H&M Hennes & Mauritz
AB in Apparel, 2014).

Additionally, the implementation of CAGE framework indicates, that, in terms of cultural

distance between the company and the new market, India and Bangladesh that hold the
biggest part of manufacturing process, seek to find an agreement that would support both
sides to gain a greater access to their road, railway and port networks (Ethirajan, 2012).
Besides, when it comes to competitive characteristics Zara has already expanded in 2010 its
operation in India as part of a joint venture with Tata group (Global Apparel, 2013).
Furthermore, H&M is benefited by India regarding another factor which is proximity

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between the suppliers and selling channels, in addition to Zara’s manufacturers that are
located in Europe (Fashion chain Zara, 2010).

H&M obtains already its resources for entering in the Indian market. However, the
organization should invest in well-experienced personnel within this market, for generating
new products, orientated to this specific customer base and promoting its new strategy and
activities in order to attract customers.

Consequently, India constitutes an opportunity for H&M to increase its profits, making it a
valid business investment, following the same entry mode as Zara, to joint venture, which
has been identified as successful strategy. This type partnership should allow the company
to enter this new spatial market, gain new capacity and expertise, for a market that is
characterised for its unique special unique characteristics.

4 Identification and Evaluation of Strategies for Internal

Improvement and Turnaround
All the implemented frameworks related to the identification and evaluation of strategies
for the internal improvement can be found below and in Append F & G.

4.1 Areas for improvement:

Based on the detailed analysis in Appendix F, the areas that are prone to improvement are
the following:

1. Increase of presence of sub-brands name

H&M collaborates with other global brands, which have a limited or weak presence in the
industry, keeping the company as the dominant brand within the market. Although, H&M
started changing this tendency by introducing new labels, such as, ‘& other stories’, it
should introduce new labels that are focused on providing specific types of wears, such as,
innerwear, for attracting a wider range of customers (Global Apparel, 2013)

2. Expand online market coverage and sales

Although there is a rapid development of online market and its penetration in apparel
industry is significantly high, H&M’s online channel covers 13 out of 55 markets (H&M
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group, n.d.). Zara, that counts almost the one-second of H&M’ stores, has expanded its
operations in 27 markets meeting the needs and expectations of the ‘omnichannel’
customers (H&M Hennes & Mauritz AB in Apparel, 2014). Accordingly, H&M should develop
activities for expanding online market coverage and sales.

Furthermore, H&M should improve its manufacturing and distribution processes, however,
both areas may require a significant amount of expenses in order to be implemented.

3. Increase the development of eco-friendly production

H&M has already developed its manufacturing for improving its environmental
performance, reducing resources’ scarcity and increasing the utilization of recycling clothes,
through a series of activities. In spite these initiatives, H&M should take into account
additional actions, such as, set up limitations in the cotton usage or use alternative sources
of energy for its products’ distribution (Waste management, n.d.).

4. Transfer manufacturing process from outsource to in-house

The strategic review illustrates that H&M provides mixed products with a range of basic and
seasonal products that are produced in high volumes, while new launched clothes, that
follow changes of trends, are fabricated in smaller volumes. The company has adopted as
manufacturing process the outsourcing. H&M collaborates with a wide number of
independent suppliers with the assurances about the quality of products and the production
offices seek to ensure sustainable working conditions for its employees. The average supply
lead times vary from three weeks up to six months, depending on the nature of the goods.
However, the fact that the outsourcing production may compose a potential threat for the
organization, it could lead to the consideration of transferring its production closest to
Western Europe, that constitutes the core of the business, in order to have the absolute
control of the production process, increase the lead times and decrease distribution costs.

4.2 Performance management principals

The following diagram (Figure 5) depicts what managers should take into account before
starting the actions for the improvement of the first two areas that are described in section
4.1. The selection regarding the improvement’s actions is limited to the first two actions
because they are the less costly for the organization.
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Figure 5. Performance management (Johnson et al., 2014, p.283)

4.3 Hoshin Kanri

Hoshin Kanri will be used for improving the scale of presence of sub-brand names within the
market. The whole process is depicted in the following map (Figure 6) that is divided into
three parts -policy owner, objectives and means- and is referred to the objectives
breakthrough, regarding the activity which is identified that is needed to be improved.
Overall, each part of the organization, from the top floor (CEO) to the plant floor
(operators), should have an active role for succeeding the increase of H&M’s sub-brand
names in the market. Moreover, the objectives are prioritized according to the available
resources of the organization, therefore, H&M should be focused on the following elements
including: increase of customer loyalty, improvement of in store customer experience,
service and product quality development and products’ variation, production process
improvement. Besides, every objective is interrelated and the CEO needs to make the
annual diagnosis (Lynch, 2006).

The core benefit of Hoshin Kanri process is the involvement of every specific employee in
understanding the direction of the company and improving its performance for succeeding
the targets.

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Figure 6. Hoshin Kanri Process-Objectives breakthrough (Lynch, 2006)

4.4 Business Process Re-engineering

The process that will be evaluated, in terms of re-engineering, is the one of production.
Even though H&M operates for decades in outsource manufacturing, however, the current
process (Figure 7) should be improved in order to mitigate the social or environmental risks.

Figure 7. H&M production process description (Production process, n.d.)

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Following the above diagram of the production process, the steps that should be improved
and the suggestion that might be adopted for succeeding the improvement, are described in
the table below:

Step Re-design
Educational program in communities
Organic cotton farming
Micro-credit
Suppliers to become carbon neutral
Spinning-knitting-dyeing- Eco-buildings
cutting & sewing Minimize water scarcity
Improve employees working conditions
Shipping Truck running with bio-gas
Relocation for reducing carbon-emissions
Warehouse
Build green infrastructures
Magazines and catalogues as tool of
Marketing customer relationship management
Sustainable alternatives for paper issues
Re-use bags
Sales
Expansion of the online channels expansion
Recycle clothing stock
Final disposal
Create stock outlets

(Fashion futures 2025, 2010)

Therefore, the implementation of the mentioned suggestions may lead H&M to increase its
social responsibility and reduce the environmental impact of production process. Both are
estimated that will improve the customers’ perception of the brand. Every stage of the
production process until delivering to the customers, must be implemented and controlled
by different departments that are involved, however, a team must be formulated, in order
to secure the implementation of the processes as well as the successful completion of the
project.

4.5 Balanced scorecard

In Appendix F is produced as a result of an integrated analysis of the selected factors for
each of the four perspectives that might be included in balanced scorecard. Thus, the
following table points out firstly the decided objectives and secondly, what the company

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should measure for achieving them, the targets that should be utilized for controlling the
scales of the successfulness and finally, what are the initiatives that H&M should take.

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4.6 Benchmarking analysis

Following are what results H&M’s closest rival, Zara, performs regarding the areas that are
identified in the 4.1.

1. Specialist brands

Zara has achieved to attract a wider range of customers by introducing new labels that are
focused on providing specific types of wears, such as, Oysho that operates in underwear
market (H&M Hennes & Mauritz AB in Apparel, 2014).

2. Online market

The closest rival of the organization counts almost the one-second of H&M’ stores, has
expanded its operations in 27 markets meeting the needs and expectations of the
‘omnichannel’ customers (H&M Hennes & Mauritz AB in Apparel, 2014).

3. Development of eco-friendly production

Zara has implemented similar actions as H&M in order to reduce the impact on the
environment. Both companies are classified as C- Label in terms of their environmental
sustainability (How sustainable is Zara, n.d.).

4. Manufacturing process

H&M’s core competitor produces the 60% of its products, by owing in-house manufacturing
and has the ability to be flexible in the amount, frequency and variety of the offered lines.

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5 Final Recommendations
The analysis above highlights that there are opportunities that H&M should exploit in order
to generate more profits and obtain a sustainable competitive advantage against its rivals.
Therefore, the following strategies are recommended:

1st Strategy of Growth & Investment

Increase sportswear growth & investment

H&M should exploit the opportunity that is arisen from the increasing tendency of
customers to be more health aware might be a potential opportunity which might meet a
future high growth rate. Therefore, the company should give a quick response to its rivals,
such as Gap, that have already started investing in sportswear unit.

2nd Strategy of Growth Blue Ocean Strategy

+60 aged population

The firm should invest in entering a new market, the one of the over 60 aged population,
which is predicted that will constitute a customer segmentation, with high spending power
in comparison with the core young and fashionable customers. H&M may introduce large
scales of products focused on this customer segmentation, by creating a new sub-brand
name for succeeding the maintenance of the main customer base perception for the brand,
whereas all the manufacturing process will remain the same as is.

3rd Strategy Internationalization

Entry to Indian Market- Joint Venture

H&M should enter the Indian market. That is because it is identified, that when it comes to
the apparel industry life cycle, that is in growth stage. Specifically, India experienced a
significant growth rate in apparel industry in 2012, estimated at US$48 billion. The Indian
market is considered as unapproachable, because even though social norms are classified as
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dominant, however, youth customers’ lifestyle is influenced by the Western trends. For
entering the market H&M is recommended to implement a strategic alliance, the one of
joint venture, because this partnership should allow the company to enter this new spatial
market, gain new capacity and expertise, for a market that is characterised for its unique
special unique characteristics.

4th Strategy for Internal Improvement

Increase the presence of H&M’s sub-brand
names

H&M should invest on the H&M collaborates with other global brands, which have a limited
or weak presence in the industry, keeping the company as the dominant brand within the
market. Although, H&M started changing this tendency by introducing new labels, such as,
‘& other stories’, it should introduce new labels that are focused on providing specific types
of wears, such as, innerwear, for attracting a wider range of customers and improving the
scale of presence of the existing sub-brand names within the market.

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6 References
About our commitments (n.d.). Retrieved from the H&M website:
http://about.hm.com/en/About/sustainability/commitments/our-seven-commitments.html

Ethirajan, A. (2012, March 8). Bangladesh and India may open transit networks to boost
trade. BBC News. Retrieved from http://www.bbc.co.uk/news/business-17229342

Fashion chain Zara opens its first Indian store. (2010, May 31). Retrieved from BBC website
http://www.bbc.co.uk/news/10198854

Fashion Futures 2025, global scenarios for a sustainable fashion industry. (2010). Retrieved
from
http://www.forumforthefuture.org/sites/default/files/project/downloads/fashionfuturespr
esentationpdf.pdf

Global Apparel (Part 2): Category dynamics and competitive advantage. (2013). Retrieved
from http://www.portal.euromonitor.com/portal/analysis/tab

H&M Hennes & Mauritz AB in Apparel and Footwear (World). 2014. Retrieved from
http://www.portal.euromonitor.com/portal/analysis/tab

H&M Hennes & Mauritz in retailing (World) Global Company Profile. Retrieved from
http://www.portal.euromonitor.com/portal/analysis/tab

How sustainable is Zara? (n.d.). Retrieved from http://rankabrand.org/Retailers/Zara

Johnson, G., Whittington, R., Scholes, K., Angwin, D., Regnér, P., & Pyle, S. (2014). Exploring
strategy: Text & cases (10th ed.). Harlow: Pearson Education Limited.

Lynch, R. L. (2006). Corporate strategy (4th ed.). Harlow, England: FT/Prentice Hall

Market sizes statistics. (2015). Retrieved from

http://www.portal.euromonitor.com/portal/statistics/tab

Waste management. (n.d.). Retrieved from the H&M website:

http://sustainability.hm.com/en/sustainability/commitments/reduce-reuse-recycle/waste-
management.html

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Figure Page

Figure 1. H&M Strategic Business Units. Johnson, G., Whittington, R., Scholes, K., 4
Angwin, D., Regnér, P., & Pyle, S. (2014). Exploring strategy: Text & cases (10th
ed.). Harlow: Pearson Education Limited.
Figure 2. Revenues for the Global Apparel Industry and H&M worldwide. Global 4
Apparel (Part 2): Category dynamics and competitive advantage. (2013).
Retrieved from http://www.portal.euromonitor.com/portal/analysis/tab

Figure 3. BCG Model, GE McKinsey Matrix and Ashridge Portfolio Display. Lynch, 6
R. L. (2006). Corporate strategy (4th ed.). Harlow, England: FT/Prentice Hall

Figure 4. Strategy canvas. Johnson, G., Whittington, R., Scholes, K., Angwin, D., 8
Regnér, P., & Pyle, S. (2014). Exploring strategy: Text & cases (10th ed.). Harlow:
Pearson Education Limited.

Figure 5. Performance management. Johnson, G., Whittington, R., Scholes, K., 11

Angwin, D., Regnér, P., & Pyle, S. (2014). Exploring strategy: Text & cases (10th
ed.). Harlow: Pearson Education Limited.

Figure 6. Hoshin Kanri Process-Objectives breakthrough. Lynch, R. L. (2006). 12

Corporate strategy (4th ed.). Harlow, England: FT/Prentice Hall

Figure 7. H&M production process description. Production process. (n.d.). 12

Retrieved from the H&M website: http://about.hm.com/en/About/facts-about-
hm/idea-to-store/production-process.html

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7 Appendices
Appendix A- First direction BCG Model
The core SBU of H&M is identified womenswear which has the highest profits and
concentrates 50% of total revenues, whereas in global industry womenswear encloses the
34% of profits. Additionally, the increase of the growth rate by 9% (2012-2013) might be due
to the global economic recession and the changing of purchasing attitudes, but also looking
at the social-cultural factors, customers tend to purchase fashionable clothes in reasonable
prices. Its growth rate might mean that they will need major investments and will therefore
be cash users. However, because womenswear have high market shares, they will generate
large amounts of cash. Therefore, the company should utilise womenswear profits in order
to support kids’ wear, which is classified as question marks and is threatened by the private
label products, where grocery retailers have invested in the improvement of kids’ clothes
quality.

Additionally, in cash cows side, menswear is located, which is the firm’s second highest
profitable unit and is predicted to be increased, due to the fact that men’s fashion offers a
considerable opportunity, because fashion trends have changed. Besides, men are more
familiar in purchasing via online channels and modified their purchasing behaviour because
of the competition in the working environment.

Therefore, the organization may support hosiery and footwear that is located to question
marks and performs the second highest growth rate and might be a worth investment
because hosiery and footwear have been strengthened by the recession due to their
affordability and popularity as gift items. In the global apparel industry sportswear
composes the 12% of total sales, whilst, in H&M this category holds the 1% of total
revenues and has the lowest growth rate 4%. H&M sportswear are identified as dogs,
however, the increasing tendency of customers to be more health cautious might be a
future potential opportunity for the organization to provide customers with sportswear
through the fast fashion industry.

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Figure 1. BCG matrix (Lynch, 2006, p.131)

Appendix B- First direction GE McKinsey matrix

H&M SBUs were assessed based on selected industry attractiveness factors and the
business position in terms of SBUs competitive strengths against H&M rivals.

The factors that were taken into account for the two variables for implementing GE
McKinsey matrix are for:

o Industry attractiveness: industry growth rate, industry profitability, macro-

environment, price levels

o Competitive strengths: growth, profitability, customer loyalty, market share

In the following table is assessed each strategic business unit according to the selected
factors:

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The analysis indicates that four (menswear, kids’ wear, sportswear and hosiery) out of the
seven units are classified as hold. Particularly, menswear profitability encompasses a
sustainable competitive advantage for the company, however, its growth rate by +3%
(2012-2013) is the lowest among the H&M SBUs. Therefore, the organization should invest
on the further development of menswear by providing a wider range of products. Besides,
H&M regarding kids’ wear and hosiery performs the highest growth rate +13% and + 12%
respectively, however, it generates low levels of revenues. In terms of sportswear, although
its influence on the global industry is by 12% of total revenues, H&M has the lowest market
share and access. Thus, the company may develop on kids or sports clothing and hosiery by
introducing products diversification, increasing the range of seasonal products markets or
segments and encouraging the purchasing frequency.

Womenswear unit is located to growth stage, which points out that for maintaining its
position in profitability the company should definitely expand its market and increase
customer loyalty that may lead to the increase of buying frequency. When it comes to
footwear and apparel accessories both are identified as harvest, showing low levels of
attractiveness, consequently, H&M should be focused on maintaining these units, in order
to fulfil the broader needs of its customer base and mitigate competition, by allowing
customers seeking goods in other sources.

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Figure 2. GE McKinsey matrix (Lynch, 2006, p.133)

Appendix C- First direction Ashridge Portfolio Display

H&M’s core business units are women and men clothing which designate the fact that the
organization has a significant experience. Both units continues to add value to the company
and might remain at the core of future strategy, therefore, they are classified as heartland
business.

Moreover, hosiery, apparel accessories and footwear is an area well-understandable for the
company, there is designing and marketing experience, however, are considered as
supplementary products of the main units of clothing. Thus, they are classified as ballast
business units. Finally, sportswear is identified as value trap businesses. This unit may
constitute a potential opportunity for the organization, however, its current progress within
the company, the high levels of experience among its rivals shows that the company might
acquire new capabilities for launching new fashion trends for sports clothing in order to be
able to move value trap business unit into the heartland.

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Figure 3. Ashridge portfolio display (Lynch, 2006, p.133)

Appendix D-Second direction Blue Ocean strategy

 Strategy canvas
In order to recommend a blue ocean strategy, the strategy canvas should be implemented
by taking into account the following critical success factors for assessing company’s
performance: price, number of stores, location, marketing, new launches, quality, online
services, ease of shopping, return policy, time and effort, product variety and product
quantity, products for +60 aged population.

The analysis indicates the following areas that H&M performs lower than its main rivals:

o The number of stores is high, however, there are markets that H&M does not have
until now access

o Closest rivals compete H&M with higher quality products

o The coverage of online market is limited in comparison with the markets where
H&M has access

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Whereas, there are specific areas that fast fashion industry has not invested in and derive
from the overall apparel industry, such as, products orientated to over 60-aged population
and customized products.

Figure 4. Strategy canvas (Johnson et al., 2014, p.58)

 Four actions framework

Moreover, for creating new value curve the 4 actions framework is used, as it follows:

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Appendix E-Internationalization

Market Selection Process

The strategic review reveals that the organization has a zero presence in India.

The selection of the recommended market of India is assessed based on PESTEL analysis,
CAGE framework and competitive characteristics:

o PESTEL

- Political: Indian government has taken measurements that may facilitate global fast
fashion retailers to enter the market, such as 100% direct investment for foreign
countries that leads many international companies to decide to invest in India
(Apparel and Footwear in India, 2014).

- Economic: the global economic recession has not influenced Indian apparel and
footwear industry (Apparel and Footwear in India, 2014).

- Social-cultural: Indian population is impacted by the western lifestyle and

particularly by clothing style. This trend was noted in urban and rural regions but
also in small cities. Moreover, casual clothes gain the highest popularity and
acceptance by Indian young buyers that seem to be affected by the increasing
penetration of the western wears’ preferences in the film industry.

Furthermore, both young women and men are focused on fashion trends, however,
they are price cautious and they have a significant awareness of eco-friendly
products. India is also evaluated as the country with the highest score in terms of
gender inequality which is depicted in employees’ incomes. Specifically, men’s
disposable income approaches US$ 1,723, whereas women’s income is almost half
(US$ 697). Besides, Indian young and mid-lifers’ consumers are familiar in purchasing
via online channels. Finally, when it comes to late-lifers consumers, a category that is
expected to hold the 8.6% of Indian population by 2015, it has less spending power
and prefers to spend a notable proportion of their income in satisfying the needs of
their children (Consumer lifestyles in India, 2013).

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- Technological: India is classified globally as the third largest online user base after
China and the U.S (India has the lowest, 2014).

- Environmental: Many small enterprises have adopted the usage of refurbished

products. India has announced its contribution on an important investment of $1.3
trillion, in developing a sustainable technology in terms of the potential threats on
scarcity resources (Fashion futures 2025, n.d.).

- Legal: India has adopted a strong legislation for the protection of designers and
companies during the designing and marketing process (Karmakar, 2014, p. 23).

o CAGE framework

- Cultural distance: High context cultures like India, in terms of managerial behaviours
are focused on reputational and traditional factors and try to minimize any conflict
or risk that might be arisen by cooperation. Additionally, although there is a
significant difference between European and Indian languages, India is the second
largest country that its population speaks fluently the English (Masani, 2012).
Moreover, even though its religion or customs might different from the western
lifestyles, according to the PESTEL analysis, India has started changing its trends and
H&M suggested to introduce products closest to Indian culture, such as more
colourful clothes.

- Administrative and political distance: Based on PESTEL analysis, the government

attempts to facilitate other countries to have access in its markets.

- Geographical distance: The fact that India and Bangladesh that hold the biggest part
of manufacturing process, seek to find an agreement that would support both sides
to gain a greater access to their road, railway and port networks (Ethirajan, 2012).

- Economic distance: The unemployment rate in India had declined from 5.2% in 2012
to 4.9% in 2013, while in 2009 experienced a high percentage of 9.4% (India
unemployment rate, n.d.). India has been classified as the fourth largest economy in
terms of its economic growth, however, is still struggling with a low per capita
income (India 4th largest economy, 2012).

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o Competitive characteristics

According to the strategic review, the apparel industry life cycle is overall in the
mature stage, however, it seems that Indian market is classified in the growth stage.
Additionally, Zara has already expanded in 2010 its operation in India as part of a
joint venture with Tata group. Moreover, H&M is benefited by India regarding
another factor which is the proximity that there is between the suppliers and selling
channels, in comparison with Zara’s manufacturer that are located in Europe
(Fashion chain Zara, 2010).

Entry and Growth process

H&M possesses already the required resources for entering in the Indian market. However,
the organization should invest in well-experience personnel, for generating new products
orientated to this specific customer base and promoting its new strategy and activities, in
order to attract customers. H&M should follow the same entry mode, joint venture, as Zara
which has been identified as a success story for the organization.

Appendix F-BSC Scorecard

H&M strategy map includes the 4 factors of the balanced scorecard and is depicted as it
follows. Accordingly, the formulation of BSc will include the following factors.

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The objectives of the balanced scorecard are selected according to their importance and
added value to the company.

 Customer perspective: takes the first place in H&M strategy map in order to
increase its revenue growth looking at the key stakeholder perspective because
customers choose the company for their clothing purchasing because it provides
fashionable products in reasonable prices through attractive stores.

 Internal processes: Porter’s value chain analysis indicates that H&M’s supply chain
management can have a directly influence on the products’ prices and time to be
delivered in its stores. Moreover, the functionality of the supply chain is affected by
IT and partnership management. Besides, the designing process constitutes an
important key element because its responsibility is to gather customers’ feedback,
trends, and changes in purchasing habits in order to introduce products or services
that will be able to retain H&M customer base and attract new customers.

 Learning and Growth: Every stage of products manufacturing and sales is influenced
by the personnel. Hence, a motivated and very well educated staff can generate
more profits for the company.

Objectives Measures Targets Initiatives

Increase profits increase ROE by 5% increase sales
Key ROE
Stakeholders
Increase increase by 6% increase productivity time
Perspective Sales/employee
Frequency

The price of a bundle of

commonly bought items
could be tracked over time
Price and benchmarked against
selected competitors

Reduce the waiting time

Customer between delivery and sale
Increase sales Customer 5% sales increase
Perspective and gather customers'
satisfaction
feedback through surveys

Gather customers' feedback

about the environment of
Attractive stores. The effectiveness of
stores a store refurbrishing can be
an indicator
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decrease of average Decrease the average time

Supply time by 6% between order and delivery
management

decrease the delay Decrease the average order

Management time by 2% delay time and measure
of partnerships partners satisfaction
through surveys
decrease the process Decrease of process time
Internal Reduce production Designing time by 4% between the products'
Process cost process design and the time of the
massive production
Property decrease the Can be monitored by the
portfolio proportion of turnover rental costs as a proportion
management by 3% of turnover
decrease by 50% Decrease the average of
response time to user
Information
queries and to proportion of
databases
queries that are remaining
without response

Develop better 20% increase of sales Organize sales training

selling skills Training success rate after based on the needs of
training employees
Reduce Employee decrease of employees Give awards to the
Turnover turnover by 20% employees by formulating
Learning and Motivation
different reasons for each
Growth department
Develop better increase customers' Upgrade key skills can be
customer service satisfaction by 15% monitored, such as the
Key skills number of training days per
employee

Appendix G-Benchmarking
5. Increase the presence of the specialist brands

- H&M collaborates with other global brands, however, they have a limited and weak
presence in the market keeping the company as the dominant brand. However,
H&M started changing this tendency by introducing new labels, such as, ‘& other
stories’.

- Whereas Zara has achieved to attract a wider range of customers by introducing new
labels that are focused on providing specific types of wears, such as, Oysho that
operates in underwear market (H&M Hennes & Mauritz AB in Apparel, 2014).

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6. Increase the development of eco-friendly production

- H&M has already developed its manufacturing for improving its environmental
performance, reducing resources’ scarcity and increasing the utilization of recycling
clothes, through a series of activities. In spite of these initiatives, H&M should take
into account additional actions, such as, set up limitations in the cotton usage or use
alternative sources of energy for products’ distribution (Waste management, n.d.).

- Zara has achieved to implement similar actions as H&M in order to reduce the
impact on the environment. Both companies are classified as C- Label in terms of
their environmental sustainability (How sustainable is Zara, n.d.).

7. Expand online market

- Although there is a rapid development of online market and its penetration in

apparel industry is significantly high, H&M’s online channel covers 13 out of 55
markets (H&M group, n.d.).

- Whereas Zara, that counts almost the one-second of H&M’ stores, has expanded its
operations in 27 markets meeting the needs and expectations of the ‘omnichannel’
customers (H&M Hennes & Mauritz AB in Apparel, 2014).

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