|Name||Hennes & Mauritz AB (H&M)|
|Revenue||SEK 232.8 billion (2019)|
|Profit||SEK 13.422 billion (5.8% net margin)|
Hennes & Mauritz (H&M) designs and sells clothing for women, men, and children. The company targets the Hips & Modish, offering cheap but chic clothing across seven clothing and homeware brands. H&M focuses on retail more than manufacturing: the company operates more than 5,000 stores in more than 70 countries, and online shops in 50 countries, but does not own a single factory. Instead, it sources its good from 800 suppliers primarily from Asia. H&M operation is divided by geographic orders: Asia & Oceania, Europe, African, North and South America, and a Group Function segment. Half of H&M sales are from Europe and Africa region. The company “strategic focus areas” are: create the best customer offering, ensure a fast, efficient and flexible product flow, secure a stable and scalable infrastructure, tech foundation, and add growth by expanding through stores, online and digital marketplace. Let’s go over a thorough SWOT Analysis of the brand as a whole.
H&M Strengths 2020:
- International expansion is the foundation for growth.
The company has been operating outside of Sweden since 1964 with its first foreign store in Norway. At the moment, H&M has more than 5,000 stores in more than 70 countries and online shops in 50 countries. Indeed, international expansion is a hallmark in H&M’s business plan. Going forward, H&M would like to stick to the plan of increasing the number of stores by 10% or 15% per year.
- Geographically diversified store base reducing the dependence on any geographic segment.
The company’s largest market by store count in the U.S, yet it only accounts for 10% of all H&M stores worldwide. Germany, its most important market, accounts for 15% of global sales.
- Strong cash flow from operation.
H&M has been keeping the operating cash flow stable in the range SEK 20 billion – SEK 29 billion.
- H&M has a strong commitment to using sustainable material in its products.
The company has been using organic cotton (no chemicals and pesticides in growing the cotton plants) for years and it also invests in producing organic cotton. H&M involves in the global project, called the Better Cotton Initiative, which provides better techniques to cotton growers. The company aims at zero waste by increasing the presence of recycled materials in its products.
H&M Weaknesses 2020:
- Profit margin keeps on falling even though sales increases by a double-digit rate.
Since 2008, the H&M margin has been dropped from 17% to only 5.8% in 2019.
- Relying entirely on third party suppliers for products manufacturing gives H&M poor control over the products’ quality.
Despite strict standard procedures and agreements that suppliers sign with H&M, the company does not have day-to-day control and observation over the factories, which means mistakes could occur and negatively affect the H&M brand name.
- The center of production is far away from the main markets; hence delay could happen.
Most H&M suppliers are located in Asia, but a large portion of its customers are in Europe, making goods distribution costlier and time-consuming. The delay negatively affects H&M’s reaction time for any change in the market.
H&M Opportunities 2020:
- Push sales through online channels to counter the effect of weak in-store sales due to the pandemic.
As stores slowly reopen worldwide, customers are still hesitating to shop in-person, and new restrictions from the European government in an attempt to curb the virus will further hammer the early recovery. H&M initiated a project to integrate the online platform with stores a while ago, now it has a renewed impetus as digital sales reach 26% of revenue.
- Educate customers on the sustainability efforts H&M put on its products.
H&M has been using organic cotton and invested in the cotton production process, therefore this information should be communicated with customers, not only on labels but also on banners and marketing brochures. Such an effort will enhance the company’s image toward stakeholders, especially investors who focus on impact investing.
- Improve the supply chain to cope with inventory build-up and compete with other fast-fashion chains.
Inditex, Zara’s parent company, thanks to its short supply chain and direct control of production, has limited the increase in inventory when its sales drop due to the pandemic. H&M, on the other hand, outsources the entire production to third party suppliers in the Far East, therefore the company does not have the flexibility to adjust the orders in a short amount of time. In addition, its inventory turnover level is below the industry average, which is another problem that could be addressed by reassessing the supply chain.
H&M Threats 2020:
- The pandemic is likely to push H&M into a financial slump until 2022.
Analyst consensus is pointing at revenue and EBIT level lower than those of 2019 for the next two years. Drops in sales, extra costs for store reopening, and discount due to oversupply will continue to put downward pressure on profit. Store expansion, H&M past strategy for growth, cannot be used as immediate strategy since the company is closing physical stores and move its retail business toward online platforms.
- Inventory days (days that items remained unsold) jumps to an unusual high level since the pandemic begins.
The abrupt drop in sales attributed to the pandemic caused inventory days to jump to more than 150 days. Management remain confident in the situation, but there is still 30 days of extra stockholding that needs to be cleared. At the moment, H&M is struggling to reach 4x inventory turnover a year, an equivalent of once every 91 days, the minimum that every fashion company should achieve.
- New entrants to fast fashion can take significant market shares from H&M.
Online stores, such as ASOS and Boohoo, able to speed up the design and manufacturing processes to churn out products for sale from concept within one to three weeks. They have an advantage over H&M, thanks to close proximity between factories and markets.
H&M SWOT Analysis Conclusion 2020:
Facing falling sales, low net margin, and inventory problems, H&M has to focus on solving its problems with the supply chain and expenses to pull the company back on track. Its revenue growth is impressive, however, and its brand name would make new entrants hesitate to challenge directly. The company has a lot of opportunities to expand sales via e-commerce platforms as customers prefer the convenience of shopping without leaving the comfort of their homes.
- If your essay needs some final touches to look professional, our Proofreading & Editing Services will make your professor’s jaw drop!
- You can also find a SWOT blank template here
Charles Allen, T. L. (2020). Hennes & Mauritz Research Bloomberg Intelligence.