H&M In Fast Fashion: Continued Success?

Key Points and Challenges H&M has had tremendous success in the fashion industry. One of their key points of success is their ability to replicate its unique business in 61 countries. The business model emphasizes high fashion at prices below their competitors. However, the sustainability of this formula is questioned by investors because H&M’s market capitalization is lagging behind its main competitor, Zara, in emerging markets such as Asia and South America.

Instead of owning retail properties, like their competitors, H&M has increased their flexibility and adaptability in new markets, by renting their store premises, this has allowed them to adjust to the changing demands in the key markets. Though H&M strives to respond quickly to the market trends, the cost advantage is being threatened by rising input prices, and the risk that low-cost suppliers may not adhere to the quality standards.

Another key point to H&M’s success is their belief in people. There is a vast amount of focus on employee involvement that is evident on all organizational levels. With their informal, non-hierarchical and participative management style, employees are able to tap into their creative minds to assist with the overall value and longevity of the business. Resources One of the resources possessed by H&M is their human capital. H&M has 93,351 employees, led by generations of family members who value employees that are self-motivated and capable of leading.

H&M recruits local people whenever they open a new store and employees are trained using formal and on-the-job training programs. Also, H&M has partnership with 900 independent supplies with 150 being long-term strategic partners. Despite not owning its own retail properties, H&M physical resource has 50 production offices that are in direct contact with suppliers, distribution centers and warehouses. Each supplier partnered with H&M has owned or subcontracted multiple factories. H&M’s manufacturing is mainly outsourced to low-cost countries, focusing on economies of scale and high volume production.

H&M financial resource is that majority of the company is privately owned. This provides a solid financial foundation and according to their financial data, the numbers are favorable and in line with the market. The financial statements shows that H&M is considered low risk by both investors and lenders. It also shows that the company is able to pay short term and long term obligations to creditors. Capabilities Employee involvement. They emphasize an informal, non-hierarchical and participative management style that will allow employees to be innovative and motivated to tackle on major projects that are complementary to the organization’s goals. The company has minimal formal rules and procedures, equipping their employees with tacit skills to ensure employees are self-motivated to tackle decision making on their own.

Flexibility: H&M is able to move with the fast pace trends of the market because of their structural flexibility. With the flexibility of renting their properties, the company is able to position the stores in prime locations and adapt more quickly to changing demand patterns and location attractions.

Price: The business concept of H&M revolves around having the best price. Their stages of production is based on price reduction; eliminating the middleman, collaborating with large number of suppliers and purchasing supplies in large quantities. Having independent suppliers with a particular code of conduct allows H&M to ensure quality products at good price while reducing lead time.