Saturday, March 30, 2019
HM Analysis: Ansoff Matrix, Five Forces and PEST
HM Analysis Ansoff Matrix, Five Forces and PESTH and M is a Swedish worldwide participation which operate in the look sector. Its classical competitors atomic number 18 INDITEX, garpike and Arcadian Group. The firm offer direction cheap superior products on more(prenominal) than 2000 stores hardened in 37 countries including Europe, Asia, North America and warmness East. It tries to lodge their products and their business model to the unexampled mart to facilitate the entree in a different cultural market verdant.The phoner has a inviolable unified kind responsibility concept and is involved in community and environmental projects however it has been criticized referable to several s brush asidedals.Despite of the economic crisis which ca habituates a huge drop in the consumption and therefore in the modal value spending HM thanks to its insurance of menial prices is all the same a quite strong caller-out and has a good fiscal reputation as its results and dimensions show us.The meshingability of this ac keep company is hearable to the swoop leader scheme that it has followed, focused on the outsourcing of the manufacturing process to countries with low toil costs, which allows HM to sell cheap products and obtain utmost profits. Also the condemn for this business self-made is the differentiation outline that they put one over developed with the booster of celebrities and famous designers lines.Introduction to the companyHM (Hennes Mauritz) is an inter matterly famous company which operates in the sort industry and besides it also markets cosmetics and accessories. It was founded in Sweden in 1947 by Erling Pearson.In order to know its market shargon, we must(prenominal) register that in 2009, gross revenue including VAT reached SEK 118,697 millions furthermore, the number of employees is around 76,0001.Geographical marketsThe company has around 2000 stores in 37 countries worldwide, specifically in the European, Asi atic, North Ameri basin and Middle East market. Germany re defends the biggest market with the 25% of HMs total shares, followed by join Kingdom and Sweden. As curiosity we wad pronounce that Glasgow has 7 HMs stores. cerebrate to the importance that online selling has nowadays, this service is now available in Sweden, Nor modality, Denmark, Finland, Netherlands, Germany, Austria and UK.2Brands and productsHM Group includes the fall guys COS, Monki, Weekday, Cheap Monday and HM home. The firm designs cheap thus far stylish clothing, go this to the different segment markets (ladies, men and kids).Mission, values and goalsHM describes its direction as Fashion and quality at the best price. In joining to the values, this company is driven by simplicity, continuous, emendment, team spirit, cost-consciousness and entrepreneurship. A sentence that stinkpot summarize HM values is the slogan We believe in people.Finally, HM goals are to intensify the sales in the existing stores , as come up as, to gain the number of refreshed stores by a net 10% to 15% per year. Expansion and celebrateing of financial stability are HMs strategic goals. The growth, which is amply self-financed, will proceed with an emphasis on quality and continued towering profitability.3Corporate Social ResponsibilityThe company guarantees that its products are manufactured beneath good conditions. consort to Karl-Johan Persson (CEO at HM) Being responsible is non only the right thing to do, it go fors perfect business sense. (HM 2010)According to the HM 2009 yearly Report, HM acts in many markets as both a emptor and a seller. This requires HM to act responsibly and in a sustainable way with respect to the environment and social responsibility.4HM is very relate with the supply chain working conditions, so because of that its very careful choosing the countries for the action and it also obligates a strict Code of Conduct5to its suppliers. Around threescore auditors works checking that this Code is being respectedThe company has environmental requirements on suppliers, as a clean production chain, green transport and sustainability policy and vision by sustainable use of resources and healthy products same(p) the perfect cotton.According to projects and coope symmetryn, HM has developed community activities, like education and business of woman and youth, water and innovation of sustainable textile materials. Also the company has collaborated such as UNICEF and WaterAid6.Furthermore, HM reports activities and progress on its sustainability programmes annually.7However, HM has asterisked in several scandals, for instance because they discarded bags of unwanted clothe out of doors HMS store in unsanded York. These clothes could pretend been used by needy families in case not to have been intentionally dishonored to avoid re-use.Besides, in March 2010, the company was criticized by pro-Palestinian groups for opening its beginning stores in Isr ael at the time when the UN Goldstone report advancedlighted Israels alleged(a) violations of global law.CUserspelegriPictureshm protesta palestina.jpgFurthermore, the German edition of the Financial Times newspaper has uncovered an alleged organic fertilizer cotton fraud by European brands HM, CA, and Tchibo (Treehugger 2010)2. External surroundingsTo copk the main factors impacting on the industry attractiveness and on the environmental stability for HM Im spill to use the study of competitors and the PEST abridgment.2.1 CompetitorsHMs main competitors in the most cardinal markets are (Hoovers 2010)COMPANYCOUNTRYBRANDSINDITEXSpainZara, Oysho, Massimo Dutti, get in Bear, Stradivarius, Zara Home and UterqeGAPUnited StatesGAP, Banana Republic, Budgeteer Old navyARCADIA GROUPUnited KingdomBHS, Dorothy Perkins, Miss Selfridge, Wallis, Topshop, Evans, Burton and Topman2.2 Pest Analysis governmental HM is a Swedish brand so it has to follow the Swedish legislation, but also the laws of each country where it has establishments, for instance, in UKThe Consumer Protection from inequitable traffic Regulations 2008 which implement the Unfair Commercial Practices Directive in the UK.The try spiel 2002 which has wide-ranging implications for businesses and consumers.The Electronic Commerce Regulations 2002 includes the information that the company must share with online customers and regulates advertising.Distance Selling Regulations 2000 these laws are aimed at businesses that sell goods or services to consumers by the internet, mail order, phone or fax.The Competition Act 1998 which forbid veritable character references of anti- combative behaviour.Its also remarkable that in 2009 the Swedish corporate tax rate was reduced to 26.3 from its previous level of 28%.Trading conformitys most of the HM business is located in EU countries -such as Germany and the UK- without custom duties.ECONOMICAlthough the GDP dropped because of the crisis, it has ontogenesi sd by the 1.2% in the flake quarter 2010.8Since March the 5th 2009, the official bank rate is placed in 0.5%9, because of that the investment cost is low.Consumer spending on clothing pink wine by just 10%10between 2004 and 2008, well below the 19.2% increase in overall consumer expenditure during this period.Even though 2009 has been characterized by deflation, the ostentation rate is again positive (1.14 in September 2010)11. That is to word the assume is starting to rise.SOCIALDue to the social and environmental conscience, HM has to lodge its policy and products to the new customer awareness.Fashion is more and more arouse for young people and that is the reason why this consumer group spends a high part of its incomes on clothes.Customers seem to prefer customized garments. These kinds of products are supplied generally by online sellers but can represent a competence.Fast changing fashion styles make the designers to be ready for a reply.HM is operating in Middle East a nd in Asia, therefore it should take into account the social and cultural differences (religion, language or roles of men and women in the society)TECHNOLOGICAL technology to make clothing more updated machines are necessary to accomplish certain colours and patterns.The increase of media technology and the internet will make HM popularity to rise.Online selling, available now in s rase markets3. HM financial slayingTo know HMs financial situation I am going to make an analysis of the most important financial variables and also to compare them with Zara and Primarks ones. sales per yearUK is HMs fourth largest market, contributing 6.4% of its turnover (Mintel 2010).20052006200720082009gross revenue ()400472448583527534524531565889CHANGES IN SALES (%)8,098653312,01357417,600087-0,5692527,88475812In 2008, ascribable to the financial crisis, UK suffered a huge drop in the GDP and in the consumption, for example the household clothing expenditure was 21,60 per workweek and in 2003 it was 27 .13At the end of whitethorn 2010, sales roseate by 15% due to the fact that 10 new stores opened.and at the end of May 2010, sales rose by 15% due to the fact that 10 new stores openedand at the end of May 2010, sales rose by 15% due to the fact that 10 new stores opened14In the previous graphic, we can see Primark has a bigger market share and besides it could profit of its low prices in the crisis, gaining ground to its competitors. Zaras turnover is lower than HM.Operating profitIt has not followed any trend for the goal five years, it has fluctuated depending on the year.20052006200720082009PROFIT ()442606201353041876710576CHANGES IN PROFIT (%)-2,90665840,1107094-14,46793-83,4712820,63419615In the previous table, the most notable thing is the laconic decline that the operating profit had in 2008. The causes are the increase in selling and administrative costs. According to the 2008 Annual Report this is mainly due to an increased cost level relating to reinforcement of the organization in supplying for the enormous-term investment in store expansion, Internet and catalogue sales and new initiatives.16As we can see in this comparative chart, the three companies operating profit has followed a similar tendency with an important drop in 2008. We can also notice that Zaras operating profit in UK moves in negative numbers.LiquidityAnalyzing the following table, we can leave off that HM has a healthy financial position, because in general to have a authentic ratio higher than 1,5 is a good sign, even more if its a fashion retail company.20052006200720082009CURRENT RATIO1.761.718.104.22.16817The liquidness or acid test ratio shows how liquid the company is relation back to short-term liabilities. Stock is excluded as it can take months to turn into cash. As its higher than 1, we can say that the liquid assets exceed the current liabilities.20052006200720082009 fluidness RATIO0.970.960.881.771.2218It can be tell that HM has sufficient gold avai lable to meet its short-term commitments. convey to the next graphic we can conclude that in liquidity terms Primark can have problems because its current ratio is always under 0,5.19Solvency20052006200720082009GEARING RATIO34.6181.82110.0952.2451.1220The cogwheel ratio measures the proportion of the companys total capital that is borrowed. The higher the gearing ratio is, the bigger the proportion of the companies money that is borrowed and therefore the bigger the risk.In 2007 the ratio obtained was worrying because the loan capital was higher than the capital employed. This was due to the sober investment that HM was doing in its international expansion and in new initiatives.21The chart shows us that Primark has solvency problems so it could have problems if interest rates are going up. On the other hand, Zara is solvent.InvestmentIn this separate I have used the ROCE (Return on capital employed) which measures whether or not a company is generating adequate profits in relati on to the finances invested in it and is a key indicator of investment performance.20052006200720082009ROCE63.182.0669.447.436.1622In retail lower figures would be experienced, ranging between 5% and 15% and in the last devil years, is where HM is placed. We can see that this ratio had a keen drop in 2008 but before this year this company was super profitable.23Primark is the best performance in this area and Zara has seriously problems supra all caused by the negative numbers in its profits.4. Competitive strategy4.1 Porters five forces analysisIn this paragraph, Im going to use Porters five forces analysis to determine the intensity of competition and profitability that can be anticipate in the fashion retail sector.CUserspelegriPicturesporters-five-forces-model.jpg24Threat of new entrantsUK market is not saturatedThere are not barriers to entry in distribution due to the low capital required to open a new store.However, in manufacturing there are important barriers to entry due to the scales economies and to the high investment capital required.Fashion products have a high margin.Threat of substitute products For the fashion sector we must talk closely replacing brands, not products.There are a lot of fashion retailers in the market which HM is present.Besides, the demand is very variable in this market because of the continuous changes in customers needs and requirements.Relation between quality and price is improving because of the outsourcing of manufacturing in countries with lower labour costs.Bargaining office of buyersOne negative aspect is the almost nonexistent loyalty in the cheap fashion segment.Also the switching costs are low. expenditure is a very important variable for customers.Among the positive aspects its important to say that the volume of purchase is small, that is to say a single buyer is inappropriate for the company.Apart from customers association, they are not very well organized to hold their interests.Bargaining power o f suppliersIt is not very high because there are a lot of suppliers in countries with low labour costs. That is to say, retailers can impose the demanding conditions because they have more power than suppliers.Rivalry among existing firms in the fashion industryThere are a lot of existing local, national and international competitors.The opportunities to growth are not very high because of the adulthood of the sector.The price variable is very influential in consumers when considering alternatives.The quick changes in customers requirements do not permit to develop strong scale economies.In this market is very important the good image of the brand worldwide.257.2 HM competitive strategies Cost leadershipIt is a strategy base on scale economies and in the outsourcing of the manufacturing process to countries with low labour costs. In this way the company can offer low prices26without losing quality and besides being profitable. Thanks to it, the company can self-finance to increase the number of stores and the sales. HM electric charge is offering quality at the best price. Differentiation strategyThis strategy was implementing few years ago. Celebrities and famous designers have created exclusive collections for HM27. Thanks to these collaborations, the company achieves to differentiate in the fashion retail market.This phenomenon is called masstige28, and can be defined as an alliance between a prestigious brand and a mass consumer brand. Thanks to it, consumer can buy a brand product at an affordable price. Masstige is formed by two linguistic communication mass market and prestigeCustomers perceive that HMs have an added value in comparison with other competitors and they are willing to pay a bountifulness price for them. It the short run the company improves its turnover and in the long term it builds a stronger brand awareness and prestige that it could use to hue in difficult markets.5. Strategic directions of developmentI am going to use Ansoffs m atrix to analyze the main strategic directions followed by the company through with(predicate) the product and marketCUserspelegriPicturesAnsoff-Matrix.gif29Market acutenessThis strategy is used to increase existing products sales in the current market. This can be achieved gaining competitors customers and encouraging them to acquire more companys products.HMs key for market keenness is offering fashionable clothing with cheaper prices than other competitors like Zara30. Doyle (2002) argues that the foundation of a successful brand is quality. The company is very concerned about that, therefore it has comprehensive quality control methods which guarantee customer satisfaction.Thanks to the strong advertising campaigns the company has increased its popularity worldwide helped by the globalization of fashion trends and lifestyles.Market developmentLynch (2003) says it involves targeting new segments of a market, identifying new uses for the companys products or entree new interna tional markets.HM internationalization strategy is based on entering one market at a time. Although the normalisation of HMs products, the company introduces slight variations to be adapted to the new market culture.According to the new market segments, the company has launched COS (Collection of Style) with more expensive and smarter clothes than the HMs common one.Product developmentIt can be defined that offering really new and innovative products to the current customers.HM develop this strategy, for example, through strategic alliances with famous designers and fashion icons like Karl Lagerfeld, Madonna or Roberto Cavalli which improve HMs prestige worldwide.Furthermore, the company concerns about research and development, for instance, it introduced environmental friendly materials like organic cotton in its 2008 Spring Collection and then on its entire range of products.Also it is important to underline here that HM has created perfumes, cosmetics and beauty products. Besid es as I have utter in the introduction HM has a home line available on the internt.CUserspelegriPictureskarl.bmp.DiversificationThis strategy is the riskiest because it means to develop new products and entering new markets. HM has been focusing in fashion items like clothes, jeweler, shoes, bags or accessories so it has not developed very much this strategy. Only they have performed a diversification strategy, specifically household items through HM Home.31The company has also developed curious products such as the stuff hire for the computer game The Sims 2 called Fashion Stuff Pack in June 2007 in collaboration with Maxis game developers.26. Methods of developmentIn this section, I am going to analyse the methods of development used by HM in the recent years, and besides the benefits and challenges that each one involve.Lynch (2003) said that HM has followed a forward vertical integration strategy as method of growth. This means that the company develops activities oriented to customers, the final product and the distribution network (retailing) more than related with suppliers (backward integration). Thanks to this strategy, the company can collect information about sales and customers needs to reply quickly to changes in the fashion market.HM and Zara are known as fast-fashion retailers. This has permitted them to expand success goody in Europe, Asia and America. However, they have a different internationalization strategy, because HM tends to adapt its products and strategy o the new market while Zara reproduces the original successful business model in all the markets. Zara prices vary depending on the country while HM has the same price in all the markets in which it is presentHM is a strong financially company which seeks to maintain a good profitability in its growth strategy. We can say that the growth is substantive but also controlled. The growth goals are to increase the number of stores by 10-15% per year, as well as increasing sales in existi ng stores. In the last five years, the company has had a great growth in number of stores, turnovers and earnings per share.Focusing on HMs geographical expansion, its first store abroad was opened in Norway in 1964. Then it continued with the expansion in UK, Denmark, Switzerland and Germany. In the 1990s, it opened stores in Finland, France, Belgium, Austria, Portugal, Spain and the Netherlands. The first store in US was opened in New York in March 2000.The first store in Asia was in Dubai in 2006, and thanks to a franchising strategy. afterward this, it entered to East Asia by opening stores in Hong Kong and Shangai32in 2007. Japan in 2008, Russia in 2009 and Corea in 2010 were the following countries to enter. The two first Israeli stores opened in 2010 and as I said in the introduction there were pro-Palestine group protests. It is planned to open new stores in Croatia and Singapore for 2011.HM main method of entry is an organic growth by opening is own stores in the new marke t. entirely we can see also that since 2006 the company has followed a franchising strategy in Middle East to open 3 stores in Dubai in agreement with M.H. Alshaya, a company from Kuwait specialized in holding franchises with international retail brands.In this paragraph I am going to use the SPACE matrix (Strategic Position Action Evaluation matrix) which is a counselling tool used to analyze a company and to determine what type of strategy it should undertake.Rowe et al. (1989) developed this model based on four important variablesThe stability/ turbulence of the environmentIndustry attractivenessThe competitive availThe companys financial strengthThroughout this report I have study these variables, therefore it can be argued that HM is a strong financially company, as the sales, profits and financial ratios show. To determine the industry attractiveness it is utilitarian the Porters five forces seen in the section 4. Following with the environmental stability we can use the PEST analysis done in the section 2 and for the competitive advantage it has to be taken into account the strategic directions and the methods of development.After having analyzed all these points and drawing the SPACE matrix, it can be reason out that HM should follow an aggressive strategy. HM has a strong competitive position in the market (a known brand worldwide) and a quite good financial position to support this strategy. It needs to use its indispensable strengths to develop a market penetration and a market development strategy.In fact it is the strategy that HM has been followed in the last years, as the expansion to Asia and Middle East show (market development strategy) and opening more and more stores in the existing markets such as Europe (market penetration).As recommendations, it can be suggested that the company entered southeastern American market by performing a market development strategy. HM has not arrived yet to this market and it would be very interesting due to there are a lot of customers in this market interesting in buying fashion cheap clothes and the company could adapt quickly to the South American market culture, gaining ground to its competitors within a market full of opportunities to growth.On the other hand as a market penetration strategy it can be suggested to follow with the opening of new stores in the current market, increase the size of the existing stores and try to manage present products and services more effectively.