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Case Study on H&M

Module 1, Business Organization and EnvironmentHuman, physical and financial resources to create goods and servicesH&M is a popular clothing store and it is usually cheaper than other brands. H&M carry out its goods and services through human, physical and financial resources. The resources are designer, stylist, Media (models), stakeholders, distributing channels (stores or online) and share holders. Human resources like designer, stylist, models and shopkeepers are promoted through media to attract customer to increase demands. Most importantly the clothing is up to date with the most recent fashion trend. It sets up a positive image that H&M’s clothing are fashionable and at the same time customers does not need to spend a huge amount of money to be fashionable. Promotion through media also helps gain popularity for their goods and services.H&M Physical Resources plays an important role to create goods and services. The distribution channels are the only possible direct access for customers to consume their goods and services. H&M has distribution channels world wide even on online stores. This various types of distribution channels not only increase its popularity but become similar to a convenient store where customers can easily access to H&M’s goods and services. The Financial resources come from the shareholders, customers and other stakeholders. These people are the business’s source of money and support. When people invest money to H&M, the company now has money and support to carry out its goods and services. Through money, the company then can expand their brand overboard to other countries. Without financial resources it’s impossible for the company to survive in a competitive market, today. Financial CrisisThe Financial crisis did brought some difficulty to H&M. However, H&M is able to perform a great operational strategy to boost its profit during financial crisis and partly because clothing is a need in our daily life’s not a desire. According the H&M website the board’s proposal for the dividend in 2008 is SEK 14 per share and for 2009 it is SEK 15.5 per share. It clearly shows that through the financial crisis H&M are still able to make profits such as through operational strategy like sales (20% discount) and special offers.Tertiary SectorH&M is a service industry business therefore it is in the Tertiary sector. H&M does activities like transport, finance, distribution, wholesaling and communications. From the various human, physical and financial resources, as mentioned on the top it clearly shows that H&M is a business that deals with lots of financing, distributions (stores) and communications (media).Issue of the last Annual General MeetingThe last Annual General meeting of the business suggested that there would be more environmental and socially responsible investments. They believed that there’s a connection between corporate ethics and capacity to deliver a long term shareholder value. The board developed active communication with the Swedish companies to resolve this issue.MissionStatement“Fashion and Quality at the best price!” is H&M’s mission statement. It suits the image that H&M promote to the society, where they emphasis fashion and at the same time having good quality clothes in the best price as possible (reasonable price). It overcomes the old thinking that fashion does not mean expensive; things can be cheap and fashionable. And, expensive clothing does not mean fashionable. H&M builds trust to their customers that the clothes they buy are fashionable and best price! Corporate ResponsibilityH&M has two main responsibilities which are categorized into two types, environmentally and socially. By taking environmental and social responsibilities it promotes a positive image to the brand and through good cause people are more aware of H&M. EnvironmentalH&M do take environmental responsibility. The company promotes environmental awareness among our employees and suppliers. H&M also respect nature, by making decisions that respect nature. H&M realize how the significant growth of cotton has impacted the environment therefore it wants to actively reduce the environmental impact of cotton growing. The two method H&M respond to the impact of cotton are through “promoting organic cotton by demanding it and improve conventional cotton growing.” Organic cotton means cotton that grown without the use of chemical pesticide or synthetic fertilizers. Increasing the demand of organic cotton motivate companies that produce cotton to invest organic cotton growing. H&M supports the global impact. As a world business H&M have promised to support a precautionary approach to environmental challenges 2. undertake initiatives to promote greater environmental responsibility; and 3. encourage the development and diffusion of environmentally friendly technologies.”SocialAt H&M, quality means making sure H&M products meet or exceed customers’ expectations.” The products has to go through 150 quality controllers, to examine whether the quality of the product meet the quality and safety standard. This ensures that H&M customers can use H&M products safely. H&M shows its social responsibility also through supporting UNICEF in Uzbekistan. H&M tries to prevent child labor in Uzbekistan’s cotton factory. These projects raise the awareness of the right of the child and it gives protection. H&M will contribute US$ 150,000 to UNICEF’s work in Uzbekistan.External StakeholdersSupplier,
H&M does not work with a specific suppler, instead it works with a variety of suppliers. China’s H&M has a great amount of sales rate therefore it needs large amount of resource to balance with its production. However, the orderings to each of the supplier is considered a lot for them.Customer,
Customer is probably the most important stakeholders, especially to fashion/clothing industry. They are the group of people who will determine the position H&M will hold in the market.
Government,
H&M follows the Swedish legislation and the Swedish Companies Act. The Swedish Companies acts are the list of agreements with OMX Nordic Stock Exchange Stockholm. Therefore the company applies the Swedish Code of Corporate Governance. This means the company will have to follow strictly and have to adjust according to the code of conduct.PEST analysis of the impact of the external environment on the Business organizationPolitical,
As mentioned, H&M follows the Swedish legislation and the Swedish companies act because it is a Swedish brand. However, this H&M is located in China therefore it has to follow the Chinese government system. For example, a recent article posted on hm.com about Royal Government of Cambodia is considering amendment to article 67 and 73 of Cambodian law. This affects H&M because it abuses their short term contracts. If there are changes in laws, H&M has to change their objectives or operations to fit the requirements. Environment,
H&M is concern about the environment, especially the growth of organic cotton. Lots of people have been trying to grow cotton against nature (produce with chemicals). Therefore to protect the environment and gain good image for the company it has to carry out roles that would protect the environment.Social,
The mission statement for H&M is “fashion and quality at the best price!” Therefore it is significant that H&M follow their missions. In fashion trend (environment) H&M have to be in lead because that is the characteristic the H&M have built on the social is that it is fashionable and good quality. Not just fashion, H&M have to consider the environment as in the need of its consumer and reaches their needs with fashion.Technology,
There are two types of technology that will effect the business which are media technology and printing machines. For printing machines, in the process of making clothes some certain colors and patterns needs special or more updated machine to accomplish. This way they can make sure the quality of their product. The development of media technology will aid H&M popularity through advertise and their website. The website and media have to be updated to attract customers to their brand and propagate their news events, therefore increase their exposure of their brand to the community.Business Organization has a division or subsidiary in a country that is a member of a regional economic group or trading bloc?The mother company of H&M started from Sweden. H&M has clothes that combine from many other different places. Their clothes are not only made in china but also other countries. This gives variety of fashion in their stores, which means their customers are able to find the best suit for themselves.H&M, a Multinational CompanyIn a multinational company like H&M is a franchise. Therefore if the parental store(in Sweden) is impacted by other things, it will also effect the other H&M. H&M is a brand set up in people’s mind, so if one event happened in Sweden this brings down the whole brand image, even though the problem only apply to a certain region not all.Module 2, Marketing H&M’s Characteristic of a marketH&M holds the greatest market share in Germany and UK. Still H&M is expanding their market so therefore the market share will increase continuously.H&M target market growth is to increase the number of stores by 10-15 percent a year. At the same time, consciously aware of sales at existing stores. The attractiveness of the store is the crucial factor in the rate of expansion. For example in 2007 H&M opened 193 new stores but 16 of them were closed. H&M is also a financial strong company. Their goal is to expand their company but still maintain profitability.H&M’s market size is quite large. It has 1700 stores around the world diverse into different regions. The four big ones are Europe, Asia, North America and Middle East. The growth of market means that the company will grow in size because of the growth in number of stores around the world.H&M’s product is market ledH&M provides goods through both marketing production and market led. H&M’s good can be a market led because it follows the fashion trend therefore the products of H&M must follow the current fashion. Since the mission statement for H&M is “fashion and quality at the best price!” H&M’s product has to satisfy the need of their customers which is qualitative and fashionable clothes. Therefore H&M’s product is produce to fulfill the need of their customers.H&M Marketing Mix (Place, Product, Price and Promotion)Place is considered one of the most important concepts in business for H&M. By opening stores it creates a distribution channel to people to purchase their product. Other countries also have developed online shopping for H&M, this way their customer would have a easier way to purchase. H&M said that distribution channel is very important for them because it increases their store’s popularity. H&M’s products are heavy weighted on their fashion sense and quality. Therefore it satisfies the need of its customers. This is what makes H&M’s product attractive. The prices for H&M clothes are not expensive. H&M also promotes bulk buying in their shops. Their prices are what attracted customers to re-visit. The prices are usually cheap or reasonable. Promotion is listed one of the most complementary sales channels. It brings attention to the business therefore will give lead to the increase of their brand popularity and loyalty. This means, H&M now has set up a successful image in people’s mind.H&M’s ValueH&M presents fashionable clothes to all the people. For example, the men, female and teen. The variety of sections in clothes attracts all types of people. H&M is a brand that sells clothes that they have their name but is put under H&M’s name then put into sale. H&M ensures profitability for those people who want to invest.Boston MatrixThe two specific products that H&N produces are accessories and clothes. Both products are categorized as cash cow because both lacks market growth. The products of H&M changes as trend changes, therefore their products do not have high potential to grow in markets. However, their products are always up-to-date with the current trend so people would purchase the product therefore their products are profitable.H&M are constantly updating their inventories, in order to catch its customer’s attention. This strategy is to attract and encourage customers to come to their stores to purchase their products. I think H&M has succeeded at finding a successful way to sell its products and finding the suitable position of its product in the Boston matrix.Threats posed by entry into international marketsCultural,
For every company, not just H&M, the biggest threat to enter into a international markets is whether their corporate culture would be able to adapt to the new environment. This is determining by the flexibility and the philosophy of the company. H&M has to consider to local culture in order to be profitable because at different culture, they have to consider questions such as what is acceptable in their society (beliefs), what is consider trendy, and whether our product will attract customer. In a international markets, H&M will have to come up with products that can be universally liked. If a company fail to adapt to the culture some dangerous threats may happen to the company such as, closing down. Legal and Political,
H&M has to adapt to the Local Chinese Government’s laws. In the process of getting their license for selling in China, the government of China will ensure that H&M follows the rules of Chinese government. If not followed their licenses can be taken away, which means H&M has to change their operations in the company a little differently from other country so that its operations best follows the law of Chinese Government.Social,
Social is also one of the threats when entering to a international market. If the brand is not acceptable to the society H&M will have to suffer from the lack of customers (this means lack of profitability) , this will lead to failure in entering a international market. However, H&M is well accepted by the society in China because H&M’s mission statement is what their customers need, quality and fashion at the best price!”Economic issues,
Currently, the biggest issue that H&M is facing is the financial crisis. During this financial crisis H&M is still able to perform marketing strategies to boost its profitability. Some strategies that H&M use are promotions and discounts to attract customers. From promotion, H&M is able to promote its brand so it can be universally known.Module 5, Operations Management Quality Control MethodsH&M has 10 different types of tests to ensure their quality. There are Zip test, flammability test, Chemical test, button test, measurement test, nickel test, pilling test, pH test, PVC test, salt and chlorine-bleaching test and washing test. All these type of quality control methods are there to suit H&M’s variety types of product. For example, swimsuits will be tested with chlorine-bleaching test to insure that when their swim wear is in contact with swimming pool water it does not fade or stain. It is significant for H&M to have a variety of quality control method because H&M produce different types of products, such as shoes, jewelry and clothes. Each type of product needs its own suitable type of quality control; this ensures that their product will in the best condition when the product is purchased by the consumer.H&M is located in many different regions. H&M is a franchise therefore it needs to have strong operation method to insure that at every location the franchise will be the same as the other franchise around the world. The benefits of globalization are that H&M are able to increase their popularity, therefore more profitability. Profitability comes from distribution channels such as stores; stores are the only way that H&M are able to sale their products to their consumer. From that H&M has income. The struggles that company will experience during globalization are that the company will have to adapt to the culture differences and change their operational methods so that it is matches the local legislation.Role of local and national standardsThe role of local and national standards assures quality for consumers in the specific region. The national standards are given by the environment because they have the responsibility to protect their citizens from harmful products. Therefore the existences of local and national standards make sure that business reach a standard in order to sell their products in that region.Research and DevelopmentResearch and Development is quite essential for H&M, who is a market led company. Through research and development H&M are able to determine the trend and customers needs in order to satisfy them. This links to production and marketing because from these researches information production will be able to understand their product life cycle and for marketing, they are able to determine whether their product or service is worth investment. Outsourcing H&M is a company that outsources to reduce firm’s cost by making labor and resources more efficient. H&M is a none-core operation that means H&M does not own any factories because H&M buy their clothes through an abundance of suppliers. The benefits of not owning any factory is that H&M can be more flexible compare to other retailers in lowering its costs. Module 3, Accounting and FinanceWorking Capital for H&M over the past three years.Calculations of Working Capital,
Formula:
Current Assets – Current Liabilities = Working Capital
2005/06,
27,522 – 6,996 = 20,5262006/07,
31,045 – 8,834 = 22,2112007/08,
35,371 – 11,879 = 23,492From the calculations, H&M’s working capital is increasing every year. It shows that the corporation is expanding because it has more assets and liabilities. For the cooperation the increase in working capital is a good thing because it shows the assets available to be use in for future assets.Profitability Ratios and comment of H&M over the past three yearsProfitability Ratio,
Gross Profit Margin (GPM) = gross profit / sales revenue x 100
Net profit margin (NPM) = net profit before interest and tax / sales revenue x 100
2005/06
GPM = 40,664 / 68,400 x 100 = 59.5%
NPM = 15,298 / 68,400 x 100 = 22.4%2006/07
GPM = 47,847 / 78,346 x 100 = 61.1%
NPM = 18,382 / 78,346 x 100 = 23.5%2007/08
GPM = 54,468 / 88,532 x 100 = 61.5%
NPM = 20,138 / 88,532 x 100 = 22.8%GPM shows the direct cost which is represents sales costs and NPM shows the indirect cost which represents the operational costs. From the profitability ratio, H&M is a profitable business because the increase in revenue other the years, the company is able to sustain with a stable profitability ratio. Therefore the expansion of H&M did not effect H&M’s ability to profit and lose control; it is able to maintain a stable ratio. This is directly related to indirect and direct costs because as the costs increase the ratios still remain stable, it doesn’t show a significant increase or decease. Liquidity Ratios and comment of H&M over the past three yearsLiquidity Ratios,
Current ratio (CR) = current assets / current liabilities
Acid Test ratio (ATR) = current assets – stock / current liabilities2005/06,
CR = 27,552 / 6,996 = 3.93: 1
ATR = 27,552 – 7,220 / 6,996 = 2.91: 12006/07,
CR = 31,045 / 8,834 = 3.52:1
ATR = 31,045 – 7,969 / 8,834 = 2.61:12007/08,
CR = 35,371 / 11,879 = 2.98:1
ATR = 35,371 – 8,500 / 11,879 = 2.26:1Liquidity shows the cash flow of the business. The current ratios have been decreasing from 3.93:1 to a 2.98:1. A healthy business would have a 3:1 ratio. To reach the healthy ratio H&M pull its current ratio to a 2.98:1 which is very close to 3:1 ratio this shows H&M is a healthy company. It shows that their stocks are purchase and not stored in a business, and when stocks are stored it will take up space costs so the business is not being efficient. Looking at the acid test ratio, stakeholders are able to see that whether H&M’s liquidity without stocks. To examine whether without inventories H&M are able to have cash to pay its current liabilities or some operational costs.Strategies on how H&M deal with liquidity problems.The strategies that H&M use to deal with liquidity problems are offering special offers to customers such as discounts and special events. Currently H&M just carried out this new trend of fashion which is designed by Matthew Williams and it is becoming very popular now. This attracted some celebrities which helps promote H&M’s products. These strategies are how H&M increase liquidity problems by spreading awareness of the brand. Analyze and interpret one liquidity and profitability ratio from the perspective of Managers and Suppliers.Managers (internal stakeholder), The mangers objective is high income. Managers will get paid only because the business is afforded to pay for their jobs therefore it is significant that mangers understand the business’s liquidity and profitability. The profitability of company gives managers a safety that they will get their salary, but if the company is not doing well mangers will expect a lower income and they dislike it. By looking at liquidity managers can interpret whether the stocks of this business is making profit and whether without the stock does the business have the ability to function and pay off its liabilities for a short run. These are most important factors the why managers look at liquidity ratios and profitability ratios.Supplier (external stakeholder), The objective of a supplier is that they have to make sure the business that they are supplying have a high chance of survival and efficiency. Suppliers will want the businesses they are supplying are selling their products so that they will order raw materials from them. Supplier will be concern about a company’s profitability because it shows whether the company is whether to pay money for their raw materials for a long run, if so the supplier will have a long term agreement with the company then earn profit from them. Supplier will be concern about liquidity ratios because it shows how well their product is being sold in the company and when the product is sold, the company will purchase materials from the supplier then the supplier makes profit.Purpose and importance of final accounts for Shareholders, Competitors and Employees. Shareholders, Shareholders will want to know whether the company they invest is making money and that this profit can be given to them through dividends. From final accounts they will understand how the business is working and try to make some adjustments to make it better. From final accounts shareholders can choose whether they want to sell their dividends or not. Competitors, Competitors can use business final accounts to know how their enemy is doing in business. If they are doing well (good profit) then they should be more active to find out strategies to keep them competitive with each other. This enables them to have gain profit. Employees, If there is am increase in profit listed in final account then there is a chance that it is possible for the company to get good terms, better working conditions and create a safe working environment. Therefore the final account helps them identify how the business is doing. This also gives a feeling of protection because from profits they know that the business they are working for are able to give them wages.
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