608-004-1

ICMR Center for Management Research

H&Ms Supply Chain Management Practices

This case was written by Perepu I, under the direction of Gupta V, ICMR Center for
Management Research (ICMR). It was compiled from published sources, and is intended to be
used as a basis for class discussion rather than to illustrate either effective or ineffective
handling of a management situation.
2008, ICMR Center for Management Research
ICMR, Plot # 49, Nagarjuna Hills, Hyderabad 500 082, India
Email: info@icmrindia.org.
www.icmrindia.org

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608-004-1

H&Ms Supply Chain Management Practices

H&M has a formula; its based on the recognition that retailing is essentially theater. Theres a
stage and it must change continuously to hold the interest of the consumer.1
- Kurt Barnard, President of Barnards Retail Consulting2 Group, in 2007.
A short lead time is not an end in itself, since it is always a matter of getting the right balance
between price, time and quality.
- H&M Annual Report, 2006.

INTRODUCTION
In late 2002, one of the buyers from Sweden-based apparel retailer Hennes & Mauritz AB (H&M)
on a trip to South Asia, chanced upon a college student wearing a peasant blouse and gypsy skirt.
The dress caught the buyers fancy and she immediately took photographs of it and sent them to
the companys design team at Stockholm, which was working on new concepts and styles for the
coming season. The designers approved the new concept, decided on the fabric and colors, and
orders were placed with a supplier in India to make the garments available in time for the springsummer collection.
The dresses were on the shelves of some of H&M stores across the world by February 2003 and
were lapped up by customers in quick time. The company was able to meet the growing demand
for the dresses on time by replenishing the stocks within three weeks. Heeding customers
demands, H&M went on to embellish the peasant blouse with sequins and lace, and brought out
skirts in new colors. Seeing that the dresses were really popular, H&M also introduced them in
several other markets.
H&M was among the pioneers in fast fashion, and apart from introducing its own styles, it also
scouted around the world for styles and fashion that could click among customers. The clothes
from H&M were reasonably priced, stocks were replenished every day, and no item remained on
the shelves for more than a month. Customers therefore made it a point to repeatedly shop at
H&M. The secret of H&Ms success was a well-integrated supply chain the clothes designed by
the headquarters at Stockholm were made by more than 600 suppliers located in 22 countries in
Europe and Asia. After the garments were manufactured, they were shipped to stores across the
world. H&M decided on the suppliers depending on the lead time. The products with higher lead
times were made in Asia, and those that were in high demand were made in Europe. All the
products were distributed across the world to its 1,345 stores, located in prominent shopping
districts in 25 countries across the world.
According to Florence Mller, Professor, French Fashion Institute, H&M has gone from being a
distributor to being a fashion label. H&M stores and those of its competitors have a much larger
role than you might think, theyve become places for fashion followers where one goes to see
confirmation of the trends for the season.3
1
2

Nicola Saminather, How H&Ms Coping with Retail Travails, BusinessWeek, January 04, 2007.
Kurt Barnard, economist, specialized in retail and consumer behavior launched his own firm Barnard
Retail Consulting in 1984. He publishes Barnards retail trend report.
Hennes Celebrates 60 Years of Low Cost Fashion, www.thelocal.se, September 14, 2007.
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BACKGROUND NOTE
H&M was founded by Erling Persson (Persson), a salesman from Vsters4, Sweden. In 1947, on a
visit to the US, Persson was attracted by the concept of clothes stores selling stylish garments at
low prices. Following a similar concept, he opened a store selling clothes for women in Vsters in
1947, and named the store Hennes (hers in Swedish). The low prices immediately attracted
customers. The stores were expanded during the 1950s and the 1960s. Persson was confident that
the concept would work as well in other countries, and in 1964, the company ventured overseas by
opening a store in Norway. This was followed by a store in Denmark in 1967.
In 1968, Persson acquired Mauritz Widforss, the store chain that primarily sold hunting guns in
Stockholm, Sweden. With this purchase, Persson expanded his business further into Stockholm.
The stores also stocked mens clothing. Persson then decided to change the name of the stores to
Hennes & Mauritz. Subsequently, H&M added childrens clothes to its collection. In 1972, Stefan
Persson (Stefan), Perssons son, joined the business. In 1974, H&M went public and the
companys shares were listed on the Stockholm stock exchange.
H&M began selling cosmetics in 1975. In 1976, a store was opened in the UK at Oxford Circus,
London. However, entering and making its presence felt in non-Scandinavian countries was a bit of an
uphill task for H&M. In 1977, clothes for teenagers were introduced, followed by clothes for babies in
1978. In 1980, H&M acquired Rowells mail order company after which it started selling clothes
through catalogues (Refer to Exhibit I for H&Ms international expansion through the years).
During the 1980s, Stefan made efforts to change the companys positioning, which till then had had a
low-end image. According to Stefan, When I joined in 1972, H&M was all about price. Then we
added quality fashion to the equation, but everyone said you could never combine successfully. But we
were passionate that we could.5 In 1982, Stefan became the Managing Director. He concentrated on
improving quality, bringing in new designs, and reducing operating costs, and on advertising. In 1987,
Margareta van den Bosch (Bosch) joined the company as design director.
In 1998, H&M began selling clothes through the Internet in Sweden. In that year, the total turnover
reached SKr 26.6 billion6. In 1999, this service was extended to Denmark and Finland and to
Norway in 2001. In spite of the growing popularity of sales through its website, H&M continued to
bring out four main catalogues every year, two during the spring-summer season and two during
the fall-winter season. H&M also brought out several supplementary catalogues.
By the end of the 1990s, H&M had become one of the top players in the apparel retail market. As
of 2002, H&Ms outlets were selling around 550 million items a year. By 2004, the number of
stores had reached 1,000 with H&M opening a store at Boulogne-sur-Mer in France.
As of 2006, H&M had a presence in 24 countries around the world through 1,345 stores. During
the year, H&M closed 16 stores and opened 168 new ones (Refer to Exhibit II for H&Ms stores
countrywise as of 2006).
From September 2006, H&M began selling through a franchise Alshaya7, in the Middle East. Even
while operating through the franchises, H&M chose the location of the store, decided on the
merchandise to be sold, and trained the staff. It opted to operate through franchisees in the Middle
East as it was not possible to operate wholly-owned subsidiaries in that region. However, H&M
did not plan to use franchises to expand further in other parts of the world.
4
5
6
7

Vsters is a city in Vstmanland, central Sweden. Vsters is one of the oldest cities in the country.
Capell, Kerry, Hip H&M, BusinessWeek, November 11, 2002.
1 US$ = SKr 6.471 as of October 08, 2007.
MH Alshaya & Company founded in 1890 is involved in several businesses like real estate, construction,
hotels, automotive, and general trading in several Middle Eastern countries. The retail division was
started in 1983, with a franchise for Mothercare. As of 2006, Alshaya operated more than 40 retail
concepts in the Middle East, Cyprus, Turkey, and Russia. These included Next, Debenhams, Claries,
The Body Shop, Estee Lauder, Clinique, Starbucks Coffee, and Pizza Express.
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The womens wear in H&M had a wide range of fashion wear. The main collection was of two
types tailored classics and current fashion garments. The other products in womens wear
included a denim collection, classic casuals, H&M sport, plus sizes, and nightwear. A wide range
of accessories formed a part of each of these collections. The mens collection included knitwear,
T-shirts, seasonal fashion garments, a tailored collection (in select stores), classic casuals,
nightwear, socks, ties, and accessories. Clothes for teenagers were sold under the label Divided.
This consisted of denim and street fashion wear.
For children, H&M offered clothes and accessories under different concepts, which included
babies, children, and H&M young. Baby wear was for children below 18 months. Childrens wear
was for children below eight years and emphasized comfort and functionality. H&M Young was
for children below 14 years and consisted of seasonal garments, which emphasized comfort,
functionality, and safety.
H&M also offered a wide range of cosmetics, which included make-up, and skin care products.
This range was enhanced constantly with new products. Make-up and skin care products were sold
under the By-H&M range. The range also included body care products, and accessories.
H&M expanded through organic growth and financed the expansion with its cash reserves. Every
year, the company opened several new stores. The cornerstone of H&Ms business model was its
turnaround time. A new garment could travel from the design studios to the shelves of the stores
within 21 days. This required a supply chain that functioned with clockwork precision. H&M did
not own any production facilities; instead, production was carried out by third party suppliers
located mostly in Europe and Asia.

IDEA GENERATION AND DESIGN

Initially, H&M sourced the products mostly from its agents in Asian countries and sold them
through its stores. In the late 1980s, after Bosch joined the company, H&M began building a
design team to take to the stores the products that customers were demanding.
The design department at H&M created and planned all the companys collections centrally in Sweden,
where the decisions about upcoming trends were made and collections finalized. The department had
over 100 in-house designers, and received cooperation from around 100 buyers and 50 pattern
designers. The company essentially concentrated on three factors fashion, quality, and price
and
achieved a fine balance among the three while bringing high fashion garments to the customers.
Theme, colors, fabrics, and designs were decided on the basis of customer demands.
The ideas were generated and given a final shape in the famed White Room at the companys
headquarters, under the supervision of Bosch. She was of the view, If its too complicated on a
hanger and if its too avant-garde, maybe its not us. You can have everything, but you have to
think about the right quantities.8 The designers had highly sophisticated design software and color
matching tools at their disposal and used these to design new collections.
The team of designers, whose average age was 30, included designers from several European
countries and also from the US and Africa. The designers were required to constantly observe the
trends in the fashion industry, street fashion, college fashion, and events, encounter different
cultures, travel, visit exhibitions, flea markets, and films, and keep an eye on television and the
Internet. However, copying designs from catwalks was not encouraged. The designers were
required to have a good knowledge of the history of fashion and cyclical trends. They came up
with some original designs and new concepts when needed. According to one of the designers,
Ann-Sofie Johansson, We travel a lot. You need to get out, look at people, new places. See
colors. Smell smells.9
8
9

Sarah Raper Larenaudie, Inside the H&M Fashion Machine, www.time.com, February 09, 2004.
Ariane Sains, Seeking Next Falls Fashion in the Subway, BusinessWeek, November 11, 2002.
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On the design team and design process at H&M, Bosch said, First you have to understand that the
design team at H&M is put together from the same fashion colleges that feed the designer studios.
Secondly, our earliest new-season collections are in production by the time the international
catwalk collections are shown. We look to the catwalk to confirm rather than to dictate the H&M
collections. We are all exposed to the same influences: film, street culture, media. We can afford to
be experimental, but not whimsical. For example, we need to know when our customer is ready to
embrace a trend and
crucially
when they dont want a trend to die.10
Inputs from the employees were considered to be crucial for designing new garments and arriving
at new trends. The designers on their travels interacted with the store managers to find out why
certain designs did not work out in that particular country or region. Feedback was obtained from
the merchandise managers present in all countries where H&M had stores. These managers
constantly interacted with the customers. Managers at H&M stores across the world were also
asked to report on the latest trends. They reported to headquarters on the new trends in the place
where they were located and about the new collections introduced by competitors. The store
managers were required to carry out competitor surveillance and customer analysis periodically.
Every year, H&M brought out two main collections, one during the spring and one during the
autumn season. Within each season, several sub-collections were released. Designing for each
season started with a brain-storming session involving all the designers, buyers, and pattern
designers. They deliberated on the styles and designs that had been successful the previous year
and the designs which had failed to attract customers attention. The design team then decided on
the look for the year and the designers drew the sketches. The group of designers concentrated on
designing clothes that were stylish but not too complicated. Not all the finished sketches received
approval and most often, only half of the total sketches made it to the stores. They tried to arrive at
a fine balance between clothes that were viable and those that presented the latest designs.
According to Bosch, Whether its Donna Karan, Prada, or H&M, we all work on the same time
frames. But we can add garments during the season.11
The range for the season comprised collections for men, women, teenagers, and children. While
designing the range, a mix of basics and high fashion was considered. The assortment was planned
depending on the demands from different markets and stores. Some high fashion garments were
sold only in select stores in big cities. The line known as modern basics comprised garments in
high demand in a particular season. They were made in different colors and sent to all the stores.
Each of H&Ms concepts like Men, Women, Kids, Divided, and Denim had its own team of
designers, buyers, pattern makers, assistants, and controllers who together produced the garments
according to demand. Different concepts had a different number of people working for them. For
instance, more people were involved in the womens line while the teams working on the teenager
concepts were smaller.
In early 2004, H&M started collaborating with well-known designers to design limited collections.
In June 2004, collaboration was announced with designer Karl Lagerfeld12 (Lagerfeld). Products
designed by Lagerfeld were sold through 991 H&M stores in November 2004. This was followed
by collaboration with popular designer Stella McCartney13, in November 2005. In 2006, Dutch
10
11
12

13

Fashion & Style: Were not Fashion Slaves, The Independent, July 11, 2002.
Kerry Capell, Gerry Khermouch Hip H&M, BusinessWeek, November 11, 2002.
Karl Lagerfeld, one of the most influential fashion designers, collaborated with different high-end fashion
labels including Chol, Fendi, and Channel.
Stella McCartney, English fashion designer, has designed for Chol, Gucci, etc. She also owns the
skincare line called Care. She has designed clothes for famous personalities like Madonna, Annie Lenox,
and Jude Law. In 2004, she entered into partnership with Adidas.
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designers Viktor & Rolf14 brought out a collection designed for H&M. In 2007, a new collection
M by Madonna was launched. This was designed in association with Madonna15, and comprised
tops, lumber jackets, blazers, shirt dresses, and accessories, among others.
In June 2007, Roberto Cavalli16 agreed to create a collection for H&M, which was to be available
in its stores from November 2007. According to Richard Hyman, Chairman of London-based retail
consultancy Verdict Research, To be a successful retailer you need to get people to come into
your store frequently by convincing them that every time they visit they will see something
different. By adding big name designers and high-profile collaborations they are able to add a bit
of spice to the mix.17

PRODUCTION
Initially, all the production activities of H&M took place in Sweden. In the 1960s, production was
carried out in other Scandinavian countries and in the UK. In the late 1960s, some of the production
activities were shifted to southern European countries like Italy and Portugal. By the early 1970s, H&M
was also producing in Hungary, Poland, and erstwhile Yugoslavia. In 1978, H&M ventured into the Far
Eastern countries with a production office in Hong Kong. As of 2000, H&M had 21 production offices,
of which 10 were in Europe, 10 in the Far East, and one in Africa.
The buyers, who were a part of the design process, were in contact with 22 production offices.
H&M did not own any factories or manufacturing units, and clothes were procured from more than
700 independent suppliers located in Europe and Asia. H&M did not have any production facilities
of its own, as the company believed that having internal manufacturing facilities, would mean the
capital being tied up. H&M had 10 production offices in Asia, 10 in Europe, and one each in
Central America and Africa.
One of the reasons why H&M had initially decided to go in for incorporating production offices
was that there were often differences between the design suggested and the final product because
of a miscommunication. Slowly, as the suppliers understood the requirements, the role of the
production offices changed to that of quality maintenance. The manufacturers were constantly
monitored by the quality controllers at the production offices.
H&M sourced more than 60% of its finished products from Asia, of which half were from China.
The purchasing office in Shanghai was opened in 1994, before which the sourcing was carried out
mainly through private agencies. In China, H&M had around 100 suppliers. From China, the
company preferred to procure Chinese clothes that had higher lead times.
The liaison office in India was opened in 1992 in Delhi and as of 2003 had around 60 suppliers.
According to Roland Arvidsson, General Manager at the India production office of H&M, India
is a strong market. 10 per cent of our demand is met from the Indian market, counting around 4045 million pieces per year. Woven makes the strongest demand from India accounting for around
45- 50 per cent of the total supply from the country. This is followed by knits 35-40 per cent, and
rest is fulfilled by the accessory products18
14

15

16

17
18

Viktor & Rolf was founded in 1993 by designers Viktor Horsting and Rolf Snoeren in Amsterdam. Both
of them studied at Amhem Art Academy and moved on to designing clothes. They went to Paris and
worked for several brands before coming up with their own line of clothes. The mens wear was sold
under the Monseiur label. They also produced womens wear, neckties, scarves, etc.
Madonna is an American pop singer, actor, and producer and is the most successful female recording
artist of all time, according to Guinness World Records.
Italian fashion designer Roberto Cavalli designed clothes, and accessories like shoes, handbags,
sunglasses, timepieces, etc. for men and women. He also launched a line for kids.
Kerry Capell, H&M Moves up with Madonna, BusinessWeek, December 13, 2006.
H&M: Touching New Heights, www.imagesfahion.com, May 2003.
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The employees in the production offices were selected locally. The main task of the production
offices was to mediate between the internal buying department and independent suppliers. These
employees kept in regular touch with the suppliers. The main responsibilities of the production
office included identifying new suppliers, placing orders with the right suppliers, negotiating price,
ensuring suppliers maintained quality, minimizing transport times, etc. According to an employee
at the production office in Shanghai, The production office makes sure we have suitable suppliers
that offer low-cost services and produce top quality goods.19
All the suppliers of H&M were required to follow the code of conduct for suppliers as stipulated
by the company. The code of conduct was based on ILO conventions and the UN Convention on
rights of the Child. H&M came up with its Code of Conduct in 1997. (Refer to Exhibit III for
H&M Code of Conduct).
Whenever H&M selected a new supplier, a comprehensive audit was carried out in association
with the factory managers. The main objective of the audit was to identify the areas for
improvement and to arrive at a plan to achieve the improvements. Long-term and short-term goals
formed a part of the plan for improvement, and the time frame to achieve the goals and the people
responsible to carry them out were identified.
The auditors who were a part of the production office, conducted surprise audits on the suppliers
from time to time. Around 40 employees around the world were involved in conducting audit of
the suppliers and providing them with advice on how to improve the conditions so as to adhere to
the Code of Conduct. According to one of the auditors in India, where the Code of Conduct was
implemented in 1998, To begin with the factory owners were a little unused to the idea of being
inspected like this. Now they understand that unannounced visits are part and parcel of the way we
work, and few are surprised when we turn up out of the blue.20
The auditors carried out checks pertaining to safety, hygiene, and the working environment. The
auditors also checked the documents pertaining to employment, payroll, production, etc. They
checked if the suppliers had implemented the improvement plan as suggested during their previous
audits and if all the processes were as per the legal requirements. The auditors then documented
the visit and reported it to the CSR department at the headquarters.
To maintain quality, sample garments were tested and later on, garments from the production line
were checked. Laundry tests were carried out as a part of the quality tests, and included tests for
shrinking and colorfastness. Durability tests were carried out on zippers and press studs. All the
production offices had quality controllers who helped in checking the supplies in the factories and
ensuring that they adhered to the companys quality standards (Refer to Table I for details of some
of the tests conducted by H&M).
Production offices also had an R&D team and product developers to support the designers and
buyers in Sweden. The buyers communicated to the production offices about the designs, number
of garments required, material to be used, and other specifications. The production offices browsed
through the list of suppliers to decide on the ones who had the facilities to produce the required
garments. The chosen suppliers were given the specifications and 24 hours time to make the
samples as specified by H&M and send them back. In case a supplier was not able to meet the
deadline, the order was given to another supplier. As one of the suppliers, Hu Hongxia, of
Worldbest Knitting Fashion Company Ltd. said, When H&M sends us the patterns by email we
first make samples for confirmation. After we receive their approval, we start producing
promotional samples, usually a little over 20 pieces. Then after H&M reconfirms, we can start
producing the whole batch.21
19
20
21

Li Li, Fashion Magnets Supply Chain Contest, China Business Feature, May 08, 2007.
Our Responsibility, About H&M and Social Responsibility, www.hm.com.
Li Li, Fashion Magnets Supply Chain Contest, China Business Feature, May 08, 2007.
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The production offices provided the buyers at Stockholm with the list of suppliers who could
deliver the specified garments along with the samples. The buyers then placed the order taking into
consideration different factors like price, quality, time to deliver, and the location. According to
one of the employees of the company, The choice of production base for one style of clothing
should take both cost and efficiency into account. If one style of clothes needs to be quickly put on
the market, we will choose the production base that is nearest to this market.22
Table I

Quality and Security Tests Carried Out By H&M

Zipper tests: These tests were carried out to test the durability of zippers.
Flammability tests: The flammability of the fabric was tested.
Chemical tests: These tests checked whether the garments contained chemicals that could harm
the skin and cause allergies, cancer, or irritation.
Button test: These ensured that the buttons were attached properly, especially to childrens
clothing.
Measurement test: Seams and measures of the garment before and after washing were tested.
Nickel test: This test ensured that jewelry, buttons, zippers, etc. did not have nickel.
PH test: To avoid skin irritation, it was ensured that PH value was neither too high nor too low.
PVC test: None of the garments from H&M contained PVC and tests were conducted to ensure
that this was the case.
Salt and chlorine bleaching test: Swimwear was tested to ensure that color did not change due
to bleaching or due to salt.
Washing test: These tests were carried out several times during the production to ensure
shrinking, color fastness, etc. were within the stipulated limits.
Source: www.myspace.com.

While placing the order, the prime consideration was the location at which the goods could be
manufactured cost effectively. The next consideration was the distance to the market. Other criteria
were also considered when the orders were placed. For example, for clothes that were fashion sensitive
and required to be replenished quickly, H&M used the suppliers in Europe. If there was a demand for
some garments only from a particular country or store, suppliers located in close proximity to that
country or store were given the order. For trendier products, H&M preferred to procure from Turkey.
European locations were considered for fashion-sensitive garments.
Most of the suppliers, inturn, had their own suppliers, to provide them with the raw material,
dyes, etc, as required by H&M. After the suppliers received confirmation from H&M, they
immediately procured the required raw material and started the process of production. Suppliers
were keen to work with H&M as the company gave them large orders running into thousands of
pieces. The staff from the production office visited the suppliers from time to time, in order to
ensure the quality of the finished goods and to monitor the progress of production.
To keep up with the latest trends, the collections were brought out on an ongoing basis, with
different lead times for all the products. The basic items, which would have high demand in the
upcoming season, were ordered about six months in advance, and their production was scheduled
accordingly. The garments which were in vogue had to be designed, produced, and placed on the
store shelves within a matter of just a few weeks, and were planned accordingly. For high volume
garments like basic wear and childrens wear, H&M placed orders in advance.

22

Li Li, Fashion Magnets Supply Chain Contest, China Business Feature, May 08, 2007.
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Way back in the early 1960s, H&M was making purchases 12 times a year, against the conventional
four times a year, in order to accommodate fashion changes in its collections. The trend continued and
buying was carried out all through the year, and by bringing about changes in buying patterns, H&M
was able to reduce the lead time by 15-20%. The company aimed at finding the right supplier so that it
would be able to achieve optimal time in bringing the product to the shelves.
H&M essentially operated through two supply chains in order to optimize time and cost. The first
chain took care of the cost component and the manufacturing was done mainly in Asian countries.
The second one termed rapid reaction was used for fashion-sensitive garments, and was based in
Europe. For the suppliers based in Asia, H&M offered a follow-up system, wherein the
communication was carried out through email and work was monitored by the production offices.

DISTRIBUTION
A large part of the finished products that were manufactured were shipped using external contract
companies to the central warehouse in Hamburg, Germany, which served as the transit terminal.
Logistics was managed centrally from the companys headquarters in Stockholm. Most of the
goods from the production centers across the world passed through this transit terminal on their
way to the destination country. The transit terminal received the goods from all the suppliers
across the world.
H&Ms logistics department employed around 3,200 people. Almost every stage of the logistics
was handled by the company, including imports. Stock management was handled by the company
in-house.
In all the countries in which H&M operated, a distribution center was set up. As of 2002, H&M
had 13 distribution centers in Europe and Asia and one distribution center in the US. When goods
arrived from the transit terminal to the distribution center, they were sorted as per the stores,
checked for quality, and pressed. Depending on the demand, they were either sent to the stores or
kept in a warehouse called the call-off warehouse, a centralized room which held the stock and
was a part of the distribution center. The merchandise was delivered to stores from the distribution
center in daily shipments. Items were replenished from the call-off warehouse according to the
trends reported from the stores.
The goods from the Asian countries were shipped by sea in order to minimize costs. When the
orders from a particular store were large, the shipment was sent directly to the stores. If the
garments were in demand only in a particular country, then they were sent directly to the
distribution center in that country.
When H&M entered a new market, it did not immediately set up logistics and distribution centers
in that country. Instead it used those in the neighboring countries. For example, when H&M
expanded into Poland, the distribution facilities in Germany were used and when it entered
Portugal, the facilities in Spain. Similarly when expanding into the Czech Republic, the Austrian
distribution center was made use of and for Italy, the facilities in Switzerland were used. Thus,
H&M was able to avoid the high initial costs associated with entering new markets. These
facilities were used until the volume in the new markets reached economies of scale. According to
Nils Vinge (Vinge), Head, Investor Relations, H&M, In our business model, in order to get
efficiency of sales when it comes to logistics and infrastructure, we need a certain number of stores
to reach critical mass.23
In 2006, in order to ease the supply of goods, H&M began using the concept of regional grouping.
Through this system, it planned to bring the goods to be distributed in a group of countries, rather
than each country individually. To facilitate this, H&M worked on a new group structure, wherein
23

Constance Haisma-Kwok, Throngs Turn Out for H&Ms Hong Kong Opening, Womens Wear Daily,
March 13, 2007.
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some of the centralized functions like designing, buying, production, logistics, etc, were to be
detached into another buying company. Other initiatives in this direction included a new logistics
facility in Poznan, Poland. This distribution center catered to the market in Poland as well as the
distribution of goods purchased online and through catalogues in non-Nordic markets. A new
distribution center was planned in Hamburg, to take care of the existing logistics functions in
Germany and the Netherlands. A new shared logistics facility for France, Belgium, Italy, and
Greece was also planned. The mail order operations were managed by separate warehouses one
in Sweden and one in Norway, and were operated by the company.

STORE MANAGEMENT
Before opening new stores or before entering a new market, H&M conducted extensive research
on the demographics of the consumers, spending power, competition, and other factors that could
contribute to the success of the international venture. Other factors that were considered before
finalizing the location were local shopping areas, their size, traffic flow, and availability of public
transport. H&M did not go in for test marketing, choosing instead to open about five to six stores
in the market to gauge the response. In countries where it found a huge potential, H&M expanded
by acquiring local chains. If the response to the initial stores was positive, it quickly developed the
stores in order to achieve economies of scale in terms of logistics and marketing.
The corporate headquarters analyzed the best locations that were available for setting up the stores
and waited until the desired location was available, rather than opening the new stores at any
available location. H&M chose the best available locations for its stores, in the main shopping
districts of major cities and towns where it operated. For example, in London, the store was
located at Brent Cross Shopping Center and Oxford Street, Fifth Avenue in New York, Rue de
Rivoli in Paris, and Beverley Center in Los Angeles. In some of the European countries, including
Germany and Switzerland, H&M acquired several stores at low prices during the recession.
As the stores were located at prime locations, it was important to decorate the store windows in
such a way as to attract customers. Mannequins in the windows displayed the new collections and
the shop windows reflected the seasonal trends. All the stores were self-service stores, and the
garments were placed in a way that made it easy for customers to find the things they were looking
for. According to Francoise Sackrider, a retail specialist at the Institut Francais de la Mode, in
Paris. The high level of goods and the sophisticated environment at these stores wiped out any
complexes shoppers had about less expensive stores.24
To ensure a uniform look for the stores across the world, the visual department in Sweden
provided guidelines pertaining to display and garment exposure. During every season and for
every new campaign, a new environment was created and was communicated to all the stores.
Some of the stores, especially those in big cities and those catering to teenagers, were renovated
frequently to maintain their novelty and appeal.
All the H&M stores were designed to promote self-service. The stores were decorated in a way
that would encourage the customers to select the garments and accessories that reflected their
style. There were several displays and mannequins within the stores which helped the customers
mix and match the collections.
H&M had stores in all ranges from full range stores to concept stores. The 200-700 sq meter
concept stores enabled the company to use the small sites available in some of the busy shopping
areas around the world. H&M had concept stores for men, women, teenagers, children, and for
accessories.
24

Sarah Raper Larenaudie, Inside the H&M Fashion Machine, www.time.com, February 09, 2004.
10

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The stores were stocked every day. Most of the restocking was done between 7 am and 9 am.
Sometimes, as in the case of new store openings when demand was very high, the stores were
restocked several times a day. In some of the stores, where demand was high (for example, the
store at Paris Boulevard Haussmann), restocking was done three times a day.
No item stayed in the stores for more than a month, and so customers were keen on visiting the
stores more often. Items that did not sell quickly were marked down, to make way for new items.
According to one of the customers at the stores in New York, I have told all my friends how cool
and inexpensive the store is. I keep coming back because there is always something new to buy. I
like that the clothes here have their own style. They just dont do knock offs.25
H&M was of the view that franchising and joint ventures would jeopardize the uniformity that was
necessary, especially in the clothing retail and fashion sector. This was one of the reasons why
H&M preferred to own all its stores. As most of the stores were owned by the company, it could
maintain control over the activities of all the stores. It also helped in maintaining a uniform store
concept across the world.
Most of the personnel in the stores were recruited locally, and they were considered to be
important in understanding the local market and in deciding the strategy to be implemented. H&M
carried out most of the recruitment and training processes internally. All the new recruits were
required to undergo a three-week introduction course after which each was assigned to a mentor.
Job rotation was practiced in H&M, and in the stores, the employees were required to carry out
various duties like cash desk, displaying, customer assistance, etc.
The staff from the stores was taken for positions like production coordinators, quality controllers,
auditors, etc. Staff from the corporate office and production offices was sent to stores from time to
time to maintain contact with the customers.
When a new store was opened, experienced employees from H&M stores in other locations were
relocated to recruit and train the staff. This process helped in inculcating the culture of H&M in the
new location. The same practice was followed even when H&M entered a new country. In such
cases, staff from other countries was transferred to a new country, to transfer knowledge and skills.

CONCLUSION
The entire operations in H&M
right from the designing to the store management
were IT
enabled. The production offices and the central office were connected and the central office
distributed the designs and sketches to the production offices through the Internet. As most of the
stores were owned by the company, they shared a common IT platform. Through this, the sales
data was communicated all through the supply chain, making it easy for the company to keep tabs
on sales and demand, and to react quickly to changing trends. The feedback loop between the
stores, warehouse, procurement department, and production office was IT-enabled. Every day, the
buying department analyzed the sales data, taking into consideration sales by item, country, store,
type of stores, etc. (Refer to Exhibit IV for flow of products and information in H&M).
Due to the short length of time it took for a garment to move from the designers tables to the shelf
(an average of 21 days), H&M was able to add the looks that were not a part of the collection it
had released for the season. This enabled the company to reflect trends better as compared to its
competitors. H&M was also able to produce garments that were in vogue and were selling well in
the market and to stock them in the stores to meet demand.

25

Marianne Wilson, Disposable Chic at H&M, Chain Store Age, May 2000.
11

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Though compared to its competitor Zara26, H&M took more time to deliver the clothes, the extra
time gave the company a cost advantage and clothes at H&M were 30-50% cheaper compared to
those at Zara.
For 2007, H&M planned to add around 170 stores to its existing stores, mainly in the US, Spain, Italy,
Germany, the UK, and Canada, taking the total number of its stores to over 1,500. In cooperation with
Alshaya, H&M planned to open stores in Qatar. H&M was also looking at expanding its reach to new
countries like Greece and Slovakia by the end of 2007 and to Japan by mid-2008. H&M opened stores
in Hong Kong in March 2007 and in Shanghai, China, in April 2007.
By spring 2007, H&M planned to offer footwear in all its stores. Other plans for the year included
the launch of high-end brands for women and men through a new stores Collection of Style. The
first store was opened in Regent Street, London, in March 2007. According to Vinge, The
collection will be modern, and chic, and high quality in everything from fabric to fit to the
shopping experience.27 H&M planned to open similar stores in Hamburg, Berlin, The Hague, and
Brussels. The main reason behind choosing these locations was the size of the markets, and
existing logistics network.
By September 2007, H&M planned to sell home textiles through catalogues and online. The new
collection called H&M Home included bedspreads, curtains, comforters, towels, sheets, window
coverings, etc.
However, industry analysts pointed out that the picture was not all rosy for H&M as most of the
countries in which the company had a significant presence and from where it derived most of its
revenues were mature markets. They were of the opinion that H&M was expanding its operations
too quickly in the US market. Also, they felt that the stores in the US were too big and should be
scaled down. Besides, they required a revamp, as the layouts were confusing to the Americans. In
H&Ms most important market, Germany, the sales in 2006 went down by 4%, with several
competitors like Zara, Mango, Kenvelo, etc, making their presence felt in the market.
Analysts were of the view that H&M was excessively dependent on the independent third party
manufacturers. Two of these manufacturers accounted for 25% of the production, and any
problems with them could have an adverse effect on H&Ms ability to deliver the garments on
something that was crucial for the success of the company.
time
H&M faced competition not only from clothing retailers like Zara but also from the likes of WalMart and Target. With Target bringing in renowned designers to design its collections, it proved to
be a formidable competitor to H&M.
In mid-2006, Zara replaced H&M as Europes biggest fashion retailer. In March 2006, H&M reported
that sales had fallen by 8% compared to the previous year, though the number of stores had increased
(Refer to Exhibit V for H&Ms five year financial summary). Inconsistent weather in Europe was said
to be one of the reasons for H&Ms poor performance. Across Europe, especially in H&Ms largest
market Germany, and Austria and Switzerland, winter and sub zero temperatures prevailed even
through March. By then, H&M had its spring collection ready but was not able to place the garments
which were in demand at that time in the stores. On the other hand, Zara, with its nimbler supply chain,
was able to replenish the stores with the right kind of products on time.

26

Zara is the largest division of Spain based Inditex Group, one of the largest fashion retailers in the world.
Compared to the average period of nine months taken by most of the designer stores to bring in new
collections, Zara brought in new collections every two weeks. In 2006, Inditex recorded revenue of
8.196 billion and net income of 1.010 billion.

27

H&M Moves Upscale, Retailing Today, March 2007.

12

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Unlike the Zara stores, H&Ms stores did not have an up-market feel about them. According to
Sally Bain, Retail Consultant, The Chambers28, This is one of Zaras strengths: it has very glossy
stores but mainstream prices and therefore it over delivers the promise. H&Ms stores have been a
mess but its making the environment more enticing and stylish though the prices are still lower
than Zaras.29
Some analysts were of the view that H&M did not always maintain trends. Libby Thomas, Search
Media Analyst, Microsoft ad Center UK, said, I think H&M is miles better than Zara but it can be
really inconsistent. You go into H&M one month and you want so many items, then you go in the
next month and its just a big load of pap. Its probably because the brands so trendy; sometimes
it gets it right and sometimes it doesnt.30 Some of the customers found it difficult to find the right
kind of garments at H&Ms stores. According to one of the shoppers, H&M is good for cheap,
interesting clothes. The quality isnt amazing
you wont find any impeccably cut cashmere
here, however its great for whatever is so trendy that you just realized you had to have it five
minutes ago.31 A similar view was echoed by a customer from New York, who said, The
merchandize is trashy and cheap. Its really not my style. But I bought two sweaters anyway. The
prices were great.32
Critics of fast fashion also claimed that trend spotters were describing small influences as new
trends and were rushing the products to the stores. This reduced the longevity of the trend. They
were also of the view that these companies did not play any role in setting trends and were more
interested in just spotting the trends. As designer Zac Posen pointed out, Its a very fine line of
what is a copy and what is inspiration. In some way, it just gets the idea out there, because when
youre a growing brand you dont produce that many of them.33
According to Julian Sanchez, Contributing Editor, Reason Magazine, In an industry rife with
interpretation and homage, designers had long adopted a relatively laissez-faire attitude
toward downmarket copying. Three overlapping trends have begun to change that. The first is the
increased speed with which the Internet and, less obviously, but more importantly, flexible
supply chains and just-in-time inventory allows at least rough copies to appear in stores at the
same time as their high-end templates (rather than a season behind the curve). The second is the
rise of masstige lines at such retailers as Target and Kohls, designed by the likes of Marc Jacobs
and Vera Wang but aimed at the mass market. Finally, theres the popularity of high-low
aesthetics.34

28

29
30
31
32
33
34

UK-based retail consultants, The Chambers, provides consultancy services in brand marketing, retail
strategy, innovation etc. Some of its prominent clients included B&Q, Hilton, HMV, Marks & Spencer,
Mothercare, Sainsburys, and Tesco.
Slow Sales, Brand Strategy, May, 2006.
Slow Sales, Brand Strategy, May, 2006.
Posted by a user on http://chicago.citysearch.com/, on February 27, 2007.
Marianne Wilson, Disposable Chic at H&M, Chain Store Age, May 2000.
High Fashion Battles Knockoffs, www.women24.com, September 28, 2007.
Julian Sanchez, Thou Shalt Not Knock Off, The American, September 14, 2007.
13

608-004-1

Exhibit I

H&M International Expansion

Year

Markets

1947

Sweden

1964

Norway

1967

Denmark

1976

UK

1978

Switzerland

1980

Germany

1989

Netherlands

1992

Belgium

1994

Austria

1996

Luxembourg

1997

Finland

1998

France

2000

USA, Spain

2003

Poland, Czech Republic, Portugal, Italy

2004

Canada, Slovenia

2005

Ireland, Hungary

2006

Franchisee (Dubai & Kuwait)

Source: Facts about H&M, 2007.

14

608-004-1

Exhibit II

H&M Stores Country Wise (2006)

Country

No. of Stores

Sales 2006 (SEK Million)

No. of Employees

Germany

303

20,181

9,302

Sweden

123

6,690

4,142

USA

114

5,109

4,383

UK

112

6,769

3,617

France

85

5,943

2,486

Netherlands

81

4,990

2,023

Norway

79

4,840

1,481

Spain

68

3,845

2,568

Denmark

58

3,293

1,238

Switzerland

56

4,045

1,412

Austria

54

4,286

1,839

Belgium

50

2,777

1,308

Poland

35

1,208

978

Finland

33

1,988

731

Canada

26

1,027

608

Italy

18

996

474

Portugal

14

425

324

Czech Republic

13

513

239

Luxembourg

310

126

Ireland

327

170

Hungary

93

54

Slovenia

354

95

Franchise

72

1,345

80,081

Total

Source: Facts about H&M, 2007.

15

39,598

608-004-1

Exhibit III

H&M Suppliers Code of Conduct

H&M considered it important to take responsibility of all its actions. This became necessary due
to the thousands of people involved in its production process. In order to clarify its stand on
issues like child labor and human rights etc, H&M developed a Code of Conduct, which all its
suppliers and sub contractors were required to follow.
Legal Requirements: The suppliers had to follow the national laws of the countries in which
they operated.
Child Labor: The child labor policy of H&M was based on the UN Convention on The Rights
of the Child article 32.1. H&M did not accept child labor, and if a child was found working in
any of the factories producing garments for H&M, the company requested the factory authorities
to take the necessary steps to find a solution considering, age, social situation, and education of
the child. Instead of dismissing the child from work, the factory had to take adequate steps to
improve the situation of the child and ensure that children would not be employed any more in
the factory. In case the suppliers did not accept the companys policy, H&M would stop
cooperating with the supplier.
Safety: The safety of workers was of prime importance to H&M and the suppliers were not
allowed to operate from unsafe buildings and with hazardous equipment. The factories had to
have clearly marked exits, which were easily accessible. The workers had to be educated about
fire safety equipment, emergency exits, first aid, evacuation plans, etc. Medical facilities had to
be made available in close proximity to the factories, and the supplier had to bear the medical
expenses of workers in case of injury inflicted while working at the factory.
Workers Rights: All the workers working for H&M had to have basic rights, and the company
did not accept bonded labor, illegal workers, and prisoners. In case of foreign workers, they had
to be employed on their will. Corporal punishment and other forms of disciplinary punishment
were not allowed to be used. Workers were to given the freedom to join any association. The
workers were not to be discriminated on the basis of race, gender, ethnic background, religion,
etc. All the workers with equal experience and qualification were to receive equal pay for work.
All the workers were entitled to an employment contract. Wages had to be paid on time,
following the minimum wage policy in the country. Other parameters pertaining to working
hours had to be followed, and overtime had to be compensated. The workers had to be granted
leave as stipulated.
Factory Conditions: The factory environment had to be clean and free from pollution. The
temperature levels had to be tolerable, with adequate ventilation, with facilities like heaters and
fans. Proper lighting had to be provided. The sanitary facilities also had to be clean.
Housing Conditions: If a factory also provided housing facilities, they had to have the required
safety and sanitary conditions. All the workers had to be given living space as per the stipulated
requirements.
Environment: The suppliers had to comply with the environment laws of the country in which
they operated. Use of solvents and hazardous chemicals in producing the garments was not
allowed. All the suppliers had to commit themselves to not using restricted chemicals as
specified by the company.
Adapted from H&Ms Code of Conduct, www.hm.com.

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608-004-1

Exhibit IV

H&M Product and Information Flow

Source: www.eurofound.europa.eu.

Exhibit V

H&M Five Year Financial Summary

(In SKr Million)

2006

2005

2004

2003

2002

Sales (incl. VAT)

80081

71886 62986

58550

53332

Sales (excl. VAT)

68400

61262 53695

48238

45522

Operating Profit

15298

13173 10667

9223

8259

1232

1126

1051

13553 11005

9609

8629

Depreciation

1624

1452

Profit after Financial Items

15808

Profit after Tax

10797

9247

7275

6386

5687

Earnings per Share

13.05

11.17

8.79

7.72

6.87

Source: H&M Annual Report, 2006.

17

608-004-1

Suggested Readings and References:

1. Hennes & Mauritz the MTV of Fashion. Chain Store Age Executive with Shopping
Center Age, Special Issue 1993.
2. Knickers to the Market. Economist, February 28, 1998.
3. Catherine Curan, Swede Smell of Success, Crains New York Business, April 02, 2001.
4. Emily Scardino, H & M: Can it Adapt to America's Landscape? DSN Retailing Today,
September 17, 2001.
5. Catherine Curan, Swedish Retail Emissary. Crains New York Business, October 15, 2001.
6. Marianne Wilson, Disposable Chic at H&M, Chain Store Age, May 2000.
7. Fashion & Style: Were not Fashion Slaves, The Independent, July 11, 2002.
8. Kerry Capell, Gerry Khermouch, Hip H&M, BusinessWeek, November 11, 2002.
9. Ariane Sains, Seeking Next Falls Fashion in the Subway, BusinessWeek, November 11, 2002.
10. H&M: Touching New Heights, www.imagesfahion.com, May 2003.
11. Sarah Raper Larenaudie, Inside the H&M Fashion Machine, www.time.com, February 09, 2004.
12. Betsy Kroll, Designer Dresses for Less, Time Canada, July 26, 2004.
13. Karen Raugust, Hennes & Mauritz, Advertising Age, November 01, 2004.
14. How Star Retailers Turn Fast, Womens Wear Daily, November 10, 2004.
15. Truly Fast Fashion: H&M's Lagerfeld LineSells Out in Hours. Womens Wear Daily,
November 15, 2004.
16. Kerry Capell, Dan Beucke, Attention, Frugal Fashionistas, BusinessWeek, June 06, 2005.
17. Sharon Edelson, H&M Said Adding 5th Ave. Site, Womens Wear Daily, August 10, 2005.
18. Brand Therapy - H&M: Fast Fashion, Slow Sales, Brand Strategy, May 2006.
19. Miles Socha, Viktor & Rolf Walk Down Aisle with H&M, Womens Wear Daily,
September 28, 2006.
20. Sarah Kohl, Madonna shines on Fifth Avenue. Display & Design Ideas, December 2006.
21. Robert Murphy, H&M to Enter Japanese Market, Womens Wear Daily, December 12, 2006.
22. Kerry Capell, H&M Moves up with Madonna, BusinessWeek, December 13, 2006.
23. Nicola Saminather, How H&Ms Coping with Retail Travails, BusinessWeek, January 04, 2007.
24. Robert Murphy, How Swede It Is: H&M Profits Up 17%, New Formats on Horizon,
Womens Wear Daily, January 26, 2007.
25. Brent Felgner, H&M to Enter Home Textiles Category, Home Textiles Today,
January 29, 2007.
26. Samantha Conti, H&Ms New Collection a Step Upmarket., Women's Wear Daily,
February 14, 2007.
27. H&M Moves Upscale, Retailing Today, March 2007.
28. Constance Haisma-Kwok, Throngs Turn Out for H&Ms Hong Kong Opening,
Womens Wear Daily, March 13, 2007.

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29. Pop Goes Madonna: H&M Launch Lures Fans Around the Globe. Womens Wear
Daily, March 23, 2007.
30. Lisa Movius, H&M Heads East With First Unit in Shanghai, Womens Wear Daily,
April 17, 2007.
31. Li Li, Fashion Magnets Supply Chain Contest, China Business Feature, May 08, 2007.
32. Simi Horwitz, Place to Shop for Clothes: H&M, Back Stage East, May 10, 2007.
33. Kathleen Kingsbury, H&M Sets Up Shop in China, Time South Pacific (Australia/New
Zealand edition), July 16, 2007.
34. Georgia Lee, H&M Headed to Atlanta, Women's Wear Daily, August 10, 2007.
35. Hennes Celebrates 60 Years of Low Cost Fashion, www.thelocal.se, September 14, 2007.
36. Julian Sanchez, Thou Shalt not Knock off, The American, September 14, 2007.
37. High Fashion Battles Knockoffs, www.women24.com, September 28, 2007.
38. Our Responsibility, About H&M and Social Responsibility, www.hm.com.
39. Facts about H&M, 2007.
40. www.myspace.com.
41. www.hm.com.
42. www.eurofound.europa.eu.
43. H&M Annual Reports, 2002-06.

19