Hennes & Mauritz (H&M) AB in Retailing

December 2009

Scope of the Report

Retailing - Hennes & Mauritz

© Euromonitor International

Scope
• This global company profile covers the following products focusing on the year 2009:

Retailing: US$10,430 billion

Store-based Retailing: US$9,829 billion

Non-Store Retailing: US$601 billion

Clothing & Footwear Specialist Retailers: US$791 billion

Homeshopping: US$190 billion

Internet Retailing: US$243 billion

Disclaimer Much of the information in this briefing is of a statistical nature and, while every attempt has been made to ensure accuracy and reliability, Euromonitor International cannot be held responsible for omissions or errors Figures in tables and analyses are calculated from unrounded data and may not sum. Analyses found in the briefings may not totally reflect the companies’ opinions, reader discretion is advised

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Retailing .Hennes & Mauritz © Euromonitor International Strategic Evaluation Competitive Positioning Geographic Opportunities Category Opportunities Brand and Operational Strategies Recommendations 3 .

and ahead of Gap. as it suffered from poor conditions in its core US market.5 billion) in 2008. with sales in local currency terms up by double-digits. Western Europe. Gap registered sales of US$14.000 SEK million 16.7% (2009) specialist retailers share 1. H&M continued to record strong sales growth in 2008 and 2009.4 billion (US$14. VAT vs Profit After Tax 90.7 billion) in 2008.Sales excl.000 40.5 billion (US$13. Germany. • Its major rival.000 30. Hennes & Mauritz (H&M) AB .Hennes & Mauritz © Euromonitor International Key Company Facts Hennes & Mauritz (H&M) AB Headquarters Regional Involvement Stockholm. Middle East and Africa Clothing and footwear specialist retailers.Strategic Evaluation Retailing . though the company’s net profit grew by 16% to US$967 million. homeshopping. recorded revenue of EUR10.000 6.8 billion).5% (2008) Retail sales value growth (US$) -4.000 SEK million 80. which was the world’s largest player in this channel until 2007. helped by cost savings.000 60. • Inditex’s and H&M’s battle for the world’s largest clothing and footwear retailer position is closely fought.000 70.000 14.000 2004 2005 2006 2007 2008 Sales excl VAT Profit after tax 18. with profit after tax also up 13% to SEK15. down 8% in the year.000 50. Sweden Asia Pacific. behind Inditex. Inditex.1% (2009) 17.2% (2008) specialist retailer in 2009. has been significantly left behind by the leading two. Eastern Europe.000 H&M’s profits remain healthy • H&M registered sales excluding VAT of SEK88. up 10% on the previous year. This was achieved partly thanks to a strong performance in its largest market. with net profit up 0. 4 .3 billion (US$2.2% to EUR1.4 billion).5 billion. while Gap. an increase of 13% over the year.000 10. internet retailing H&M’s robust performance in battle with Inditex • The world’s second largest clothing and footwear Sector Involvement World clothing and footwear 1.000 8. which highlights the group’s high margin.000 12. North America.3 billion (US$1.

up by 4% to SEK3.1 billion) in the six months to July 2009. especially in China and Hong Kong. with sales driven by store network expansion • H&M’s sales excluding VAT grew by 13% to SEK23.000 9.2 (2008) 13.000 11.2 (2008) 10.Hennes & Mauritz © Euromonitor International Q3 results: Resilient Performance.000 62. sales were up by 18% to SEK73.500 65.4 (2008) Resilient performance.5 billion (US$506 million).000 2008 Q1 to Q3 Net sales excl VAT 2009 Q1 to Q3 Profit after tax 12.6 billion (US$3.500 60.4 billion (US$10. while the German market was resilient and strong gains were made in Italy.000 8. with growth boosted by new store openings.500 SEK million 11.2 (2009) 10. offsetting a negative economic environment in its Spanish domestic market where it saw a strong decline in like-for-like sales.6 billion). Profits after tax were up by 0.000 .500 8. • For the nine months to August 2009.500 70.500 10.500 55.000 57.4 billion) in the third quarter ending August 2009. Continued Expansion Hennes & Mauritz (H&M) AB – Q1 to Q3 Sales excluding VAT (SEK billion) Profit after tax (SEK billion) Net margin (%) 73.Strategic Evaluation Retailing .9 (2009) 16. Growth in Asia’s emerging markets continued to boost revenues. with consumer sentiment remaining subdued and hindering sales of non-grocery retailers.000 72.2 billion (US$1. The group recorded net income down by only 8% on the previous year to EUR375 million (US$550 million). • However. especially in the US. Inditex’s profits were resilient. Low inventory levels were a major factor contributing to keep costs down. despite sustained investments in network expansion. helped by efficient cost controls. • Although impacted by the recession in Europe.500 9. same-store sales declined slightly in local currency terms.2% to SEK10. 5 Hennes & Mauritz (H&M) AB . Group profits after tax continued to rise.000 10.500 50. Inditex records lower sales growth than H&M • Inditex recorded revenues up by 7% to reach EUR4.5 billion).000 52.4 (2009) 62.9 billion (US$7.000 SEK million 67.Net Sales excl VAT vs Profit After Tax 75.

increased disposable incomes and changing lifestyles making the population more aware of fashion trends give major growth opportunities in large emerging markets such as China and Russia.Hennes & Mauritz © Euromonitor International SWOT – Hennes & Mauritz (H&M) AB Brand recognition: low price and style Combining style innovations and low prices are staple attributes of the H&M brand on which it has built strong consumer recognition. especially in its core demographic target. puts H&M at greater risks of damaging its reputation in terms of product quality and poor labour conditions in developed countries. Tesco and Wal-Mart are set to continue developing their offer of non-food products and compete directly against H&M in the value segment of clothing and footwear retailing. Untapped potential in emerging markets Urbanisation. Target. unlike other rivals such as Inditex. unlike Inditex operating in over 70 countries including many emerging markets.Strategic Evaluation Retailing . Modest presence in emerging markets Despite being a global player present in 33 markets. Reliance on outsourcing The reliance on production outsourcing. High profile advertising and collaboration with designers help make stores shopping destinations and raise the desirability of its ranges. There is also potential in markets where H&M is absent such as Turkey and Romania. H&M has developed its presence in Europe and North America mostly. Strengths Weaknesses Opportunities Threats Internet retailing The rapid growth of clothing and footwear sales through internet retailing is expected to continue and give H&M opportunities to reach a wider audience. Non-food expansion of grocery retailers Hypermarkets and mass merchandisers including Carrefour. while low inventory contributes to maintain margins. Fast Retailing with Uniqlo and Marks & Spencer. whose purchases are often influenced by the internet. 6 . teenagers and young adults. alongside a resurgent Gap. Fast fashion becoming more competitive H&M faces a growing threat from a number of direct competitors with increasingly global ambitions at the low-priced end of the market such as Associated British Foods with Primark. Operational efficiency A strong control of the whole logistics process helps H&M achieve low costs.

However. Maintain brand image and increase desirability Collaborations with designers will need to be continued and reinvented to make products more desirable.Strategic Evaluation Retailing .Hennes & Mauritz © Euromonitor International Key Strategic Objectives and Challenges Speed to market and price strategy Fast product turnaround. H&M’s record is strong comparable to Inditex in most aspects. and this is a strategy that H&M could also implement to make the store designs a more important aspect of its strategy. H&M’s CEO KarlJohan Persson appointed in July 2009 restated the group’s global expansion targets. Expanding in emerging markets remains a priority for H&M. it will be difficult for H&M to target these consumers and generate traffic to its websites. In the midst of the global economic crisis particularly affecting clothing and footwear specialists. with around 160 new stores likely to be opened out of 225 initially planned for 2009. H&M has been a late entrant and will struggle to seize the opportunities offered by this channel. Hence. although Inditex has an advantage regarding speed to market. Distinctive store layout has been used successfully by Inditex with its Zara chain to convey the desirability of its clothes. Late entry into internet retailing Although growth in internet retailing sales is particularly promising for clothing and footwear retailers. as a result of its vertical integration business model. which has a major store network in Latin America and more stores in the Middle East and Africa. although growth prospects remain strong in developed markets such as Canada and the US where it can enter numerous new cities. 7 . although it could rely on high-profile advertising and innovative sites to succeed. more aggressive price wars may force it to discount more and hit its margins. It has left numerous other retailers including pure play internet retailers such as Amazon and Asos and the homeshopping specialist Otto take a lead. especially in Southern States where it has a modest presence. flexibility and speed to market are major elements determining fast fashion retailers’ operational efficiency. although it appears to be slower than expected. H&M chose to avoid heavy discounting in order to maintain its margins and profits. Ongoing international expansion with a focus on emerging markets H&M’s presence in emerging markets is less important than Inditex’s. This could allow H&M to maintain an advantage over smaller rivals with increasing global ambitions for their brands such as Primark and Uniqlo. make stores more popular shopping destinations and strengthen the emotional bond with consumers and H&M.

Retailing .Hennes & Mauritz © Euromonitor International Strategic Evaluation Competitive Positioning Geographic Opportunities Category Opportunities Brand and Operational Strategies Recommendations 8 .

Industria de Diseño Textil 2007 2008 Hennes & Mauritz (H&M) AB Gap Inc. The 2009 A – H&M’s sales record strong growth. Clothing & Footwear Specialist Retailers . on a par with C&A. Inditex outperforms H&M thanks to more aggressive network expansion not only in Western Europe. but also in emerging markets. However.Retail Value RSP excl Sales Tax . despite a marked slowdown in 2009 due to the global economic crisis and the strength of the US dollar.US$ . hindered by a strong reliance on its low-growth domestic market and a less aggressive price strategy than H&M. H&M’s low-priced positioning and its wide global presence helps the company remain resilient in a challenging environment for non-grocery retailers. B – Gap under-performs its main rivals. C – The rise of the US dollar against other global currencies in 2009 is causing a fall in value sales for all retailers.Competitive Positioning Retailing .World .Hennes & Mauritz © Euromonitor International H&M Performs Strongly but Growth is Matched by Inditex • International expansion and fashionable product assortment led to strong growth for H&M and its main rival Inditex. Gap’s image also suffers from a product assortment perceived as more staid than H&M’s and Inditex’s. thanks to global store network expansion. 9 .% Year-on-Year Growth 28 24 20 16 12 8 4 0 -4 -8 -12 2005 % y-o-y growth A C B 2006 World C&A Mode Brenninkmeijer & Co INDITEX .

due to unfavourable economic conditions in its US domestic market.5 1. Inditex recorded a stronger performance than H&M.8 0. which accounted for 81% of its global sales through the clothing and footwear specialists channel.8 0. Gap’s higher price positioning hindered its sales. The latter was partly helped by a greater reliance on franchised outlets. including H&M. favourable exchange rates. its presence in ranking was also boosted by emerging markets remained modest compared to Inditex’s. especially in 2008 and 2009 as the global economic crisis dampened consumer spending.5 and 2008. overtakes Gap but is surpassed by Inditex Retailing expanded outside Japan. Fast Strong growth for H&M. and announced at the end of fashion proved highly popular with consumers. more aggressive expansion strategy.7         2 1 4 6 8 12 5 11 2 1 4 6 8 14 5 12 3 1 4 5 8 11 7 10 2 3 4 5 6 11 7 8 2 3 4 5 6 7 8 9 1. • Compared to H&M.Competitive Positioning Retailing .5 0.5 0. but also • Inditex also benefited from a vertical integration business model enabling it to thanks to new store openings. 2008 its intentions to open stores in • However. • Strong sales growth for H&M over the 2005-2008 period enabled it to especially in China and South overtake key rival Gap. renew collections more frequently than its main rivals. Shinamura’s H&M’s new store opening strategy was also ambitious. thanks to a European markets and in the US. helped partly by the strengthening of the yen to the Note: 2009 provisional data US dollar. Competing with a similar price positioning to H&M.Industria de Diseño Textil Hennes & Mauritz (H&M) AB Gap Inc.Hennes & Mauritz © Euromonitor International Competitive Context: Inditex and H&M on the Rise World – Top 10 Clothing & Footwear Specialist Retailers 2005-2009 Company name INDITEX . Although • As Japan’s second largest clothing and footwear retailer. The C&A Mode Brenninkmeijer & Co Ross Stores Inc Fast Retailing Co Ltd Shinamura Co Ltd Limited Brands Inc Benetton Group SpA Burlington Coat Factory Warehouse Corp 5-year 2009 % 2005 2006 2007 2008 2009 trend share  Gap loses its crown • Gap saw declining sales in 2007 3 3 2 1 1 1. especially in emerging markets. Fast Retailing and Shinamura rising • Japan-based Fast Retailing posted a strong performance among the top  10 10 12 14 10 0. H&M’s business model based on low-priced fast Korea. 10 .4 0.4 10 global players.7 1.

thus losing share rapidly to H&M and Inditex.000 against the US dollar.Industria de Diseño Textil Mart.000 disproportionately from the recession in its domestic market in 2008 and 7. where it remains absent. Gap adopted a less aggressive pricing strategy than its 2.Hennes & Mauritz © Euromonitor International H&M and Inditex Neck-and-Neck • H&M and Inditex have both been highly successful in the clothing and footwear specialists channel over the 2004- 2009 period. new market entry requires fewer resources and entails less risk for Inditex than for H&M. which is more biased towards company-owned outlets. they retained their lead over Gap. which it could not offset with expansion in emerging markets. The latter’s 12. Thanks to its greater reliance on franchising.500 2009. Their positioning based on low-priced fast fashion enables them to appeal to a wide range of consumers.000 • In addition. • International network expansion was also a major part in driving sales of both companies. 5. especially thanks to a wide reach in Latin America. although Inditex has the edge over H&M in this respect. as it suffered 10. • Although both companies saw their World . although Inditex has a greater presence in emerging markets.Retailing Sales 2004-2009 retail sales in US dollar terms hit by the fall in the value of the euro 15. Retail value sales rsp excl tax (US$ mn) 11 .500 peers.Competitive Positioning Retailing . especially since 2008 and with the major world economies entering recession. Their fast fashion business model also gives the two players the flexibility to change collections rapidly to adapt to consumer tastes.500 strong dependence on the US market proved a disadvantage. but also to players 0 in other channels in the US such as 2004 2005 2006 2007 2008 2009 mass merchandisers Target and WalHennes & Mauritz (H&M) AB INDITEX .

520.303.917 2. especially for C&A and Fast Retailing.543.397 4.607 5.6 10.032. 12 .168.Hennes & Mauritz © Euromonitor International Overall Stagnation in Sales per Outlet World – Top 10 Clothing & Footwear Specialist Retailers – Sales per Outlet 2004-2009 – US$ Fixed Exchange Rates Company name INDITEX .945 4. The C&A Mode Brenninkmeijer & Co Ross Stores Inc Fast Retailing Co Ltd Shinamura Co Ltd Limited Brands Inc Benetton Group SpA Burlington Coat Factory Warehouse Corp Note: 2009 provisional data 2004 3.195.038 8.826 6. Higher sales per outlet for H&M compared to Inditex largely reflects H&M’s larger average outlet size.800 2.890 3.753.028 3.016 4.864 3.276.611 5.019 913.536 7.473 7.922 4.424 911.942 7.203 2005 3.815 9.172 3.482.686.267. Sharp contraction for Gap • Gap’s higher-priced positioning and its relative resistance to discounting led to a sharp drop in sales per outlet.244 7.291.204 6.4 2.853 4.909 7.374.233.663.177 2.238. • Downward price pressure and prevalent discounting in apparel retailing.Industria de Diseño Textil Hennes & Mauritz (H&M) AB Gap Inc.636. accompanied by the growing reliance on production outsourcing to low labour cost countries in the clothing industry.129.254 3.956 916.427 2.178 3.222.103.163.295 2.976.068.3 -10.9 Modest growth in sales per outlet for most players.571.884.072.259 2006 3.081 2007 3.326 7.0 4.071 9.908 3.943 4.062.290 7.180.130.966 3.935 6. with H&M and Inditex outperforming C&A and Gap.Competitive Positioning Retailing .799.882.967.1 -8.442 2.648.658.136.068 3.720.090.455 5.793 7.222.196.245.816 6.194. contributed to the stagnation or slight decline in sales per outlet for most retailers. as it opted to maintain its margins at the expense of overall sales growth.005 960.235 949.1 0.784.778.191 8.203.102. including H&M • The growth trend in sales per outlet broadly matches the trends in overall sales growth for the top four global retailers.800 2008 3.185.201.762 2009 3.541.993 8.8 -4.8 -28.342 9.196 7.435.467 7.843.360 7.979.719.904.803 6.494 896.1 -0.446 % growth 2004/2009 4.090 6.002 7.279.

Retailing .Hennes & Mauritz © Euromonitor International Strategic Evaluation Competitive Positioning Geographic Opportunities Category Opportunities Brand and Operational Strategies Recommendations 13 .

Hennes & Mauritz © Euromonitor International A Global Player Still Dependent on Western Europe • Among H&M’s top 10 global markets in 2009.000 175. especially in emerging markets.0 Austria 0.5 -2.0 -0. • The company’s largest market.0 -1. In comparison to H&M. accounts for 5%. Hennes & Mauritz (H&M) AB .Geographic Opportunities Retailing .Clothing & Footwear Specialist Retailers (Company's 10 Largest Markets) 2.000 50. Hence. H&M operates in 33 markets as of October 2009. all of them were located in Western Europe apart from one.000 Market Size 2009 (US$ mn) 125. the US. which shows that H&M is not overly dependent on the economy of a single market. Western Europe will account for 84% of the group’s sales in 2009. will account for 26% of world sales in 2009.3. Sweden. This proportion exceeded 90% in 2005. which will generate 37% of its world sales in 2009. although Inditex has a clear lead in this respect.0 1. This highlights the company’s modest presence in emerging markets. Germany.5 -1.0 -2. which illustrates H&M’s relative success in expanding its presence globally in order to offset the maturity and saturation in Western Europe’s clothing and footwear retailing. Inditex is more dependent on its domestic market. range displayed: US$536 .000 75.5 0 25. No other market had a share of global sales exceeding 10%.5 Sweden 0.5 %CAGR 2009-2014 Netherlands Norway Spain 1. compared to around 70 markets for Inditex.497 mn 14 . Both companies seek to extend their global reach.000 France Switzerland USA Opportunity Zone Germany United Kingdom Bubble size shows company sales in market.000 150. while the domestic market.000 100.

Geographic Opportunities Retailing . • C&A has been distanced by the two largest operators. All three companies have seen their share increase over the 2004-2009 period at the expense of smaller players. Clothing & Footwear Specialist Retailers: Retail Value RSP excl Sales Tax .Clothing & Footwear Specialist Retailers . The company is absent from major European markets including Italy and the UK. Spain and the UK. especially in France. Positioned as a value retailer targeted at families.Retail Value RSP excl Sales Tax 8 6 4 2 0 2004 2005 2006 2007 2008 2009 C&A Mode Brenninkmeijer & Co Hennes & Mauritz (H&M) AB INDITEX .Industria de Diseño Textil France Netherlands Sweden Germany Spain United Kingdom 15 . Germany. and over 50% of its sales in Western Europe are derived from the German market.Company Shares by GBO 4 % value share 3 2 1 0 2004 2005 2006 2007 2008 2009 14 12 % value share 10 Hennes & Mauritz (H&M) AB Company Shares . Italy. thanks to its low prices. • The shares of H&M and Inditex were driven by aggressive continuous network expansion across most markets. H&M has seen major ongoing store network expansion in most major European markets in 2008 and 2009. especially those with a national presence only.Top 6 Markets .Hennes & Mauritz © Euromonitor International Western Europe: Ongoing Expansion for H&M and Inditex • H&M has a wide presence covering most Western European markets. Its business model has proved to be relatively recession-proof. in which its two main competitors are Inditex and C&A. C&A lost ground thanks to a less fashionable image and an inferior international presence.

• With a strong brand image based on low prices and trendy collections following fashion trends closely.Associated British Foods Plc (ABF) 16 . Primark targets teenagers and young adults. A new market entry is planned in Belgium in 2010.Associated British Foods Plc (ABF) 2005 2006 2007 UK .Geographic Opportunities Retailing . owned by Associated British Foods. The success recorded by its first stores in Spain indicates that it could become a major Europe-wide player.Western Europe and United KingdomRetail Value RSP excl Sales Tax . only recently expanding outside Ireland and the UK with its first outlets in Spain in 2008 and Portugal and test stores in Germany and the Netherlands in 2009. Clothing & Footwear Specialist Retailers .Hennes & Mauritz (H&M) AB 2008 2009 UK .Hennes & Mauritz (H&M) AB WE .Company Shares by GBO 6 5 % value share 4 3 2 1 0 WE . thus competing directly against H&M in terms of demographic and price positioning. has ambitions to develop a wide pan-European network.Hennes & Mauritz © Euromonitor International Western Europe: Primark Emerges as New Major Player Primark expends beyond the British Isles to emerge as a new European player • Primark.

South Korea • Although geographic expansion has been a central feature of H&M’s strategy. Successful new entry in Japan in 2008 • With its first store in the upmarket shopping district of Ginza in Tokyo. H&M’s market entry was successful. similarly to Japan. Ito-Yokado (Seven & I) and Seiyu (Wal-Mart) starting to offer jeans at around ¥1. In a market less saturated than Japan’s and with fewer major international clothing and footwear specialist chains. H&M enters after Inditex has already established a footprint in 2007 and expanded rapidly since. In order to expand faster in the mature Japanese market and to match the scale of its larger rival Inditex. in Osaka. it has focused until recently on Europe and North America. The Harajuku outlet was the first H&M worldwide to sell the fashion label Comme des Garçons. H&M plans to open its first outlet in South Korea in March 2010 at a flagship store in Seoul’s business district of Myungdong.Geographic Opportunities Retailing . with a collection designed by the Japanese designer Rei Kawakubo. H&M is considering acquisitions to be a possible expansion strategy. H&M is expected to be successful. This strategy helped create anticipation ahead of the new store opening among fashion-conscious consumers and gives H&M a more exclusive image in Japan than it has in other markets. Initial reception was very favourable to the new chain. South Korea – following in the footsteps of Inditex • Following its successful entry in Japan. 17 . regardless of price H&M has an advantage in terms of fast fashion in being able to source and offer new products and refresh its collection more frequently than Fast Retailing.Hennes & Mauritz © Euromonitor International Recent and Planned Market Entries: Japan.000 in 2009. with around 50. However. followed a similar price move in 2009. Among H&M’s most direct competitors in terms of price and image. However. price competition for clothing and footwear items has intensified. the dynamic player Fast Retailing with the Uniqlo chain combining low price and fashionable ranges. • Two more outlets in Tokyo are planned by the end of 2009 and a fifth is due to open in 2010. Recent new market entries in Japan in September 2008 and the planned entry in South Korea in spring 2010 confirm H&M’s adoption of a strategy to be less dependent on Europe and North America. in contrast to Inditex venturing in several markets in Latin America and Asia Pacific and C&A’s major presence in Brazil. This was highlighted by mass merchandiser chains Justo (Aeon). Intense price competition in Japan • In a market hit by severe recession in 2009. and a second Tokyo store was opened in November 2008 in the trendy district of Harajuku.000 shoppers visiting the Ginza store over the first week of opening.

• With Gap planning to enter China in 2010. H&M could benefit from entering the large markets of Brazil and Mexico where its low prices should help build a major customer base. especially in China and Russia. • Among H&M’s global rivals. Russia – untimely entry but sound long-term prospects • H&M opened its first store in Russia in Moscow in March 2009. H&M is attempting to catch up with rivals. although Inditex expanded in China and Hong Kong earlier than H&M and has a stronger presence with more outlets. Sales in China accounted for almost 1% of global sales in 2009. both in existing cities and by entering new cities where it can target the rapidly growing number of middle-class urban consumers. Rival Inditex has developed a major presence in Russia over several years. it coincided with the launch of a new collection in collaboration with the designer Matthew Williamson. In order to create more anticipation around the store opening among consumers. and as a result it can struggle to offer competitive prices to compete against H&M and also against local players. Fast Retailing announced at the end of 2008 its long-term objective to have 100 Uniqlo outlets in China. which has allowed the group to take advantage of the booming economy until 2008 to expand and establish a wide customer base. H&M’s presence in China is expected to continue expanding rapidly through new store openings. which may lead to the adoption a more differentiated positioning than in other markets. H&M expanded rapidly in 2008 and 2009 with new stores in mainland China. However.Hennes & Mauritz © Euromonitor International Further Growth in Large Emerging Markets: China. Russia • With little presence in emerging markets. especially by expanding in large emerging markets. H&M is set to emerge from the recession relatively unscathed thanks to its low-priced positioning and to have major growth prospects. 18 . Key point: With no presence in Latin America unlike C&A and Inditex. suffering from a fall in gas and oil revenues. it is likely that a greater number of international clothing and footwear specialist retailers will enter the market. Competing in a similar price segment to H&M. the country’s deep recession in 2009 is worse than previously anticipated and makes H&M’s market entry untimely. with H&M becoming the first foreign retailer to be present in this newly renovated part of the city. Longer term. Ongoing expansion in China to continue • Following market entry in Hong Kong in 2007. it has a less developed supplier network in Asia than H&M.Geographic Opportunities Retailing . The first outlet in Beijing was opened in April 2009 south of Tiananmen Square.

the United Arab Emirates. and also opened its first two stores in Egypt in the second half of the year. Dedicated store concept for Saudi Arabia • As store concept adaptation is an important ingredient in the success for foreign retailers operating in the Middle East and Africa. in order to comply with local sharia law that forces shops to have segregated areas for men and for women. continued to increase rapidly in 2009 thanks to the franchise agreement signed in 2006 with the Kuwait-based company MH Alshaya Group. H&M plans to enter Israel in 2010. • Thanks to the partnership with Alshaya Group. including Lebanon. 19 . H&M is likely to enter other new markets in the Middle East and Africa by the end of 2009. • Under another franchise deal signed with the local company Match Retail.Hennes & Mauritz © Euromonitor International Franchise Deals Give New Middle East Opportunities Middle East and Africa expansion set to gather pace • H&M’s presence in the main Middle East market. which is likely to help accelerate its global expansion. or in 2010. for its market entry in Saudi Arabia in autumn 2008. • For example. H&M opted to adapt its store concept to be only open to women and staffed by women. H&M entered the markets of Bahrain and Oman in 2009. • Opting to expand through franchise stores and using a similar growth model as Inditex represents a major new development in H&M’s global expansion strategy in emerging markets. and require close attention.Geographic Opportunities Retailing . franchise partners are in a better position than H&M to implement new concepts.

Retailing .Hennes & Mauritz © Euromonitor International Strategic Evaluation Competitive Positioning Geographic Opportunities Category Opportunities Brand and Operational Strategies Recommendations 20 .

Hennes & Mauritz © Euromonitor International Modest Growth Forecast for H&M’s Main Channel • H&M’s sales through the clothing and footwear specialist retailers channel will account for around 97% of its sales in 2009.000 500. which is also present in the furniture and furnishings stores channel in a number of markets under the Zara Home brand. Unlike Inditex.Category Opportunities Retailing .000 600.000 300.000 900.13. Expanding internet retailing presence will help offset the growing saturation of clothing and footwear retailing. although the latter is increasingly supplanting the former.000 800. Range displayed: US$169 .Global Retailing Presence & Prospects by Channel 9 8 7 6 5 4 3 2 1 0 -1 0 100. mirroring the wider industry trend.000 Bubble size shows company sales in this channel (2009). This channel is forecast to record modest growth over the 2009-2014 period. While channel sales were hindered by the global economic crisis in 2008 and 2009. • The remainder of H&M’s sales is accounted for almost equally by homeshopping and internet retailing. H&M does not operate other store-based formats. although they will remain affected by low price pressures on clothing prevailing within this distribution channel as well as in other channels.000 Market Size 2009 (US$ million) 700.000 400. H&M has stronger prospects than most other clothing and footwear specialist players thanks to its wide international presence and low-cost and flexible business model allowing the group to undercut most rivals while remaining at the forefront of fashion trends. they are likely to recover to some extent.118 million 21 .000 Internet retailing % CAGR 2009-2014 Clothing & footwear specialist retailers Homeshopping 200. Hennes & Mauritz (H&M) AB .

In the UK. Meanwhile. An example of the intensifying competition affecting clothing and footwear retailers is the price war between Fast Retailing (Uniqlo) and mass merchandisers Aeon (Jusco) and Wal-Mart (Seiyu) in Japan to sell jeans at around ¥1. Wal-Mart’s Asda chain.Category Opportunities Retailing . Tesco saw clothing sales improve in the first half of 2009 alongside growth in non-food sales. Tesco and Wal-Mart into non-food products is set to continue as they seek to improve margins. the expansion of major hypermarket operators including Auchan.000 in 2009. In the US. such as mass merchandisers and hypermarkets. with grocery retailers refocusing at least temporarily on more recession-proof food items.Hennes & Mauritz © Euromonitor International Battling Against Hypermarkets and Mass Merchandisers Grocery retailers and mass merchandisers increase price pressure on clothing and footwear specialists • Clothing and footwear specialist retailers are increasingly seeing more intense competition from rivals operating • • • • mostly in other store-based channels. with more appealing ranges to compete more directly against specialist non-grocery retailers. 22 . As H&M is positioned in the low-priced segment in clothing and footwear retailing. it is vulnerable to the direct competition from these channels and needs to cultivate its clear competitive advantage in terms of fashion and desirability. Although this trend has slowed down to some extent in 2008 and 2009 due to the global economic crisis. In Western Europe. up by 8%. Carrefour. Gap’s sales have been eroded by the success of mass merchandiser Target’s aggressively priced clothing ranges. threatens to overtake Marks & Spencer and Associated British Foods’ Primark chain to become the country’s largest clothing retailer. thanks to the increased sales of its George apparel range in 2009. Sainsbury’s is planning to increase space allocated to non-food ranges in 2010 and 2011 and widen the reach of its successful TU range of clothes by offering it at more stores. the longer-term trend is expected to see hypermarkets attempting to be more competitive in their offer of clothing and footwear.

the vast choice increases H&M’s chances of success in internet retailing although this requires the site to be designed in a way to be easy to navigate. with a plethora of major other operators including Amazon.Category Opportunities Retailing . for example.Hennes & Mauritz © Euromonitor International Internet Retailing: H&M’s Late Entry H&M and Inditex both rise to the challenge and plan to develop internet retailing • Beyond store-based rivals. Otto. • Major homeshopping retailers which are also leading players in clothing. are increasingly moving online. Gap has a multibrand website and offers combined delivery on cross-brand orders. while also emphasising the more fashionable design of its clothes in order to differentiate its website from Amazon and the grocery retailers. H&M’s homeshopping sales in Austria. Key point: With internet retailing making price comparisons between retailers easier. Similarly. and with Wal-Mart’s Asda offering the George label at Asda Direct since 2008. Rival Gap also plans to launch its own website in the UK. and its low prices and high number of visits from customers give it key competitive advantages. • However.com website. the John Lewis Partnership. Among specialist internet retailers. Marks & Spencer and Tesco having already obtained a strong foothold in UK online clothes retailing. Germany. The company’s significant experience in homeshopping in these markets prepares it well to tackle the logistics aspects to make internet retailing operations efficient across European markets. Inditex will start operations in major European markets by early 2010. Asos. With consumers’ familiarity with ordering online generally on the rise. H&M is a late entrant in the channel and appears to have made a protracted move. while H&M will launch its website in autumn 2010 in the UK. as shown by Tesco’s relaunch of its UK clothing website in September 2009 offering private label and brands. following its earlier initiative in 2009 to sell its products on the Asos. In the US. coupled with efforts from internet retailers to make their websites more visually appealing and user-friendly. Amazon’s acquisition of the US online clothes retailer Zappos for US$850 million in August 2009 signals its ambitions in apparel retailing. clothing and footwear specialist retailers are increasingly battling against internet retailers and most of them react by developing or expanding their own online retailing activity. Netherlands and the Nordic countries are gradually migrating to internet retailing. Aggressive expansion from internet retailing specialists and grocery retailers • Major grocery retailers have high ambitions for online clothes sales. Websites of grocery retailers also often offer the added convenience of click-and-collect services. • Both Inditex and H&M made announcements in 2009 indicating that they are gradually joining the fray and expanding online in most European markets. H&M should focus on advertising its low prices and promotions on its transactional website. consumers’ confidence in ordering clothes via the internet has been strongly boosted. 23 . Thanks to its wide product assortment.

Hennes & Mauritz © Euromonitor International Strategic Evaluation Competitive Positioning Geographic Opportunities Category Opportunities Brand and Operational Strategies Recommendations 24 .Retailing .

Pull and Bear.Brand and Operational Strategies Retailing . Zara and Zara Home. H&M Brand geographic Asia Pacific. The latest example is the creation of the Jimmy Choo collection to be launched in November 2009. it was ranked 21st among the top 100 most valuable global brands according to Interbrand in 2009. • Highlighting the H&M brand’s high level of awareness. High-profile advertising with celebrities is widely used by H&M. Inditex has adopted a strategy based on building a vast brand portfolio including Bershka. helped by the collaborations with famous designers. unlike Inditex. is not being rebranded and was expanded outside Sweden in 2009 with two stores in Denmark. • In a similar way to Inditex. Zara ranked only 50. H&M relies on opening stores at a few flagship locations in major cities in order to build its brand image. with a value exceeding US$15 billion. Eastern involvement Europe. 25 .6% (2009) in clothing and footwear specialist retailers Multi-brand approach from Inditex • In sharp contrast to H&M’s almost exclusive Brands other than H&M gain greater importance • The more upmarket COS successfully launched in the UK in 2007 enabling the group to target wealthier customers and potentially increase its margins. Group synergies are ensured thanks to the group's vertical integration. H&M spends around 5% of its revenues on advertising. • The key competitive advantages resulting from this company’s multi-brand strategy is its ability to target a wide range of consumer groups with brands and products tailored to various tastes in order to bring exclusivity and differentiation. This should allow H&M to diversify its customer base. In comparison. which also contrasts with H&M’s strategy of outsourcing. • The Swedish chain Monki. Examples of such stores include the Harajuku store in Tokyo and the Champs Elysées store in Paris planned for 2010. Massimo Dutti. while Gap came in at number 78.Hennes & Mauritz © Euromonitor International H&M: A Widely Recognised Global Brand Strong brand awareness and image • H&M’s strong brand image is associated with value and stylish collections. • The level of independence of the company’s major brands is also an important aspect of Inditex’s capacity to adapt quickly to changing market conditions. Such events create a great amount of publicity and media coverage to generate added footfall. It was subsequently extended to other markets: Belgium. North America. Germany and the Netherlands. acquired in 2008 and known for its sophisticated and colourful store designs. Denmark. reliance on its eponymous brand. Western Europe Brand channels Clothing & footwear specialist retailers World ranking & share 1 and 1. Middle East and Africa.

Since it outsources a greater share of its products from Asia than Inditex and has less control over its supply chain. As one of the pioneers of the fast fashion business model with new ranges being introduced every two weeks. 10 in Asia and 1 in Africa) liaising with over 750 factories. Inditex sources the majority of its products from Europe. it also makes it more vulnerable to currency fluctuations.. thanks to vertical integration and as such.Hennes & Mauritz © Euromonitor International Operations and Private Label Strategies Production outsourcing vs. Hennes is targeted at 25-35 year-old women. Key point: As European consumers’ awareness of ethical issues increases. with the value of the US dollar strengthening in 2009 against European currencies and making imports from Asia more expensive in its main market. especially over the summer. In contrast. is a casual sportswear label and MAMA is a maternity range. • Although production in Asia helps H&M undercut Inditex on price. It relies heavily on outsourcing production. and most of its production is made in-house in order to cut the time lag between product design and in-store availability.G. Private label ranges under various names • All of H&M’s product assortment consists exclusively of private label. when the company had relatively few items available for markdowns. H&M’s auditing of factories must be strict and transparent to limit the chances of poor labour conditions being publicised and tarnishing its brand reputation. vertical integration • H&M sources around 70% of its product assortment from Asia and over one third is purchased from China. 26 .G. Low inventory levels • H&M’s operational efficiency is reflected in the level of inventory being usually low thanks to the frequent renewal of its collection. Private label ranges have various names to target different genders and customer types. However. the focus on reducing inventory in order to protect margins has been detrimental to sales in some months in 2009. Europe. For example. H&M is vulnerable to negative publicity surrounding working conditions at factories producing its clothes in Asia. Although H&M generally achieves low inventory costs. it is likely to be often surpassed by Inditex in this respect. This reduced at least temporarily the scale of its competitive advantage over Inditex. with over 21 production offices worldwide (10 in Europe. L. H&M cannot replicate this model. Inditex is particularly efficient in incorporating feedback from stores daily into the development of new products.Brand and Operational Strategies Retailing .O.

Hennes & Mauritz © Euromonitor International Strategic Evaluation Competitive Positioning Geographic Opportunities Category Opportunities Brand and Operational Strategies Recommendations 27 .Retailing .

especially in neighbouring markets to those where it operates. Although it is well covered by C&A and Wal-Mart. • Although its low-priced and fashionable image with its eponymous brand H&M should not be jeopardised.Hennes & Mauritz © Euromonitor International Key Recommendations Develop more premium chains alongside core low-priced offering • H&M’s focus on affordability remains Internet retailing to be differentiated and wide-reaching • As H&M is a late entrant in the New market entries and expansion in existing markets • Entering into new emerging a core element of its success and contributed to make the retailer resilient in a recessionary economic environment. This could also help increase profits once the economy recovers and consumers become less cost-conscious. • Romania and Turkey are large European markets where the store concept is likely to be popular and where rival Inditex has developed a major store network. H&M can cater for more fashionconscious consumer groups. colours and finish of its clothes in order to differentiate its offer but still highlight the low prices. in addition to cultivating it. new store concepts and collections or new banners such as COS and Monki could be tested. 28 . mirroring the example of Marks & Spencer delivering products to around 80 countries since autumn 2009. offers considerable growth opportunities for H&M. markets. Mexico offers opportunities in the value segment of clothing and footwear retailing. In Latin America. especially in China and Japan. In the latter market. internet retailing arena in most European markets and arrives in a crowded and competitive market where Amazon and Otto have made inroads. it will need to offer innovative transactional websites that can convey effectively the textures.Recommendations Retailing . the retailer should also attempt to widen its customer base and especially target wealthier consumers with its other banners such as COS and Monki stores offering edgy fashion. • H&M’s presence in internet retailing could also be extended to markets where it does not seek to open physical stores. H&M’s burgeoning presence could accelerate by expanding to new cities. • In Asia Pacific.

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