global clothing retailers

H&M (Hennes & Mauritz AB) is a Swedish retail clothing company renowned for its
fast fashion. The H&M group has nine associated brands, including the H&M brand (Brands,
n.d.). As of 2018, H&M has 4,734 stores located in over 50 countries (Olito, 2018), making it
among the biggest global clothing retailers. 4,334 of those stores are H&M’s, and the others
are associated brands (Olito, 2018). H&M was founded by Erling Persson in 1947 when he
opened the womenswear store “Hennes” in Vasteras, Sweden (1947-1959, n.d.). It wasn’t until
1998 that H&M expanded to become a global brand, opening up stores in several European
countries and establishing an online marketplace (1980-1999, n.d.). H&M opened its flagship
store on Fifth Avenue in New York City in 2000 — its first store in the United States. After its
establishment in the U.S. and its collaboration with well-known designers, like Karl Lagerfeld
(2000-2009, n.d.), H&M soon expanded worldwide. H&M now has stores in Europe, Asia,
Africa, Australia, and North and South America (2010 and Onwards, n.d.). Despite being a
global retail giant, H&M has been facing growing problems in recent years.
As of the first quarter of 2018, H&M’s operating profit dropped by 62 percent,
following its worst sales drop in the last quarter of 2017 (Hanbury, 2018). In March 2018, The
New York Times reported that H&M is struggling to sell inventory and has about $4.3 billion
of unsold clothing (Paton, 2018). In the fast-fashion industry, H&M is facing problems keeping
up with current trends and has not been able to sell mounting inventories of clothing, even at a
heavy discount (Hanbury, 2018). This big pile of unsold clothing contributed to the 28 percent
profit decrease in the first half of 2018 (Kottasová, 2018). Else Skjold, a professor of
sustainable design at the Kolding Design School in Denmark, stated that H&M is destroying
clothing as a result of overproduction (Hendriksz, 2017). To keep up with current fashion
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trends and industry demands, H&M must improve its inventory management. In the fashion
industry, retailers are trying to keep inventories closely matched to sales. What is initially a
small amount of unsold inventory can create massive problems moving forward (Paton, 2018).
H&M only designs twice a year for the Spring/Summer collection, and the Fall/Winter
collection. The biggest disadvantage of this strategy is that if customers dislike the collection,
H&M will have excess inventory that it cannot adjust its designs efficiently. When a seasonal
product goes out of fashion, it will be discarded in a short amount of time (Paton, 2018). In
contrast, Zara designs and produces each collection every four weeks so new styles are
released throughout the season. This enables Zara to see what customer like and cater to their
preferences. Zara reserves 85% of production capacity for in-season adjustments, ensuring the
popular designs make it to stores quickly.
H&M depends on designers to predict fashion trends. It collaborates with fashion
giants, including Stella McCartney and Jimmy Choo to determine customers preferences.
Although H&M uses AI to analyze store receipts, returns and loyalty-card data to better align
supply and demand, it is still falling behind other major players like Zara (Chaudhuri, 2018).
Market specialists play an important role in Zara’s design department since they will regularly
contact with Zara’s stores. Their highly-evolved data infrastructure enables efficient analysis of
what is sold and what are the best-selling products. This allows Zara to respond to customer’s
taste in a short time and integrates customers’ opinions into its design, allowing satisfy
customers’ need for newness and innovation. In order to increase efficiency, H&M may have
to optimize its logistical processing.
Although overproduction of clothing contributed to the billions of dollars-worth of
unsold clothing, it is not the only reason for H&M’s decreasing sales. Fast-fashion retailers
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face fierce competition on product quality and pricing. It is important for fast-fashion retailers
to know what customers want, and H&M is struggling to do so. According to Milton Pedraza,
Chief Executive of the Luxury Institute, “Millennials are growing up…and they care less about
fashion and more about classic and quality, neither of which H&M has been able to deliver”
(Bhattarai, 2018). Underwhelming product offering is a crucial factor that may be causing sales
decline.
H&M has diverged from meeting the needs of its target customers, and this is reflected
in its increasing number of store closing and financial problems. In 2018, H&M closed 146
stores globally – 12 of which were in the United States (H&M, n.d.). Additionally, the
company’s profits after financial items fell 25% in 2018 as compared to 2017 (Full Year
Report, 2018). These profits fell from $20,809 million in 2017 to $15,639 million in 2018 (Full
Year Report, 2018). Its current positioning strategy will no longer be able to fuel the growth of
sales as customers are losing interests in the products. Moreover, the shopping experience of
H&M’s physical store has not improved much to match the changing environment. Customers
care about the shopping experience which H&M’s competitors, like Zara, are better at creating.
In order to maintain its status as a leader in the fast-fashion industry, H&M will need to
regenerate its connection with the customers.
H&M faces fierce competition from several powerhouses in the fast fashion industry,
including Zara, TopShop, Forever 21, Uniqlo and ASOS. Despite its dominance in the global
market, H&M is being outperformed by some of its competitors, like Zara (Tyler, 2018). While
H&M’s operating profits decreased significantly in 2018, Zara has had steady sales growth
since 2017 (Tyler, 2018). Zara’s success may be attributed to its competitive supply chain, as it
produces roughly 450 million items annually and its unsold items make up less than 10 percent
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of its stock, while the industry average is approximately 20 percent (TradeGecko, 2018). A
notable difference between H&M and Zara is that H&M sells many of its items at a discount
price while Zara does not. About 85 percent of Zara apparel is sold full price, though the
average in the fast fashion industry is that roughly 60-70 percent of apparel is sold at full price
(TradeGecko, 2018). Another advantage Zara has in the fast fashion industry is that much of its
production is in Europe — with its distribution headquarters in Spain –, rather than Asia, which
saves turnaround time cost and allows for greater optimization of their logistical process
(TradeGecko, 2018).
To address H&M’s current business problem, the researchers wanted to gain a greater
understanding of fast fashion consumer preferences and opinions. Our first research goal was
to identify the cause of H&M’s unsold clothing inventory. Second, we wanted to identify
consumer pain points and draw insight from consumers directly. These two research goals led
us to design an online survey in which we asked respondents questions regarding their
shopping preferences, opinions on fast fashion brands and more specific questions aimed at
gauging respondents’ perceptions of H&M. By obtaining a better understanding of consumer
preferences and pain points, we could gain further insight into why H&M is facing problems.
One of the objectives of conducting an online survey was to explore what consumers value in
the fast fashion shopping experience, and what factors are most important. Some of the factors
we wanted to test included cost, fashion and quality of clothing, as well as the in-store and
online shopping experience. By determining what factors consumers consider to be most
important, we can gain a better understanding of why H&M is underperforming in the market.
For example, if respondents consistently mention that the most important factor in fast fashion
shopping is the fashion or design of the clothing, this may be a factor H&M can improve upon.
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Or if respondents prefer higher quality clothing, H&M may consider exploring how they can
address these concerns