Report Example: Internal and External Environmental Analysis of H&M Company

1.0 Introduction

H&M is one of the leading apparel retailers globally, and was founded in 1947 by Erling Persson. The firms headquarters is based in Stockholm, Sweden and is among the pioneers of fast-fashion business (H&M Group 2017). Over the years, H&M has managed to open over 2,000 stores in 43 countries and boasts a large pool of employees estimated at 94,000. Fast-fashion is a name coined to mean fast response to new changes and trends manifesting in the fashion industry. As such, it is expected for a firm such as H&M to observe the constantly changing trends and adapt their fashion lines to current trends as well as making them available almost immediately to fashion enthusiasts (Regner & Yildiz 2014). The firms focus is on their existing and new customers as a strategy to strengthen their brand value as well as long-term sustainability. Among the stiff competition faced by H&M in the contemporary fashion, market emanates from Zaras rapid expansion (Elizaga 2016). However, H&M has managed to remain relevant in the fashion marketplace through an emphasis on a quality and affordable price. Despite H&M retaining its competitive edge in the fashion marketplace, the increasing competition means that the firm has to keep changing its strategies (Regner & Yildiz, 2014).

2.0 Internal and External Environmental Analysis of H&M

In analyzing the internal and external environment of H&M, the use of strategic tools such as SWOT and Porters five forces analysis are essential in assessing the current position of the firm and influencing potential strategic decisions.

2.1. SWOT AnalysisStrength Weaknesses

Wide range of products

Unique brand identities

Diversified global presence

Strong financial performance

Overreliance on third party suppliers

Following after trends

Affordable pricing resulting in low quality

Threats Opportunities

Evolving fashion trends

e-commerce that facilitates new entrants

intense competition

increasing labor costs in developed states

foreign exchange fluctuations

Focus on improving quality

e-commerce platform

expansion on emerging markets

improving lifestyle

2.1.1. Strengths

As a firm that deals in apparel, H&M maintains a focus on selling their high-quality products at affordable prices thus appealing to a significant number of customers. Similarly, the firm is particular about high quality designs, which is a necessity to attract more customers and leverage economies of scales by selling more products at lower prices compared to competitors. The firm focus on customers ensures they understand their presenting needs thus playing a role in attracting repeat as well as new customers (Grazella 2013). In the fashion industry, a major factor that ensures the survival of firms involves understanding the changing needs of fashion enthusiasts. In this respect, prioritizing the needs and wants of customers prior to introducing new clothing lines to the fashion market plays a role in improving sales and profits necessary for the firms expansion agenda and competitiveness (Cortez et al. 2014). In essence, an emphasis on creating customer relationship is playing a major role in ensuring the firm retains its loyal customers while attracting new ones. H&M is also using technology to enhance their response to the constantly changing trends in the fast fashion industry. Using social media platforms, for instance, the firm is able to respond rapidly to customers inquiries as well as use customer reviews on its social media platforms or websites to make improvements on their product lines necessary to increase sales and profits respectively (Donnelly 2017). H&M has also opened more than 2000 stores in over 40 countries that are situated in locations easily accessed by fashion enthusiasts. Opening brick and mortar stores close to customers helps to satisfy their needs such as convenience, which helps to increase sales volume and revenue for the firm (Cortez et al. 2014).

In addition, the firm has also opened its stores in shopping malls to appeal to customers who prefer to do their shopping under one roof. Similarly, while the firm targets both young and older demographics, opening stores in busy areas such as city centers helps the firm to target the working class thus increasing its revenue stream. H&M also offers wide range products to the target customers that range from apparel, shoes and cosmetics to accessories (Regner & Yildiz 2014). The firms product portfolio is also sold through different brands that give them unique identity depending on the target customers. Among the different brands associated with the company include, for example, Weekday, Monki, COS as well as H&M (H&M Group 2017b). Further, H&M has also diversified its presence across the global with recent entry to new and potential markets such that include Africa and Asia. In this respect, diversification across the globe plays a role in ensuring the firm reduces its business risks. H&M also boasts of a strong financial performance, which helps to enhance investor confidence as well as financial flexibility to fast-track the companys expansion agenda (Cortez et al. 2014).

2.1.2. Weaknesses

H&M relies largely on third-party suppliers as evident in the number of independent suppliers that the firm outsources its product manufacturing. Consequently, the firm is likely to experience challenges in terms of controlling or managing the production process (Garcia 2014). Similarly, dependency on third party vendors can lead to a negative impact on the firms brand image especially when they fail to meet the presenting needs and wants of customers in the marketplace. The quality of products the firm introduces in the marketplace is also likely to be affected by low pricing. While the firm has gained prominence in producing apparels that are affordable, instances may arise where the quality of its products are compromised due to the use of cheaper materials to lower production costs and maximize profits (Regner & Yildiz 2014).

2.1.3. Opportunities

The firms expansion agenda across the globe can help to improve sales and profits. The use of new technology such as the internet marketing can assist the firm in expanding its market reach. A focus on targeting emerging markets such as Asia and Africa presents an opportunity for H&M to take advantage of the new demand driven by an increasing population of middle-income earners (Kollewe 2015).

2.1.4. Threats

The radical changes evident in the fast fashion industry may pose risks for the firms competitiveness in case of laggardness. Further, the advent of E-commerce has attracted new entrants that may pose a threat to the competitiveness of H&M brand. On the same note, the fast fashion industry is characterized by stiff competition from local and international brands. In this respect, it is important for H&M to stay ahead of competitors by being flexible in terms of adapting to the new trends in the industry (Pollard & Hellstrom 2017). The recent surge in labor cost, particularly in low cost countries may have a negative impact on the firms profits due to an increased production costs. The firm is also faced with risks emanating from foreign exchange fluctuations because a significant number of its sales take place in the international market where there are powerful currencies such as the dollar and Euro compared to the Swedish Krona. As such, foreign exchange rates related to different currencies used in the international market may affect the firms profits (Regner & Yildiz 2014).

2.2. Porters Five Forces Analysis of H&M

2.2.1 The Threat of New Entrants

In the contemporary fashion industry, a significant number of firms are joining to jostle for the same market share. In the industry, a low entry barrier is evident since new firms do not require significant resources for their start-up. In addition, it is easy for firms in the industry to access the services of independent suppliers who they can rely on to manufacture their product designs. Firms are also relying on the internet to sell their products directly to customers thus contributing to stiff competition in the fast fashion industry (Ackson & Shaw 2009).

2.2.2. The Bargain Power of Suppliers

In the fast fashion industry, the bargaining power for suppliers is low due to the presence of many suppliers that firms in the industry can seek their services. As such, it easier for H&M to switch from one supplier to another because of the low costs involved. Further, H&M can use its economies of scale to order large productions of its designs from independent suppliers (Hines & Bruce 2007).

2.2.3 The Bargaining Power of Buyers

In the apparel industry, a significant number of fast fashion retailers who have set up their businesses in different locations across the globe. As a result, buyers have a wide range of brands to choose from in the apparel industry. Subsequently, their bargaining power in the industry is strong and places them in a position to dictate the prices that apparel firms offer for their finished products in the marketplace. Since competitors deal in similar products that H&M introduces to the marketplace, it is easier for loyal customers to switch to other brands in case they are disappointed with the products from H&M (Ackson & Shaw 2009).

2.2.4. The Threat of Substitutes

Substitute products that compete for the same market share characterize the fast fashion industry. While H&Ms main focus is to sell their products at affordable prices, there are also firms in the industry that offer modest pricing for their products such as Gap Inc. and UNIQLO (Bagaria 2014). In this regard, the existence of substitute products in the fast fashion industry gives fashion enthusiasts a wide range of alternatives to choose from thus the need for H&M to develop a differentiation strategy to ensure its products remain competitive in the marketplace (Ackson & Shaw 2009).

2.2.5. Rivalry among Firms in the Fast Fashion Industry

The rivalry in the fast fashion industry is intense due to the presence of many competitors for the same market share. Further, as a result of firms in the industry dealing in similar products, they tend to lack a differentiation strategy, which makes it easier for fashion enthusiasts to switch brands from time to time (Regner & Yildiz 2014). The opportunities for growth also appear to be low due to the maturity of the fast industry. In addition, t...