For my final exam I will write about Swedish company H&M which is in the fashion retail industry. H&M has 1840 stores in 34 different countries and employs over 73,000 people. The business concept of H&M is very clear. It is offering to clients qualitative fashion clothing for low price. The company has it own team of designers, its own interior designer team, its own production factories, production partners and team for purchasing other brands’ production. It usually stock up H&M cosmetics supply, making sure that those products will be cheaper than in other stores.
Long term objectives are strategic plans company make for future five years. These objectives are set in seven key areas- productivity, profitability, competition, employee development, employee relations, technological leadership and public responsibility and show were company wants to be when they are achieved. Long term objectives have to be motivating, flexible, measurable, suitable, understandable, realistic and acceptable by employees.
Three main strategic goals for H&M for the next five years would be linked with profitability, competition and technological leadership. H&M has reported a rise in sales and profits and sales for the three months to 31 August. Net profit for the third quarter of 2009 rose 4.1% to 3.46bn Swedish crowns from 3.33bn crowns last year. Sales, excluding sales tax, increased by 13% to 23.6bn crowns. So first LTO is to maintain financial stability H&M has achieved. H&M plans to increase sales revenues by 20% and earnings per share by 30% till 2015.
Secondly as main strategy of H&M is expansion, LTO in competition is to increase number of stores by 10% to 15% every year. Today H&M has as 1840 stores up from 1618 at the same time last year. New stores will be open in the cities H&M already has stores and also in completely new markets.
H&M is following all the latest innovations in the clothing manufacturing. It is important to increase efficiency, cut costs and keep prices low while raising quality. Third LTO in the technological leadership for H&M is to lower maintenance costs by 15% and decrease waste by 10% till the year 2015.
Porter’s four generic strategies are cost leadership, differentiation, low cost to narrow market strategy and niche strategy. H&M has cost leadership strategy. H&M offers fashionable clothing for cheap prices selling to broad markets. This strategy is also very suitable for the current economical situation. In the financial crisis people have less disposable income and they think more carefully about spending of the money. As there is tight competition in the fashion retail market buyers have the power to choose and dictate prices. If they are not satisfied with brand’s pricing policy, they will walk to the competitor which offers same product for lower price. H&M with this strategy also set high entry barriers for the competitors.
H&M has achieved ability to be efficient. As there is low profit margin being cost leader, H&M is very focused on expansion and increase of market share. It is important for H&M to sell more volumes of the product to earn profits. Fixed costs are high and by every product made variable costs are lowering. It has secured suppliers because H&M doesn’t own factories itself but have long term production contracts with factories in Bangladesh, Morocco and Turkey. It is very important buyer to textile sellers as H&M buys large quantities several times per year. H&M has good long term contracts with its producers and suppliers.
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