You have been appointed as a consultant to conduct a strategic capability analysis for H&M(H&M in fast fashion case study can be found on Learn JCU). All of H&Ms resources andcapabilities and functions should be carefully scrutinised from the case study materialprovided only. It is essential to emphasise that H&M does not have competitive advantagesin all functions.1. In which areas does H&M have resources and capabilities and what are they? What arethe implications of these resources and capabilities for H&M if it wanted to expand itglobal footprint?2. In which areas and functions does H&Ms resources and capabilities provide forcompetitive advantage? To what extent can they be sustained? To what extent canother fashion retailers be successful in imitating H&Ms success?3. What should about areas with only temporary advantages? Are there areas where H&Mneed to develop further capabilities and, if so, in which areas/functions?Length: 10 page maximum (not including references, etc.), in Word Format. nstructions/ Format1. Resources and capabilities (4 pages)Students should explain how diverse activities and processes within H&M form resourcesand capabilities for the company, and exactly what are the types of resources andcapabilities in this company. Using Barneys model, explain how they result in a sustained ortemporary competitive advantage for H&M.2. Value chain (4 pages)Students should analyse the value chain for H&M. You are required to identify specificarea(s) of the value chain create value surplus for H&M, hence resulting its competitiveadvantage. In addition, student should also discuss possible ways for improvement inweaker areas of the value chain.4. The future of H&Ms competitiveness (2 pages)Comparing the competitive advantage arising from Barneys model and Porters value chain,which ones result in only temporary advantages? Are there areas where H&M need todevelop further capabilities and, if so, in which areas/functions? What are the currentdistinctive competencies of H&M?

H\&M in fast fashion: continued success? Patrick Regnr and H. Emre Yildiz This case examines the role of resources and capabilities in building competitive advantage and the key issues to consider while evaluating the sustainability of competitiveness. H\&M has enjoyed a leading position in the global fashion and apparel market thanks to its unique concept, business model and ability to combine elegant designs with affordable prices. Key competitors, however, have challenged that position and H\&M needs to evaluate the sustainability of competitive advantage derived from its resources and capabilities. The case explores the areas and functions in which H\&M has enjoyed advantage vis-a-vis competitors and how, if at all, this advantage can be sustained in the long term. Introduction retailer by market capitaisation, based on Zara's rapid The apparel retailar H\&M has made an incredible journey, expansion, particularly in emerging markets. The from a single store established by the founder Erling increased competition, and the fact that margins had Persson in Sweden in 1947 to a pioneering 'fast tashion' started to erode due to increased cotton prices and business with 3700 stores in 61 countries and more than rising proouction costs in Asia, put the H\&M high132,000 employees worldwide. 'Fast fashion' refers to a tashionilow-price formula and aggressive expansion quick response to new trends and fashion items that are under scrutiny. Investors had come to trust H\&M's made available in stores immediately thereafter. By the model that relied on a set of unique resources and time Persson's 34-year-old grandson Kan-Johan Persson capabilities, but Zara's success questioned the sustaintook over as CEO in 2009, H\&M had become global ability of the formula. leader in the 'fast-fashion' segment with a distinctive The increased competition for consumer spendiag in business approach that challenged most competitors. The the fast-fashion business was further intensified by the business model, commonly referred to as 'cheap-and- poor economic situation. With 70 per cent of shareholder chic', emphasised high fashion at prices significantly woting rights controlled by the comparly's founding below those of competitors, with the fundamental prin- Fersson family, H\&M's chier executive Karl-Johan ciple being 'Fashron and quality at the best price'. As the CEO of the company, Mr Persson emphasised the importance of maintaining the company's growth- 'We have great respect for the economic climate. In based strategy, as he stated in the 2014 annual report: this situation it is extra important to have a long-term "2014 was a very good year for H\&M, with strong sales perspective and to always make sure we give the best and profitability. We are continuing to add value for our combination of fashion and quality for money in every customers and to invest for an even stronger H\&M. We market." will open a net total of 400 new stores and nine new . . we are investing for the future and we always have the online markets in 2015. customers in focus. Despite increased purchasing costs, H\&N opened another 379 new outlets in 2014 with the we have continued to strengthen our customer offering addition of flagship stores in key locations such as for example, by not raising our prices to customers. 12 Milan, Munich and New York, as well as expansion into H\&M continued to emphasise the long-term view in its new markets like Australia and the Philippines. However, expansion strategy. For 2015, 400 new stores were H\&M was being seriously challenged by Zara, the prime planned, with China, the USA and the UK expected to be retail brand of Spain's Inditex, which had already over. the largest growth markets. They also planned to enter taken H\&M to become the world's biggest fashion new markets including Taivan, Peru, Macau, South This case was prepared by Patrick Regner and H. Emre Yildiz of the Stcekholm School of Economics. It is intended as a basis for class dscussion and not as an illustration of good or bad pactice. Not to De reproduced or quoted without permission. Africa and India. Despite these aggressive expansion inclucing Inditex (Zara), Gap and H\&M, contirued to be plans, analysts had some doubts: the market leaders (see Table 1). An example of the new brand appeal is fading or that prices have been Uniqlo, which had started to exparid aggressively. undercut by an even cheaper competitor. These are big Moreover, fashion is. by its very nature, unpredictable questions.' and fickle - trends are arone to sudden changes, which Adam Cochrane, analyst at U3s 3 Makes competition urcertain. End consumers have an enormcus selection of garments to choose from and will quickly adopt new trends. In the 'fast-fashion' category The apparel indusiry they are also extremely cost conscious and will seek out bargains. The total market size of the global apparel retail industry Some of the players in the industry are both producin 2014 was $1,317 on (856bn, 1,014bn ), 4 out with ers and retailers. For example, Gap Corporation and Indian anriual growth rate of just 3.8 per cent for the period tex both manufacture their own products and sell them 2010-14." This slow growth increased competition, in their own stores. Other retailers have a multitude of which was further intensified by a large number of small suppliers to choose from. As intarnational irade liberalplayers, although the large international incumbents, ises, the number of suppliers increases and competition Tail: 1H&M and its multinational competitors Table 1H&M and its multinational competitors (continued) skvirs sistrparty veosites. among manufacturers in low-wage regions intensifies. The spirit of Hennes \& Mauritz (H\&M) Switching from one supplier to another is not difficult, H\&M is ari abbreviation of 'Hernes' ithe name of the first although it entails the risk that choosing low-cost sup- women's apparel store opened by Ering Persson in pliers may imply a more extended supply chain, less 1947) and 'Mauritz' (a later acquisitioni of a men's able to cope with sudden fluctuations in demand as the clothing store). The company has undergone a tremenindustry reacts to changes in fashion. There is also a risk dous transformation from having just one store and a that low-cost suppliers may not be up to the required domestic focus to become one of the worid's largest quality standards. fashion retailers. As argued by one of the few journalists Entry to the retail industry does not require a large that has access to the company: 'The story of H\&M does capital cutlay: setting up a single independent retail store not really concern clothing, but from the beginning one is within the means of many entrepreneurs and there are man's vision - cr rather unbreakable stubbornness, devoplenty of suppliers to choose from. However, on a global tion to a goal and knowledge of human nature." scale, a few large corporations account for a major share Not unl ke IKEA in furniture, the H\&M philosophy is to of total industry revenues. Their size and economies of make fashion affordable for everyone: 'Fashion and scale (see Table 2) enable them to build brands in quality at the best price.' The roots of the H\&M 'spirit' multiple retail outlets, and exploit their greater buying can be traced back to the 1940 s, when Erling Persson power when negotiating with suppliers. started to conduct, what he calls, 'the primitive trade of H\&M IN FAST FASHION: CONTINUED SUCCESS? Table 2 Comparative financial data IAts of 11302014 and for 12 monthis. FAs of 01/31/2015 and for 12 months. TAs of 0 LS1/2015 and for 12 months. "As if 08/31/2014 ardi for 12 moritsa Soute Mint Gikball, Bureau van Dik. buying and selling' with the essence of 'tradesman-ship'. Another aspect of the H\&M spirit is the extraordinary This was also maintained at the core of the company's focus on employee involvement. This participatory culture when his son Stefan Persson took cver as CEO in management philosophy is one of the reasons why H\&M is the 1980s. Even after Karl-Jonan Persson took over in seen as a company where experimentation, trial-and-error 2009, the leadership style and organisational culture still learning, fast decision-making and willingness to take relied on Erling Persson's basic values and beliefs, based initiatives and try new ideas define the basic piltars of on his strong business acumen and characterised thrift, organisational culture. Another key ingredient in the no-nonsense decision-making and delegation of respon- culture of H\&M is the active encouragement of this spirit sibility. These are fundamental ingredients of 'the spirit at all organisational levels. 9 Trying new things is also of H\&M', which retained the shared and tacit under- encouraged amnong purchasing managers, but while trying standing of how the compary does business. It is under- something new and making mistakes is acceptable, it is lined by seven coditied core values: 8 important that the same mistake is not repeated. - We believe in people Experimentation is also present at the store level, - We are one team where interior decoration, lighting, colours, clothes - Straightforward and open-minced displays and even locations are swiftly changed depending - Keep it simple on sales and customer preferences. However, the range - Entrepreneurial spirit within which new ideas can be tried is clearly bounded - Constant improvement by H\&M's core ideas and values. In a memo to its - Cost-consciousness employees, H\&M specifies this as follows: 'Our employees H\&IM IN FAST FASHIDN: CONTINUED SUCCESS? H\&M spends around five per cent of its revenues on inspiration from everywhere. but the most important thing advertising. is to make it your own way. Quaiity means carefully lesting In addition to conventional charnels, H\&M has also everything before it hits the shops, from jeans to lipstick. established a strong social media presence. The company But it also means H\&M is a fashion house in its own right, aims to become part of its customers' daily lives, through with its own trends. We do not cooy.'H its pages on Facebook, Twitter, Instagram, Googlet and Apart from size adjustments, for example in the Asian YouTube, as well as the Chinese sociai networks Youku market, no special changes are made to to adapt the and Sina Weibo. Each network is updated on a regular collectiors for specific countries. H\&M argue that: 'It is basis. Through social media, milions of H\&M followers important that H\&M keeps its own perscnality in each share ideas and opinions and get quick answers to their country, and fashion has become more global, more queries. New fashion videos and reports are uploaded international".15 Similar trends are apnearing the world onto YouTube weekly and have had millions of hits. over. Of course this is also driven by economies of scale Through the H\&M apps customers can explore the latest in buying and manufacturing. collections and campaigns, find cut what's new at H\&M and locate stores. At its launch in August 2010, the iPhane app was the most downloaded applicaton in Buying, local production orisices and corporate almost all of H\&M's markets. social rasponsibility (CSR) H\&M does not own arry factories. Instead. manufacturing Dasign is primarily outsourced to low-cost countries with some Design is centralised at the Stockhoim headgutrion 70 per cent of production in the Far East and South Asia inclades a team of a most 200 desig pattern makers. The centralisation or and about 100 . With the focus on econcmies of scale, including low-wage minimum design allows for and high-volume production, the company maintains low the design team has direct input costs and often has the latest trends in its stores contact with the production offices around the globe. within a month of the initial design. 16 H\&M also This allows for a rapid-response manufacturing process to constantly redefines its production and distribution in capitaise on design trends immediately. The design team response to changing market and production conditions works intensively with new trends, materials and colours to ensure that they continuously improve the efficiency of trom what is popularly known as the 'White Room' and is the production flow. This way, H\&M has been able to supported by the 50 production offices around the world. reduce lead times by 1520 per cent in recent years.' Much effort is put into researching and predicting In 2011, H\&M worked with 900 independent suppliers of emerging market trends. H\&M designers hold customer which 150 were considered long-term strategic partners. surveys, dialogue sessions and focus groups, and pick up Buying is centralised in Stockholm and has always had a trends from employees in the global stores and then ado central role in H\&M. Managers within this function have their own particular fectures. They need to have an up-to- often been the best paid in the entire organisation. the-minute fashion feedback focus and be conscious of To reduce lead times, the 50 production ofrices are in the very latest trends. According to Ann-Sofie Johansson, direct contact with suppliers and report back to central head of H\&M design department: 'We try to look out for procurement in Stockholrm. They mediate between the trendsetters, what's popping, vintage looks, what's large network of independent suppliers and the central happening at music festivals. The internet is getting more purchasing office, to identify the right suppliers to place important as are catwalk shows, but these are more of a orders with, to optimise time and cost decisions, and to confirmation of what we know is out there'.13 ensure that decisions comply with H\&M's CSR policies. She and her team pick up inspiration in several ways: Each supplier owned or subcontracted multiple tactories; notes from travels, fashion classics offered by Paris, globally 1652 factories were approved for making goods Milan, New York, London and Tokyo, textile fairs, street for H\&M. H\&M conducted a total of annual 3623 audits fashion and exhibitions: 'Celebrity inspiration is also of suppliers in 2014. CSR has increased in importance important, as well as what bloggers are saying and for H\&M. Being a high-profiie and visible player in the old-fashioned sources such as music, magazines, movies textile and apparel industry, the company is under and costume dramas'.13 constant scrutiny in terms of working conditions and However, H\&M always adds its cwn touch to the design, wage levels in the overseas suppliers they work with. creating collections that strike a good balance between the Being fully cognisant of this, H\&M pays particular atter. latest trends and the basics. Margareta Van den Bosch, tion to CSR and takes severa! actions throughout its creative adviser and former head designer says: "We get value chain to keep its brand name away from the uscial 581 responsibility and decision-making, and are capable of store in 1947 to 4000 in 2015. In 2036, H\&M planned leading. A love of fashion combined with a focus on to open anotner 400 stores and to pursue aggressive sales is perceived as a major advantage. growth in its rew luxury label format of stores called '\& Other Stories'. However, fastior-retailing history is full of While H\&M's skill in providing fashionaale and elegant clothes at affordabie prices and catering for the dynamic drastically curtail thair growth, e.g. Marks \& Spencer, tastes and preferences of customers can broadly be iden- C\&A, Benetton. The question for H\&M and its third-gentified as the main drivers of its success, perhaps their eration leader Karl-Johan Persson is to what extent will unique advantage lies in their ability to replicate the same H\&M's resources, capaoilities, practices and knowledge business concept and 'spirit' across time and space. be enougn to keep up with the competition, including Since the 1990 s, intemational expansion has heen vigorous new players? Will these entrants be able to repliaggressive and the cormpariy has moved into Eastern cate H\&M's success? European markets, the Middle East, Asian markets and Russia. By 2005. H\&M had already expanded into more. Nhtes and reforences As caoted in C. MacCarlhy. "H\&M continue agarassive expartion' than 20 countries with more than 1000 stores. FNatciat immes, 29 Sestamber 2011. Continuous growth by repicating the same business 2. As qucted in M. Stratarct, 'HE HA to leunch riew line ot stores', Fwianciat Tirics, 29 Narch 2012 . model and store concept thus defines the core of the 3. As euated in M. Slothard, 'HsM defend streleky as magns lall', company's expansion strategy. Prior to moving to a rew Fiannotiv moss, 26 Jarvery 2012 country or city. H\&M first conducts a thorough evaluation 4,$1=,0,6=E0,7%. growth, infrastructure and political risk. Z. isid 8, H\&M wobsite http Hhabout.nt comineoutSectionten/Ahoubfacts- H\&M's policy is to recruit local people wherever they open a new store. H\&M looks for those whe have the 'right' 9. B. Petiersson, 2001,49 . 91 . personality and patential to understand and adopt the core 10, hitp:labouthr,cam/eniabout/acts-abs:ut-hmipeople and-histiryl values of the organisation. Another element is to use 11, As qunted in Croven, "Hsm: meat the Drains behirs tashion's regs formal training programmes, as wall as on-the-job training, tranu', Dsing Maumbiv' Onithe, 23 rebriary 2010 to socialise employees into this culture and make sure that 12. Jen Jacotsen as quoter in 3, Fetlersscn, 2001, PQ,2EL2 13 As quobed is P. Kam, Hieh serenel isbel H\& W sarves up irspirise fascl they understand and act according to the company's core in at uffordable prices', The Slar onke, 20 Soglembter 2012 values. These socialisation mechanisms are the means by 14. As quoted in N. Mente-lasari, 'HRM from the inside', Chinadaly catp. which H\&' successfuly adopts a 'mental franchising' model, in which the ownership of each and every store 15. Margareta Ven den Bosch, creafie adiser as quaked in N, Mahtain the hands of H\&M whereas the shop managers 16K. Capel and G. Khertoweh. Hip H\&M the Swedish retailer is reinoften run their shop as if it were their own. wenting the busness of cttordable lashium!, Businsss Week, 11 Noweriter 2002 All of these initiatives are essential elements of him's 17. "Intustrial thange in th toxtles ard lazther sector', EMCC, tilipes constant growth strategy, where the ambition is to create and re-create businesses that reflect the basic and 18. hatto.//about, hm,comien/A,bout/sustainabilityicammianerits/ funcamental values and the overall H\&M spirit. To this end, the company keeps formal rules and procedures to 19. T. Kihien, On Logistics in the Strateky of the Fim, Lirkeping Unersity. a minimum and prefers to equip its employees with tacit 2005 skills via experiential learning in the tield. This way, H\&M 20. H\&M Anmal Report 201L . Pal "deniltying arpanzatixad diatinctive campetence by busness makes sure that those who work in new cutlets are nepoing in a gloal textila context', Jounka in Textice ang' Acpare exposed to and infused wh the original spirit. Combiring Techoocey and Managensent, T.4h, 2011. 22. HaM Anrual Repart 2008. this with the va'ues of initiative-taking and entrepreneurship, H\&M has been able to stay ahead of its competitors by moving tast and reaching large markets based on Restammended videas - hitipellwwwwyoutube comvhm (alticial Youlube channel of t- SM where applying a simple business model universally, yet making sidiso elips on new campaigns and pronotions are shared) subtle modifications and adaptations at the local level. - hitelliwwwyoutube com/watchi? CheHYogtRruY linlerview with CEO H\&M's growth to become one of the largest global Kerilohan Persson by Bioomberg on strategy, costs and iriemet sales fashion retailers is an incredible success story - from one names the former cho stefan Perstor