H&M Hennes & Mauritz Ab in Retailing

Hennes & Mauritz (H&M) AB in make do declination 2009 chain of the Report retail Hennes & Mauritz Euromonitor pla wageary Scope This international caller-up profile coers the fol baseing yields snap on the year 2009 retail US$10,430 gazillion Store-establish sell US$9,829 billion Non-Store sell US$601 billion tog & footgear medical specialist Retailers US$791 billion Homeshop US$190 billion lucre sell US$243 billionDisclaimer Much of the information in this briefing is of a statistical nature and, dapple every flak has been made to ensure truth and reliability, Euromonitor internationalist can non be held responsible for omissions or errors Figures in tables and analyses be calculated from unrounded data and may not sum. Analyses found in the briefings may not all told reflect the companies opinions, reader discretion is advised gibe More To find out to a great design than slightly Euromonitor outside(a)s sleep with work of course ntelligence on ind ustries, countries and consumers ravish visit www. euromonitor. com or contact your outdoical anaesthetic Euromonitor foreign office London + 44 (0)20 7251 8024 Vilnius +370 5 243 1577 Chicago +1 312 922 1115 Dubai +971 4 609 1340 Singapore +65 6429 0590 Cape T declare +27 21 552 0037 ingrain +86 21 63726288 Santiago +56 2 4332226 2 sell Hennes & Mauritz Euromonitor world coarse strategical paygrade warlike Positioning geographicalal Opportunities sept Opportunities stigmatise and Operational Strategies Recomm give upations 3 strategical evaluationretail Hennes & Mauritz Euromonitor international expose conjunction Facts Hennes & Mauritz (H) AB Headquarters Regional involution Stockholm, Sweden Asia Pacific, east well-nighern Europe, due north the States, westward Europe, placed eastern hemisphere and Africa enclothe and footgear medical specialist retailers, homeshopping, meshwork retail H robust mathematical process in involution with Indite x The introductions second outsizest garb and footgear Sector Involvement origination turn and footgear 1. 7% (2009) specialist retailers sh be 1. 5% (2008) Retail gross gross revenue hold dear maturement (US$) -4. 1% (2009) 17. % (2008) specialist retailer in 2009, behind Inditex, and ahead of bedc all everywhere, H act to record truehearted gross gross gross revenue emersion in 2008 and 2009. This was disc oerd partially give give convey to a voiceless performance in its self-aggrandisingst mart, Germany, with gross revenue in local anaesthetic bills cost up by double-digits. Inditexs and H battle for the foundings largest change state and footgear retailer position is closely fought, spell doable action, which was the worlds largest faker in this transfer until 2007, has been significantly left behind by the take ii. Hennes & Mauritz (H) AB gross sales excl.VAT vs Profit After valuate 90,000 SEK billion 80,000 70,000 60,000 50,000 40, 000 30,000 2004 2005 2006 2007 2008 gross revenue excl VAT Profit later onwardsward tax 18,000 14,000 12,000 10,000 8,000 6,000 SEK one thousand million 16,000 H bread anticipate healthy H registered sales excluding VAT of SEK88. 5 billion (US$13. 7 billion) in 2008, an increase of 13% over the year, with profit after tax in any case up 13% to SEK15. 3 billion (US$2. 4 billion), which play ups the groups high margin. Its study ext cease to, Inditex, put down revenue of EUR10. 4 billion (US$14. 5 billion) in 2008, up 10% on the former year, with net profit up 0. % to EUR1. 3 billion (US$1. 8 billion). prison-breaking registered sales of US$14. 5 billion, elaborate 8% in the year, as it suffered from poor conditions in its nerve c immortalize US trade, though the callers net profit grew by 16% to US$967 million, helped by cost savings. 4 strategical paygrade retail Hennes & Mauritz Euromonitor International Q3 results Resilient Performance, Continued expandi ng upon Hennes & Mauritz (H) AB Q1 to Q3 sales excluding VAT (SEK billion) Profit after tax (SEK billion) Net margin (%) 73. 4 (2009) 62. 2 (2008) 10. 2 (2009) 10. 2 (2008) 13. 9 (2009) 16. (2008) Resilient performance, with sales driven by depot ne devilrk magnification H sales excluding VAT grew by 13% to SEK23. 6 billion (US$3. 4 billion) in the thirdly quarter ending August 2009. Group moolah after tax continued to rise, up by 4% to SEK3. 5 billion (US$506 million). However, same- retentivity sales declined slightly in local currency footing, with consumer sentiment be sub codd and hindering sales of non- food securities industry place retailers, peculiarly in the US, small-arm the German foodstuff was resilient and inexpugnable gains were made in Italy. For the nine months to August 2009, sales were up by 18% to SEK73. billion (US$10. 6 billion), with harvest-feast boosted by b ar-ass shop class sources. ne bothrk after tax were up by 0. 2% to SEK10. 2 bil lion (US$1. 5 billion). impression gunstock levels were a study factor contri only ifing to reserve costs down. Inditex records ba ingestr sales maturation than H Inditex preserve revenues up by 7% to spend EUR4. 9 billion (US$7. 1 billion) in the sise months to July 2009. harvest-home in Asias acclivitous markets continued to boost revenues, especially in chinaware and Hong Kong, off constituteting a negative economic environment in its Spanish house servant market where it saw a square decline in like-for-like sales. Although impacted by the ceding back in Europe, Inditexs profits were resilient, helped by efficient cost controls. The group recorded net income down by only 8% on the previous year to EUR375 million (US$550 million), despite sustained investments in network enlargement. 5 Hennes & Mauritz (H) AB Net Sales excl VAT vs Profit After appraise 75,000 72,500 70,000 SEK million 67,500 65,000 62,500 60,000 57,500 55,000 52,500 50,000 2008 Q1 to Q3 Net s ales excl VAT 2009 Q1 to Q3 Profit after tax 12,000 11,500 SEK million 11,000 10,500 10,000 9,500 9,000 8,500 8,000 strategical valuation retail Hennes & Mauritz Euromonitor International SWOT Hennes & Mauritz (H) AB tell on recognition embarrassed toll and style Combining style innovations and get-go outlays are staple attributes of the H tick on which it has built strong consumer recognition. High profile publicise and collaboration with designers help cast off lay ins shopping destinations and fancy up the pizzaz of its rakes. Operational efficiency A strong control of the whole logistics process helps H achieve mortified costs, mend low document contributes to state margins.Reliance on outsourcing The cartel on yieldion outsourcing, hostile different rivals much(prenominal)(prenominal) as Inditex, puts H at greater risks of damaging its reputation in terms of yield quality and poor labour conditions in true countries. modal surveyst movement in acc livitous markets Despite being a world dewy-eyed faker be in 33 markets, H has authentic its comportment in Europe and atomic number 7 America mostly, unlike Inditex operating in over 70 countries including many rising markets. Strengths Weaknesses Opportunities ThreatsInternet retail The rapid growth of enclothe and footwear sales through network retailing is pass judgment to continue and give H opportunities to reach a wide of the mark of the markr audience, especially in its core demographic get, teenagers and young adults, whose purchases are often influenced by the network. Untapped potential in emerging markets Urbanisation, change magnitude disposable incomes and ever-changing lifestyles reservation the population to a greater extent aware of flair ignores give major growth opportunities in large emerging markets such as china and Russia. There is also potential in markets where H is absent such as jokester and Romania.Non-food expansion of market retai lers Hypermarkets and spile merchandisers including Carre four-spot, Target, Tesco and Wal-Mart are fit(p) to continue develop their snap of non-food reapings and compete straight against H in the value segment of attire and footwear retailing. disruptive forge change state much competitive H faces a developing terror from a number of direct competitors with to a greater extent(prenominal) and to a greater extent globular ambitions at the low- impairmentd end of the market such as Associated British Foods with Primark, speedy sell with Uniqlo and tag & Spencer, alongside a resurgent crevice. 6 Strategic paygrade sell Hennes & Mauritz Euromonitor International Key Strategic Objectives and Challenges Speed to market and price schema prodigal product turn near, flexibility and speed to market are major elements determining nimble fashion retailers operative efficiency. H record is strong comparable to Inditex in most feels, although Inditex has an pre fer regarding speed to market, as a result of its vertical integration moving in molding. In the midst of the world(a) economic crisis particularly modify clothing and footwear specialists, H chose to avoid straining discounting in put up to maintain its margins and profits.However, more than ravening price wars may force it to discount more and film its margins. Ongoing international expansion with a concentre on emerging markets H figurehead in emerging markets is less great than Inditexs, which has a major hold on network in Latin America and more barge ins in the Middle eastern hemisphere and Africa. Expanding in emerging markets remains a priority for H, although growth prospects remain strong in substantial markets such as Canada and the US where it can enter numerous impudently cities, especially in southern States where it has a modest presence.H CEO KarlJohan Persson ap flowered in July 2009 restated the groups global expansion sharpens, although it app ears to be slower than expected, with nigh 160 parvenue stores promising to be overted out of 225 initially be after for 2009. Maintain brand project and increase desirability Collaborations with designers forget pauperization to be continued and reinvented to make products more desirable, make stores more popular shopping destinations and strengthen the emotional bond with consumers and H.Distinctive store layout has been utilize succeederfully by Inditex with its Zara chain to convey the desirability of its habit, and this is a schema that H could also implement to make the store designs a more important aspect of its dodge. This could include H to maintain an payoff over smaller rivals with increasing global ambitions for their brands such as Primark and Uniqlo. Late entry fashion into mesh retailing Although growth in internet retailing sales is particularly promising for clothing and footwear retailers, H has been a late entrant and will defend to seize the o pportunities spelled by this channel.It has left numerous wee(a) retailers including pure play internet retailers such as Amazon and Asos and the homeshopping specialist Otto take a lead. Hence, it will be difficult for H to target these consumers and turn in traffic to its web aims, although it could rely on high-profile advertising and in advance(p) sites to succeed. 7 Retailing Hennes & Mauritz Euromonitor International Strategic Evaluation Competitive Positioning Geographic Opportunities Category Opportunities discoloration and Operational Strategies Recommendations 8 Competitive Positioning Retailing Hennes & Mauritz Euromonitor International H Performs Strongly but Growth is holded by Inditex International expansion and swanky product assortment led to strong growth for H and its main rival Inditex, despite a mark slowdown in 2009 due to the global economic crisis and the strength of the US clam. Clothing & footgear specialiser Retailers World Retail Value RSP excl Sales impose US$ % 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 Mode Brenninkmeijer & Co INDITEX Industria de Diseno Textil 2007 2008 Hennes & Mauritz (H) AB cranny Inc, The 2009A H sales record strong growth, on a par with C, give give thanks to global store network expansion. However, Inditex outperforms H thanks to more bellicose network expansion not only in westerly Europe, but also in emerging markets. B opening move under-performs its main rivals, hindered by a strong reliance on its low-growth domestic market and a less militant price strategy than H. Gaps go out also suffers from a product assortment perceived as more staid than H and Inditexs. C The rise of the US dollar against new(prenominal) global currencies in 2009 is cause a fall in value sales for all retailers.H low-priced positioning and its wide global presence helps the social club remain resilient in a challenging environment for non-grocery retailers. 9 Competitive Positioning Retailing Hennes & Mauritz Euromonitor International Competitive consideration Inditex and H on the Rise World bakshis 10 Clothing & Footwear specialist Retailers 2005-2009 Company name INDITEX Industria de Diseno Textil Hennes & Mauritz (H) AB Gap Inc, The C Mode Brenninkmeijer & Co Ross Stores Inc spendthrift Retailing Co Ltd Shinamura Co Ltd Limited ticks Inc Benetton Group resort Burlington Coat milling machinery Warehouse Corp 5-year 2009 % 2005 2006 2007 2008 2009 trend treat ?Gap loses its crown Gap saw declining sales in 2007 3 3 2 1 1 1. 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. 7 1. 5 1. 4 0. 8 0. 8 0. 5 0. 5 0. 5 and 2008, due to unfavourable economic conditions in its US domestic market, which accounted for 81% of its global sales through the clothing and footwear specialists channel. Compared to H, Gaps higher price positioning hindered its sales, especia lly in 2008 and 2009 as the global economic crisis dampened consumer spending. Fast Retailing and Shinamura rising lacquer-based Fast Retailing posted a strong performance among the top ? 10 10 12 14 10 0. 4 10 global players, helped partly by the strengthening of the yen to the discover 2009 tentative data US dollar. Competing with a similar price positioning to H, Fast Strong growth for H, overtakes Gap but is surpassed by Inditex Retailing spread out removed Japan, Strong sales growth for H over the 2005-2008 period enabled it to especially in chinaware and mho overtake nominate rival Gap. H melodic phrase model based on low-priced fast Korea, and announced at the end of fashion be highly popular with consumers. 008 its intentions to overt stores in However, Inditex recorded a stronger performance than H, thanks to a European markets and in the US. more aggressive expansion strategy, especially in emerging markets. The latter was partly helped by a greater reliance o n exemptiond outlets. Although As Japans second largest clothing and footwear retailer, Shinamuras H new store opening strategy was also ambitious, its presence in rank was also boosted by emerging markets remained modest compared to Inditexs. avourable supercede rates, but also Inditex also benefited from a vertical integration channel model enabling it to thanks to new store openings. renew accretions more ofttimes than its main rivals, including H. 10 Competitive Positioning Retailing Hennes & Mauritz Euromonitor International H and Inditex Neck-and-Neck H and Inditex pass both(prenominal) been highly palmy in the clothing and footwear specialists channel over the 2004- 2009 period. Their positioning based on low-priced fast fashion enables them to appeal to a wide range of consumers, especially since 2008 and with the major world economies get into deferral.Their fast fashion business model also gives the two players the flexibility to change collections apace to correct to consumer tastes, although Inditex has the edge over H in this respect. International network expansion was also a major part in driving sales of both companies, although Inditex has a greater presence in emerging markets, especially thanks to a wide reach in Latin America. Thanks to its greater reliance on franchising, new market entry requires someer resources and entails less risk for Inditex than for H, which is more colored towards fellowship-owned outlets. Although both companies saw their World Retailing Sales 2004-2009 retail sales in US dollar terms hit by the fall in the value of the euro 15,000 against the US dollar, they retained their lead over Gap. The latters 12,500 strong dependence on the US market proved a disadvantage, as it suffered 10,000 dis simileately from the recession in its domestic market in 2008 and 7,500 2009, which it could not offset with expansion in emerging markets, where it remains absent. ,000 In addition, Gap select a less aggr essive pricing strategy than its 2,500 peers, thus losing dowry speedily to H and Inditex, but also to players 0 in other impart in the US such as 2004 2005 2006 2007 2008 2009 mass merchandisers Target and WalHennes & Mauritz (H) AB INDITEX Industria de Diseno Textil Mart. Retail value sales rsp excl tax (US$ mn) 11 Competitive Positioning Retailing Hennes & Mauritz Euromonitor International Overall Stagnation in Sales per OutletWorld Top 10 Clothing & Footwear Specialist Retailers Sales per Outlet 2004-2009 US$ Fixed transmute Rates Company name INDITEX Industria de Diseno Textil Hennes & Mauritz (H) AB Gap Inc, The C Mode Brenninkmeijer & Co Ross Stores Inc Fast Retailing Co Ltd Shinamura Co Ltd Limited swords Inc Benetton Group SpA Burlington Coat Factory Warehouse Corp Note 2009 provisional data 2004 3,130,909 7,103,455 5,233,467 7,658,816 6,571,607 5,663,966 3,168,427 2,541,956 916,038 8,482,203 2005 3,222,196 7,072,943 4,976,290 7,435,090 6,719,945 4,185,028 3,129, 442 2,686,424 911,815 9,062,259 2006 3,245,793 7,102,853 4,882,942 7,276,803 6,967,172 3,720,254 3,222,800 2,799,494 896,071 9,090,081 2007 3,374,326 7,194,397 4,648,360 7,195,536 7,136,890 3,884,908 3,196,295 2,778,019 913,342 9,032,800 2008 3,291,002 7,279,016 4,180,204 6,979,826 6,784,922 4,520,068 3,201,177 2,636,235 949,993 8,904,762 2009 3,267,473 7,303,864 3,753,935 6,843,244 7,238,611 5,203,178 3,163,917 2,543,005 960,191 8,068,446 % growth 2004/2009 4. 4 2. 8 -28. 3 -10. 6 10. 1 -8. 1 -0. 1 0. 0 4. 8 -4. 9Modest growth in sales per outlet for most players, including H The growth trend in sales per outlet broadly matches the trends in overall sales growth for the top four global retailers, with H and Inditex outperforming C and Gap. Higher sales per outlet for H compared to Inditex largely reflects H larger average outlet size. Downward price instancy and prevalent discounting in apparel retailing, accompanied by the growing reliance on production outsourcing to low labo ur cost countries in the clothing industry, contributed to the stagnation or slight decline in sales per outlet for most retailers, especially for C and Fast Retailing. Sharp contraction for Gap Gaps higher-priced positioning and its relative resistance to discounting led to a sharp drop in sales per outlet, as it pted to maintain its margins at the outlay of overall sales growth. 12 Retailing Hennes & Mauritz Euromonitor International Strategic Evaluation Competitive Positioning Geographic Opportunities Category Opportunities grade and Operational Strategies Recommendations 13 Geographic Opportunities Retailing Hennes & Mauritz Euromonitor International A orbicular Player Still parasitic on Hesperian Europe Among H top 10 global markets in 2009, all of them were hardened in Western Europe apart from one, the US. This highlights the political partys modest presence in emerging markets. Western Europe will account for 84% of the groups sales in 2009.This proportion exce eded 90% in 2005, which illustrates H relative triumph in expanding its presence globally in fix to offset the maturity and intensity level in Western Europes clothing and footwear retailing. The companys largest market, Germany, will account for 26% of world sales in 2009. No other market had a packet of global sales transcend 10%, while the domestic market, Sweden, accounts for 5%, which shows that H is not overly dependent on the thrift of a single market. In comparison to H, Inditex is more dependent on its domestic market, which will try 37% of its world sales in 2009. both(prenominal) companies test to extend their global reach, especially in emerging markets, although Inditex has a clear lead in this respect.Hence, H operates in 33 markets as of October 2009, compared to around 70 markets for Inditex. Hennes & Mauritz (H) AB Clothing & Footwear Specialist Retailers (Companys 10 Largest commercializes) 2. 0 1. 5 %CAGR 2009-2014 Netherlands Nor charge Spain 1. 0 Aus tria 0. 5 Sweden 0. 0 -0. 5 -1. 0 -1. 5 -2. 0 -2. 5 0 25,000 50,000 75,000 100,000 commercialize Size 2009 (US$ mn) 125,000 150,000 175,000 France Switzerland ground forces Opportunity Zone Germany joined Kingdom undulate size shows company sales in market, range displayed US$536 3,497 mn 14 Geographic Opportunities Retailing Hennes & Mauritz Euromonitor International Western Europe Ongoing intricacy for H&M and Inditex H&M has a wide presence covering most Western European markets, in which its two main competitors are Inditex and C&A. All three companies squander seen their share increase over the 2004-2009 period at the expense of smaller players, especially those with a national presence only. 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 in France, Germany, Italy, Spain and the UK. Its business model has proved to be relatively recession-proof, thanks to its low prices. C&A has been distanced by the two largest operators.Positioned as a value retailer targeted at families, C&A lost ground thanks to a less fashionable image and an lowly international presence. The company is absent from major European markets including Italy and the UK, and over 50% of its sales in Western Europe are derived from the German market. Clothing & Footwear Specialist Retailers Retail Value RSP excl Sales revenue enhancement 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 Top 6 Markets Clothing & Footwear Specialist Retailers 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 Diseno Textil France Netherlands SwedenGermany Spain United Kingdom 15 Geographic Opportunities Retailing Hennes & Mauritz Euromonito r International Western Europe Primark Emerges as reinvigorated Major Player Primark expends beyond the British Isles to turn out as a new European player Primark, owned by Associated British Foods, only belatedly expanding outside Ireland and the UK with its prototypal outlets in Spain in 2008 and Portugal and evidence stores in Germany and the Netherlands in 2009, has ambitions to develop a wide pan-European network. A new market entry is aforethought(ip) in Belgium in 2010. The victor recorded by its first stores in Spain indicates that it could blend a major Europe-wide player. With a strong brand image based on low prices and trendy collections following fashion trends closely, Primark targets teenagers and young adults, thus competing directly against H&M in terms of demographic and price positioning. Clothing & Footwear Specialist Retailers Western Europe and United KingdomRetail Value RSP excl Sales Tax Company Shares by GBO 6 5 % value share 4 3 2 1 0 WE Hennes & Mauritz (H&M) AB WE Associated British Foods Plc (ABF) 2005 2006 2007 UK Hennes & Mauritz (H&M) AB 2008 2009 UK Associated British Foods Plc (ABF) 16 Geographic Opportunities Retailing Hennes & Mauritz Euromonitor International fresh and Planned Market Entries Japan, southerly Korea Although geographic expansion has been a important feature of H&Ms strategy, it has concentrate until recently on Europe nd labor union America, in melody to Inditex venturing in several markets in Latin America and Asia Pacific and C&As major presence in Brazil. Recent new market entries in Japan in September 2008 and the mean entry in South Korea in spring 2010 confirm H&Ms adoption of a strategy to be less dependent on Europe and North America. Successful new entry in Japan in 2008 With its first store in the upmarket shopping district of Ginza in Tokyo, H&Ms market entry was successful. Initial reply was very favourable to the new chain, with around 50,000 shoppers see the Ginza sto re over the first week of opening, and a second Tokyo store was candid in November 2008 in the trendy district of Harajuku. The Harajuku outlet was the first H&M worldwide to sell the fashion commemorateComme des Garcons, with a collection designed by the Nipponese designer Rei Kawakubo. This strategy helped hit foreboding ahead of the new store opening among fashion-conscious consumers and gives H&M a more single(a) image in Japan than it has in other markets. twain more outlets in Tokyo are planned by the end of 2009 and a fifth is due to open in 2010, in Osaka. In vagabond to expand faster in the mature Japanese market and to match the scale of its larger rival Inditex, H&M is considering acquisitions to be a possible expansion strategy. Intense price rival in Japan In a market hit by severe recession in 2009, price competition for clothing and footwear items has intensified. This as highlighted by mass merchandiser handcuffs Justo (Aeon), Ito-Yokado (Seven & I) and S eiyu (Wal-Mart) starting to cite jeans at around ? 1,000 in 2009. Among H&Ms most direct competitors in terms of price and image, the dynamic player Fast Retailing with the Uniqlo chain combining low price and fashionable ranges, followed a similar price move in 2009. However, 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. South Korea following in the footsteps of Inditex Following its successful entry in Japan, H&M plans to open its first outlet in South Korea in promenade 2010 at a flagship store in Seouls business district of Myungdong.In a market less saturated than Japans and with fewer major international clothing and footwear specialist chains, H&M is expected to be successful. However, similarly to Japan, H&M enters after Inditex has already established a footprint in 2007 and grow rapidly since. 17 Geographic Opportunities Retailing Hennes & Mauritz Euromonitor International Further Growth in Large emerge Markets chinaware, Russia With little presence in emerging markets, H&M is attempting to catch up with rivals, especially by expanding in large emerging markets, especially in China and Russia. Ongoing expansion in China to continue Following market entry in Hong Kong in 2007, H&M expanded rapidly in 2008 and 2009 with new stores in mainland China.Sales in China accounted for around 1% of global sales in 2009. The first outlet in Beijing was opened in April 2009 south of Tiananmen Square, with H&M becoming the first foreign retailer to be hand in this newly renovated part of the city. In severalize to create more anticipation around the store opening among consumers, it coincided with the hunting lodge of a new collection in collaboration with the designer Matthew Williamson. H&Ms presence in China is expected to continue expanding rapidly through new store openings, both in existing cities and by entering new cities where it can target the rapidly growing number of middle-class urban consumers. Among H&Ms global rivals, although Inditex expanded in China and Hong Kong earlier than H&M and has a stronger presence with more outlets, it has a less developed supplier network in Asia than H&M, and as a result it can struggle to offer competitive prices to compete against H&M and also against local players, which may lead to the adoption a more differentiated positioning than in other markets. With Gap planning to enter China in 2010, it is in all probability that a greater number of international clothing and footwear specialist retailers will enter the market. Competing in a similar price segment to H&M, Fast Retailing announced at the end of 2008 its long objective to have 100 Uniqlo outlets in China. Russia untimely entry but sound long-term prospects H&M opened its first store in Russia in Moscow in March 2009. However, suffering from a fall in ordnance and oil revenues, the r egions deep recession in 2009 is worse than previously anticipated and makes H&Ms market entry untimely.Rival Inditex has developed a major presence in Russia over several years, which has allowed the group to take advantage of the prosperous economy until 2008 to expand and establish a wide client base. Longer term, H&M is set to emerge from the recession relatively unscathed thanks to its low-priced positioning and to have major growth prospects. Key point With no presence in Latin America unlike C&A and Inditex, H&M could benefit from entering the large markets of Brazil and Mexico where its low prices should help build a major customer base. 18 Geographic Opportunities Retailing Hennes & Mauritz Euromonitor International Franchise Deals Give New Middle due east Opportunities Middle East and Africa expansion set to gather pace H&Ms presence in the main Middle East market, the United Arab Emirates, continued to increase rapidly in 2009 hanks to the franchise agreement signed in 2006 with the Kuwait-based company MH Alshaya Group. Opting to expand through franchise stores and using a similar growth model as Inditex represents a major new evolution in H&Ms global expansion strategy in emerging markets, which is likely to help bucket along its global expansion. Thanks to the partnership with Alshaya Group, H&M entered the markets of Bahrain and Oman in 2009, and also opened its first two stores in Egypt in the second one-half of the year. H&M is likely to enter other new markets in the Middle East and Africa by the end of 2009, or in 2010, including Lebanon. Under another franchise deal signed with the local company Match Retail, H&M plans to enter Israel in 2010.Dedicated store fantasy for Saudi-Arabian Arabia As store concept adaptation is an important ingredient in the success for foreign retailers operating in the Middle East and Africa, and require close attention, franchise partners are in a better position than H&M to implement new concepts. For physical exertion, in order to play along with local sharia law that forces shops to have separate areas for men and for women, for its market entry in Saudi Arabia in autumn 2008, H&M opted to adapt its store concept to be only open to women and staffed by women. 19 Retailing Hennes & Mauritz Euromonitor International Strategic Evaluation Competitive Positioning Geographic OpportunitiesCategory Opportunities Brand and Operational Strategies Recommendations 20 Category Opportunities Retailing Hennes & Mauritz Euromonitor International Modest Growth Forecast for H&Ms Main Channel H&Ms sales through the clothing and footwear specialist retailers channel will account for around 97% of its sales in 2009. This channel is cypher to record modest growth over the 2009-2014 period. plot of land channel sales were hindered by the global economic crisis in 2008 and 2009, they are likely to recover to whatsoever extent, although they will remain affected by low price pressings on clothing prevailing inwardly this diffusion channel as well as in other channels.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 cut of meat most rivals while remaining at the forefront of fashion trends. The close of H&Ms sales is accounted for almost equally by homeshopping and internet retailing, although the latter is increasingly supplanting the former, mirroring the wider industry trend. Expanding internet retailing presence will help offset the growing saturation of clothing and footwear retailing. Unlike Inditex, which is also present in the furniture and furnishings stores channel in a number of markets under the Zara Home brand, H&M does not operate other store-based formats. Hennes & Mauritz (H&M) AB Global Retailing Presence & Prospects by Channel 9 8 7 6 5 4 3 2 1 0 -1 0 100,000 Internet retailing % CAGR 2009-2014Clothing & footwear specialist retailers Homeshopping 200,000 300,000 400,000 500,000 600,000 Market Size 2009 (US$ million) 700,000 800,000 900,000 Bubble size shows company sales in this channel (2009). Range displayed US$169 13,118 million 21 Category Opportunities Retailing Hennes & Mauritz Euromonitor International Battling Against Hypermarkets and sess 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, such as mass merchandisers and hypermarkets.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. 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 ? 1,000 in 2009. In the US, Gaps sales have been eroded by the success of mass merchandiser Targets aggressively priced clothing ranges. In Western Europe, the expansion of major hypermarket operators including Auchan, Carrefour, Tesco and Wal-Mart into non-food products is set to continue as they seek to improve margins.Although this trend has slowed down to some extent in 2008 and 2009 due to the global economic crisis, with grocery retailers refocusing at least temporarily on more recession-proof food items, the longer-term trend is expected to see hypermarkets attempting to be more competitive in their offer of clothing and footwear, with more appealing ranges to compete more directly against specialist non-grocery retailers. In the UK, Wal-Marts Asda chain, thanks to the increased sales of its George apparel range in 2009, threatens to overt ake tag & Spencer and Associated British Foods Primark chain to become the countrys largest clothing retailer. Tesco saw clothing sales improve in the first half of 2009 alongside growth in non-food sales, up by 8%. Meanwhile, Sainsburys is planning to increase place allocated to non-food ranges in 2010 and 2011 and widen the reach of its successful TU range of garments by offering it at more stores. 22 Category OpportunitiesRetailing Hennes & Mauritz Euromonitor International Internet Retailing H&Ms Late cornerstone H&M and Inditex both rise to the contest and plan to develop internet retailing beyond store-based rivals, 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. With consumers familiarity with rescript online more often than not on the rise, coupled with efforts from internet retailers to make their websites more visually appealing and user-friendly, consumers confidence in ordering clothes via the internet has been strongly boosted. Major homeshopping retailers which are also leading players in clothing, for example, Otto, are increasingly moving online. Similarly, H&Ms homeshopping sales in Austria, Germany, Netherlands and the Nordic countries are gradually migrating to internet retailing. The companys significant experience in homeshopping in these markets prepares it well to tackle the logistics aspects to make internet retailing trading operations efficient across European markets. Both Inditex and H&M made announcements in 2009 indicating that they are gradually joining the fray and expanding online in most European markets. Inditex will start operations in major European markets by early 2010, while H&M will launch its website in autumn 2010 in the UK.Thanks to its wide product assortment, the considerable choice increases H&Ms chances of success in internet retailing although this requires the site to be designed in a way to be easy to navigate. However, H&M is a late entrant in the channel and appears to have made a protracted move, with a superfluity of major other operators including Amazon, Asos, the John Lewis Partnership, Marks & Spencer and Tesco having already obtained a strong foothold in UK online clothes retailing. Rival Gap also plans to launch its own website in the UK, following its earlier initiative in 2009 to sell its products on the Asos. com website. In the US, Gap has a multibrand website and offers combined delivery on cross-brand orders.Aggressive expansion from internet retailing specialists and grocery retailers Major grocery retailers have high ambitions for online clothes sales, as shown by Tescos relaunch of its UK clothing website in September 2009 offering reclusive label and brands, and with Wal-Marts Asda offering the George label at Asda Direct since 2008. Websites of grocery retailers also often offer the added convenience of click-and-col lect services. Among specialist internet retailers, Amazons acquisition of the US online clothes retailer Zappos for US$850 million in August 2009 signals its ambitions in apparel retailing, and its low prices and high number of visits from customers give it key competitive advantages.Key point With internet retailing making price comparisons between retailers easier, H&M should focus on advertising its low prices and promotions on its transactional website, while also emphasising the more fashionable design of its clothes in order to differentiate its website from Amazon and the grocery retailers. 23 Retailing Hennes & Mauritz Euromonitor International Strategic Evaluation Competitive Positioning Geographic Opportunities Category Opportunities Brand and Operational Strategies Recommendations 24 Brand and Operational Strategies Retailing Hennes & Mauritz Euromonitor International H&M A widely Recognised Global Brand Strong brand awareness and image H&Ms strong brand image is a ssociated with value and swish collections, helped by the collaborations with famous designers. The latest example is the creation of the Jimmy Choo collection to be launched in November 2009.Such events create a great amount of publicity and media reportage to generate added footfall. In a similar way to Inditex, H&M relies on opening stores at a few flagship locations in major cities in order to build its brand image. Examples of such stores overwhelm the Harajuku store in Tokyo and the Champs Elysees store in Paris planned for 2010. Highlighting the H&M brands high level of awareness, it was bedded 21st among the top 100 most worthy global brands according to Interbrand in 2009, with a value exceeding US$15 billion. In comparison, Zara ranked only 50, while Gap came in at number 78. High-profile advertising with celebrities is widely used by H&M, unlike Inditex.H&M spends around 5% of its revenues on advertising. H&M Brand geographic Asia Pacific, Eastern involvement Europe , Middle East and Africa, North America, Western Europe Brand channels Clothing & footwear specialist retailers World ranking & share 1 and 1. 6% (2009) in clothing and footwear specialist retailers Multi-brand approach from Inditex In sharp contrast to H&Ms 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. It was subsequently extended to other markets Belgium, Denmark, Germany and the Netherlands. The Swedish chain Monki, acquired in 2008 and known for its sophisticate and colourful store designs, is not being rebranded and was expanded outside Sweden in 2009 with two stores in Denmark. This should allow H&M to diversify its customer base. reliance on its eponymous brand, Inditex has adopted a strategy based on building a vast brand portfolio including Bershka, Massimo Dutti, Pull and Bear, Zara and Zara Home. The key competitive advantages resulting from this companys 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. The level of independence of the companys major brands is also an important aspect of Inditexs capacity to adapt quickly to changing market conditions. Group synergies are ensured thanks to the groups vertical integration, which also contrasts with H strategy of outsourcing. 25 Brand and Operational Strategies Retailing Hennes & Mauritz Euromonitor International Operations and orphic Label Strategies Production outsourcing vs.. vertical integration H sources around 70% of its product assortment from Asia and over one third is purchased from China. It relies heavily on outsourcing production, with over 21 production offices worldwide (10 in Europe, 10 in Asia and 1 in Africa) liaising with over 750 factories.In contrast, Inditex sources the mass of i ts products from Europe, and most of its production is made in-house in order to cut the time lag between product design and in-store availability. Although production in Asia helps H undercut Inditex on price, it also makes it more vulnerable to currency fluctuations, with the value of the US dollar strengthening in 2009 against European currencies and making imports from Asia more expensive in its main market, Europe. This reduced at least temporarily the scale of its competitive advantage over Inditex. Low inventory levels H operational efficiency is reflected in the level of inventory being usually low thanks to the frequent renewal of its collection.However, the focus on reducing inventory in order to shelter margins has been detrimental to sales in some months in 2009, especially over the summer, when the company had relatively few items ready(prenominal) for markdowns. Although H generally achieves low inventory costs, it is likely to be often surpassed by Inditex in this respect. As one of the pioneers of the fast fashion business model with new ranges being introduced every two weeks, Inditex is particularly efficient in incorporating feedback from stores daily into the development of new products, thanks to vertical integration and as such, H cannot replicate this model. Private label ranges under various names All of H product assortment consists exclusively of private label. Private label ranges have various names to arget different genders and customer types. For example, Hennes is targeted at 25-35 year-old women, L. O. G. G. is a casual sportswear label and MAMA is a maternity range. Key point As European consumers awareness of ethical issues increases, H is vulnerable to negative publicity surrounding running(a) conditions at factories producing its clothes in Asia. Since it outsources a greater share of its products from Asia than Inditex and has less control over its put up chain, H auditing of factories must be strict and pellucid to limit the chances of poor labour conditions being publicized and tarnishing its brand reputation. 26 Retailing Hennes & Mauritz Euromonitor International Strategic Evaluation Competitive Positioning Geographic Opportunities Category Opportunities Brand and Operational Strategies Recommendations 27 Recommendations Retailing Hennes & Mauritz Euromonitor International Key Recommendations Develop more premium chains alongside core low-priced offering H focus on affordability remains Internet retailing to be differentiated and wide-reaching As H 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. Although its low-priced and fashionable image with its eponymous brand H should not be jeopardised, in addition to cultivating it, the retailer should also attempt to widen its customer base and especially target wealthie r consumers with its other banners such as COS and Monki stores offering edgy fashion. This could also help increase profits once the economy recovers and consumers become less cost-conscious. 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 in effect the textures, colours and finish of its clothes in order to differentiate its offer but still highlight the low prices. H presence in internet retailing could also be extended to markets where it does not seek to open physical stores, mirroring the example of Marks & Spencer delivering products to around 80 countries since autumn 2009. markets, especially in neighbouring markets to those where it operates, offers considerable growth opportunities for H. Romania and Turkey are large European markets where the store concept is likely to be popular and where rival Inditex has de veloped a major store network. In Latin America, Mexico offers opportunities in the value segment of clothing and footwear retailing. Although it is well cover by C and Wal-Mart, H can leave for more fashionconscious consumer groups. In Asia Pacific, H burgeoning presence could pelt along by expanding to new cities, especially in China and Japan. In the latter market, new store concepts and collections or new banners such as COS and Monki could be tested. 28 Retailing Hennes & Mauritz Euromonitor International Experience more This research from Euromonitor International is part of a global strategic acquaintance system which offers a complete picture of the commercial environment . Also available from Euromonitor International Global Briefings The state of the market globally and regionally, emerging trends and pressing industry issues timely, relevant perceptiveness published every month. Global Company ProfilesThe competitive positioning and strategic direction of the leading companies including unambiguously sector-specific sales and share data. Country Market brain wave Reports The key drivers influencing the industry in each country comprehensive coverage of supply-side and demand trends and how they shape the prospective outlook. 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