H&M is upping the stakes to better compete against Zara

H&M is a Swedish multinational clothing-retail company, regarded as the world’s second biggest fashion company and known for its fast-fashion clothing lines for women, men, teenagers and children. It operates in 62 countries with over 4,000 stores and as of 2015, around 132,000 employees. It is the second largest retailer, just behind Inditex (parent company of Zara, based in Spain), and it is largely considered its closest competitor.

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After years of continuous growth and expansion, the company’s profit rate has weakened as other brands like Uniqlo, Inditex and Asos gain the public’s attention through the see now, buy now business model. Their fast-as-can-be production cycle allows them to resupply in-demand items and turn up new styles to satisfy their customer’s needs. All the while boosting their production and keeping up with emerging trends at a vertiginous rate.

Recently , life has been getting difficult for the brand as Zara keeps the upper hand and H&M tries to keep the pace. The company stated that conditions remained very tough in European markets and in the United States, variables as shopping behavior and customer expectations changing drastically fast and affecting turnout of products in production. The expected sales growth and bigger mark-downs resulted in weaker earnings and as a result their shares fell 5%. The problems for the company derive mainly from price pressure in its budget ranges with competitors such as Britain’s Primark which recently entered their market in Germany.

H&M Chielf Executive Karl-Johan Persson confessed to Reuters that some practices of the company have not evolved with the times, agreeing that the company would indeed change their supply chain practices to move their production closer to end-markets while maintaining their profitability. He said that some of those changes might involve moving into Europe to get faster deliveries in the continent and find suppliers with more flexibility in order to achieve a flexible supply chain.

H&M is also seeking to branch out, by selling brands made by third parties, to reach a wider range of customers. On Thurdays the company announced their decision to increase their investment this year with their opening of their new brand rooted in “style beyond trend”: Arket (you can check the full report from Business of Fashion here).  This new chain of stores would cover a slightly higher price range than your usual H&M store, and sell the aforementioned third party brands. They are also working on the customer perception of the brand by furthering their as-of-yet not so known magazine and creating a celebrity starred image for their conscious exclusive line of products. This move is expected to boost their rep as well as appeal to younger markets.

Check out the H&M Magazine: here

The problem behind the new lines of faster production and the added amount of items in regards to the expected expansion, is that H&M would have almost all of their production done in Asia due to the necessity of keeping their prizes competitive. Questions of underpaid labor, and working conditions are valid concerns that arise from all Asian based production lines.  Inditex on the other hand, keeps their production closer to their main markets, being able to react faster to sales trends, capitalizing on the constant shifting trends and likes of young consumers by producing in season and delivering from nearby factories as needed, and all the while maintaining a well paid task force and ethic procedures of production.

As of now, H&M is focusing on warehouse automation, metadata analysis and RFID tagging so that location and movement of clothing can be quicker to address shortages or oversupply. Shortening the time in stock checks is their next year goal, in a move that copies how Inditex operates with its Zara shops.

Sources: Reuters, BOF, Nasdaq, H&M