This week you are required to submit a case study analysis. Your paper analysis should be between 3 – 5 pages, not counting the title and reference page. No submission should be fewer than 1050 words.

Include a clear and concise introduction.

Format your case study assignment paper so that the three questions asked below are clearly defined. Double space your work, cite your work, limit quotes, and edit your work well for spelling, grammar, and punctuation errors. If you use any quotes, you must increase the length of your paper to compensate. Make sure you have two additional references other than the text and use citations.

This case study analysis will be based on the 35 case studies in your textbook (page 540-541). You are to pick ONE (1) of the companies from your text. Choose a company different from the company you used for the week five paper. You may not have two papers about the same company. You may not use a paper or any part of a paper from a previous class. Name your selection on your title page.

No abstract is required.

Read the case study and answer the following questions in your paper.

1. Assess the effectiveness of your company’s leadership.

2. Discuss the basis of your company’s competitive advantage and the potential challenges to its strategy.

3. What growth strategies might your company pursue?

Submit your paper into the assignment section of the classroom.

Font and Spacing – Use Times New Roman 12 pitch font with double-spaced lines.

Length – Write a 3 to 5 page analysis not including the title page and citation page. No fewer than 1050 words!

Reference Page – Include all sources including your textbook on a Reference page

Utilize the APA Style for documenting sources. You will need to include at least 2 sources in addition to your text. Finally, remember Wikipedia is NOT a scholarly source.

Punctuation, essay format (thesis, supporting paragraphs with transition and topic sentences, and summary) grammar and documentation count toward your grade.

Introduction

The apparel retailer H&M had made an incredible journey
from a single store established by the founder Erling Persson
in Sweden in 1947 to a pioneering ‘fast-fashion’ business with
2,206 stores in 43 countries and 94,000 employees world-
wide. ‘Fast fashion’ refers to a quick response to new trends
and fashion items that are made available in stores immedi-
ately thereafter. By the time Persson’s 34-year-old grand-
son Karl-Johan Persson took over as CEO in 2009, H&M
had become the global leader in the ‘fast-fashion’ segment
with a distinctive business approach that challenged most
competitors. The business model, commonly referred to as
‘cheap-and-chic’, emphasised high fashion at prices signi-
fi cantly below those of competitors, with the fundamental
principle being ‘Fashion and quality at the best price’.

The new CEO aimed to sustain H&M’s remarkable
annual growth rate of 20% as he stated in the 2011 annual
report: ‘In 2010 we stepped up our investments in order to
strengthen the brand further and secure future expansion.’

H&M opened another 218 stores in that year with the
most spectacular opening being on the Champs-Élysées in
Paris. The following year yet another 230 new stores were
opened, including 35 in China. However, Zara, the prime
retail brand of Spain’s Inditex, opened 120 new outlets
in China during that same year and later during the year
Inditex overtook H&M to become the world’s biggest fashion
retailer by market capitalisation. For the fi rst time H&M
was seriously challenged by Zara’s rapid expansion, not
least because of its fast growth in emerging markets. The
increased competition and the fact that margins had started

CASE STUDY

H&M in fast fashion: continued success?
Patrick Regnér and H. Emre Yildiz

The case examines the role of strategic 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. That position, however, has been challenged by key competitors and H&M

needs to consider this and evaluate the sustainability of competitive advantage in its strategic capabilities.

The case explores the areas and functions in which H&M has enjoyed advantage vis-à-vis its competitors and

how, if at all, this advantage can be sustained in the long term.

● ● ●

This case was prepared by Patrick Regnér and H. Emre Yildiz, Stockholm School of Economics. It is intended as a basis for class

discussion and not as an illustration of good or bad practice. © P. Regnér and H.E. Yildiz. Not to be reproduced or quoted without

permission.

to erode due to increased cotton prices and rising produc-
tion costs in Asia put the H&M high-fashion/low-price for-
mula and aggressive expansion under scrutiny. Investors
had come to trust H&M’s model that relied on a set of
unique resources and capabilities, but Zara’s success ques-
tioned the sustainability of the formula.

The increased competition for consumer spending in the
fast-fashion business was further intensifi ed by the poor
economic situation. With 70% of shareholder voting rights
controlled by the company’s founding Persson family,
H&M’s chief executive Karl-Johan Persson tried to calm
investors and emphasised the long-term view:

‘We have great respect for the economic climate. In
this situation it is extra important to have a long-term
perspective and to always make sure we give the best
combination of fashion and quality for money in every
market.’ 1

‘. . . we are investing for the future and we always have the
customers in focus. Despite increased purchasing costs,
we have continued to strengthen our customer offering
– for example, by not raising our prices to customers.’ 2

H&M relentlessly continued to emphasise the long-term
view in its expansion strategy. For 2013 H&M planned a
net addition of 300 new stores, with China, the USA and
the UK expected to be the largest growth markets. H&M
also planned to enter new markets, including South
America (Chile and Mexico), Bulgaria, Latvia, Indonesia
and Thailand. Despite these continuous aggressive expan-
sion plans, analysts had some doubts:

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576 H&M IN FAST FASHION

‘There are fears that the product is not good enough,
brand appeal is fading or that prices have been undercut
by an even cheaper competitor. These are big questions.’

Adam Cochrane, analyst at UBS 3

The apparel industry

The total market size of the global textiles, apparel and luxury
goods market was worth $3049.5 billion (£2018.8bn;
€2388.4bn) 4 in 2011, which corresponds to a compound
annual growth rate of just 3.7% for the period 2007–11. 5
This slow growth increases competition, which is further
intensifi ed due to a large number of small players; however,
there are a number of large international incumbents
including Inditex (Zara), Gap and H&M, with Zara being
H&M’s most signifi cant competitor (see Table 1 ). A some-
what smaller but new and vibrant player is the Japanese
company UNIQLO, which has started to expand aggressively.
Moreover, fashion, by its very nature, is unpredictable and
fi ckle – trends are prone to sharp and unpredictable
changes, which makes competition uncertain. The end
consumers have an enormous selection of garments to
choose from and will quickly adopt new trends. In the ‘fast-
fashion’ category they are also extremely cost-conscious
and will look for bargains.

Some of the players in the industry are able to act as
both manufacturers and retailers. Examples of this are the
Gap Corporation and Inditex: both manufacture their own
products and sell them in their own stores. There are a
multitude of suppliers for retailers to choose from. As inter-
national trade liberalises, the number of suppliers globally
increases and competition among manufacturers in low-
wage regions intensifi es. Switching from one supplier to
another is not a major issue, although it entails the risk that
choosing low-cost suppliers may involve a more extended
supply chain that may not be able to cope with sudden
changes in demand in an industry which is susceptible to
changes in fashion. There is also a risk that low-cost sup-
pliers may not be up to quality standards.

Entry to the retail industry does not require a large cap-
ital outlay; setting up a single independent retail store is
within the means of many entrepreneurs and there are
plenty of suppliers to choose from. However, on a global
scale, a few large corporations account for a major share of
total industry revenues. Their size and economies of scale
bring about the ability to build brands in multiple retail
outlets, and considerably greater buying power when
negotiating with suppliers (see Table 2 ).

The spirit of Hennes and Mauritz (H&M)

H&M is an abbreviation of ‘Hennes’ (the name of the fi rst
women’s apparel store opened by Erling Persson in 1947) and

‘Mauritz’ (a later acquisition of a men’s clothing store). The
company has undergone a tremendous transformation from
having just one store and a domestic focus to becoming one
of the world’s largest fashion retailers. As argued by one of
the few journalists that has access to the company: ‘The story
of H&M does not really concern clothing, but from the begin-
ning one man’s vision – or rather unbreakable stubbornness,
devotion to a goal and knowledge of human nature.’ 6

Not unlike IKEA in furniture, the H&M philosophy is to
make fashion affordable for everyone: ‘Fashion and quality
at the best price’. The roots of the H&M ‘spirit’ can be traced
back to the 1940s, when Erling Persson started to conduct
what he called ‘the primitive trade of buying and selling’ 6
with the essence of ‘tradesman-ship’. This was also main-
tained at the core of the company’s culture when his son
Stefan Persson took over as CEO in the 1980s. Even after
Karl-Johan Persson took over in 2009 the leadership style
and organisational culture still relied on Erling Persson’s
basic values and beliefs, based on his strong business
acumen including thrift, no-nonsense decision making and
delegation of responsibility. These are fundamental ingredi-
ents of ‘the spirit of H&M’, which remained the shared and
tacit understanding of how to do business in H&M. It is
underlined by seven codifi ed core values: ‘(1) Keep it simple,
(2) Straightforward and open-minded, (3) Constant improve-
ment, (4) Entrepreneurial spirit, (5) Cost conscious, (6) Team
work and (7) Belief in people.’ 7

Another aspect of the H&M spirit is the extraordinary
focus on employee involvement. This participatory manage-
ment philosophy is one of the reasons why H&M is seen as
a company where experimentation, trial-and-error learning,
fast decision making and willingness to take initiatives and
try new ideas defi ne the basic pillars of organisational culture.
Another key ingredient in the culture of H&M is the active
encouragement of this spirit at all organisational levels. 8 Trying
new things is also encouraged among purchasing man agers,
but while trying something new and making mistakes is OK
it is important that the same mistake is not repeated.

Experimentation is also present at the store level where
interior decoration, lighting, colours, clothes displays and
even locations are swiftly changed depending on sales and
customer preferences. However, the range within which
new ideas can be tried is clearly bounded by H&M’s core
ideas and values. In a memo to its employees, H&M specifi es
this as follows: ‘Our employees all contribute to making
H&M what it is today. We have a strong corporate culture
– the spirit of H&M – that is based on simplicity, a down-to-
earth approach, entrepreneurship, team spirit, straight
lines, common sense and a belief in individuals and their
ability to use their initiative.’ 9

Swedish national values also play a role – including a
humble, informal and non-hierarchical management style
combined with the ‘democratisation of fashion’. Creative

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H&M IN FAST FASHION 577

Table 1 H&M and its multinational competitors

Positioning and segments Business model Key figures Financials

H&M H&M is a retailer of fashion apparel,
cosmetics, accessories and shoes for women,

men, teenagers and children. The Collection

of Style (COS) offers customers a

combination of timelessness and distinctive

trends, for both women and men. The Monki

stores provide innovative collections and an

inspiring fashion experience characterised by

playfulness and colourful graphic design.

Weekday sells its own brands but also

commissions design collaborations with

independent fashion labels. The Cheap

Monday stores combine influences from

street fashion and subcultures with a

catwalk vibe. The latest addition is the

luxury store concept ‘ & Other Stories ’.

The business is operated from

leased store premises, through

internet and catalogue sales

and some franchise stores. H&M

does not own any factories.

Production is outsourced to

independent suppliers. H&M’s

growth target is to increase the

number of stores by 10–15%

per year, and at the same time

increase sales in comparable

units. This growth is entirely

self-financed. The collections

are created by 140 in-house

designers.

At the end of 2010, H&M

had 2,206 stores which

included 50 franchise

stores, 35 COS stores, 48

Monki stores, 18 Weekday

stores and one Cheap

Monday store. The group

outsources product

manufacturing to 700

independent suppliers

through its 16 local

production offices in

Asia and Europe. The

company employs more

than 94,000 people.

The company

recorded revenue of

$16,137 million in

the fiscal year ending

November 2011, an

increase of 1.4%

compared to fiscal year

2010. Its net income

was $2,321 million in

fiscal year 2011,

compared to a

net income of

$2,880 million in

the

preceding year.

Inditex
(Zara)

The flagship brand of the company is Zara .

Zara also operates Kiddy’s Class stores, which

specialise in junior fashion. The Pull and

Bear format offers casual clothing. It caters

primarily to young males and females and

offers a range that starts from sophisticated

urban fashions to casual wear. Bershka stores

are large and spacious. They are intended to

be meeting points for street fashion, music

and art. Massimo Dutti stores are located

in prime retail locations and offer basic,

contemporary styles in next-generation

fabrics including high-quality garments.

Stradivarius is aimed at young fashion-

conscious customers, offering international

fashion with the latest designs. Oysho offers

fashion trends in women’s lingerie and

undergarments.

With an in-house design and

a tightly controlled factory

and distribution network, the

company has the ability to take

a design from drawing board to

store shelf in just two weeks.

That enables Zara to launch new

items every week, which keeps

customers coming back again

and again to check out the

latest styles. The company

also has a policy of zero

advertising and instead invests

its revenues in opening up

new stores.

Zara is present in 74

countries, with a network

of 1,608 stores located in

major cities throughout the

world. Pull and Bear has

opened 626 shops in the

main streets and shopping

centres of 44 countries.

Massimo Dutti operates

630 stores in 60 countries.

The Bershka sales format

has 651 stores in 44

countries. There are

currently 515 Stradivarius

stores in 37 countries.

There are currently

392 Oysho stores in

23 countries.

The company
recorded revenue of

$17,159 million in

the fiscal year ending

January 2011, an

increase of 13.0%

compared to fiscal year
2010. Its net income

was $2372 million in

fiscal year 2011,
compared to a
net income of

$1828 million in

the preceding year.

Gap Under the Gap brand, the company offers
an extensive range of apparel at moderate

price points. Banana Republic was acquired

by the company in 1983. This brand offers

sophisticated, fashionable collections at

higher price points than the Gap brand.

The Old Navy brand was launched in 1994

to address the market for value-priced family

apparel. The brand Athleta offers customers

performance-driven women’s sports and

active apparel and footwear for a variety of

activities.

The company operates through

two segments: stores and direct

sales. The stores segment

includes the results of the retail

stores for each of the company’s

brands: Gap, Banana Republic,

Old Navy and Athleta. The direct

segment includes the results of

the online business for each

of the company’s web-based

brands.

The company sources

private-label merchandise

from approximately 590

vendors and non-private-

label merchandise from

approximately 430 vendors.

These vendors are spread

across 50 nations. The

company operates over

3200 stores worldwide,

and has around

132,000 employees.

The company recorded

revenue of $14,664

million in the fiscal year

ending January 2011,

an increase of 3.3%

compared to fiscal year
2010. Its net income

was $1,204 million in

fiscal year 2011,

compared to a net

income of $1,102

million in the

preceding year.

UNIQLO The company is a retail chain operator
specialising in in-house designed casual

clothing for men and women. The company

operates stores under the name of UNIQLO .

The company is the leading clothing retail

chain in Japan in terms of both sales and

profits. UNIQLO is a member of Fast

Retailing Group, which also operates other

chain stores under the franchise names

Theory (fashionable basic clothes that

suit a contemporary lifestyle), Comptoir

des Cotonniers (the brand nurtures a

sense of natural authenticity and flattering

femininity), Princesse tam.tam (corsetry,

lounge wear and swimwear brand), and

G.U. (an entirely new business model for

a company offering extremely low-priced

clothing in the Japanese market).

UNIQLO has established a SPA

(Speciality store retailer of Private

label Apparel) business model

encompassing all stages of the

business – from design and

production to final sale. By

continuously refining this SPA

model, UNIQLO differentiates

itself from the competition by

developing unique products.

The company quickly makes

adjustments to production

to reflect the latest sales

environment and minimise

store-operation costs, such as

personnel costs and rent. This

is how UNIQLO provides such

high-quality clothing at such

reasonable prices.

UNIQLO Japan operated

a network of 848 stores

at the end of June 2012.

UNIQLO International had

a total of 275 stores as of

May 2012. Of that total,

135 stores are located in

China, 16 in Hong Kong,

75 in South Korea, 17 in

Taiwan, 6 in Singapore, 5

in Malaysia, 4 in Thailand,

10 in the United Kingdom,

2 in France, 2 in Russia

and 3 in the USA. UNIQLO

has around 70 partner

factories, and roughly 75%

of UNIQLO products are

made in China.

The company
recorded revenue of

$7835 million as of

the end of August

2011, an increase

of 0.6% compared to

fiscal year 2010.

Its net income was

$688 million in fiscal

year 2011, compared

to a net income of

$787 million in

the preceding year.

Source : company websites

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578 H&M IN FAST FASHION

advisor Margareta van den Bosch comments: ‘We’re a very
democratic society [in Sweden] . . . We keep what we do
simple and we think it’s wrong that fashion should be the
preserve of the rich.’ 10

Despite this humility, results are central, something
which is emphasised by Erling Persson’s early focus on
‘ takten ’ or ‘the pace’, which still remains a fundamental
practice at all organisational levels. It is a straightforward
and persuasive weekly list that includes sales and other key
fi gures compared to the previous day, month and year. On
this list each manager can clearly see exactly how much
has been sold of each individual product. The buyers use
this information to reallocate production or shipments,
reducing potential over-stocking problems. This itemised
report also allows buyers to maintain a high level of turn-
over, keeping the apparel on the sales fl oor up to date. All
employees are also made aware of these results; and if sales
are up from the previous day, the sales fi gures are applauded
during store morning meetings.

Limited attention to titles and work descriptions is also a
characteristic of H&M: ‘At H&M we do not have any work
descriptions. It provides considerable freedom, but it also
makes it more diffi cult to blame someone else and claim
that something is not part of your duties. Some love it, but
others leave after a few weeks.’ 11

In line with this emphasis on informality, indepen d-
ent decision making is celebrated and decentralisation
is encouraged within the limits of the organisational cul-
ture. However, central functions like buying and logistics
also have a considerable influence and the organisa-
tion is in a sense ‘a peculiar mix of strong centralisation
and delegation’. The fl at and simple organisational struc-
ture has also been more challenging to preserve due to
H&M’s tremendous growth. The company has a matrix
country/function organisation, with each executive
management team member for a function being respon-
sible for the results of work within their function in each
country.

Table 2 Comparative financial data

H&M 1 Inditex (Zara) 1 Gap 2 Uniqlo 3

Key figures (thousand US dollars)
Operating revenue (turnover) 16,137,877 17,159,719 14,664,000 7,835,853

Income before tax 3,072,386 3,180,253 1,982,000 1,294,111

Net income 2,321,088 2,372,369 1,204,000 688,928

Cash flow 2,799,654 3,298,037 1,860,000 n.a.

Total assets 8,830,140 13,460,382 7,065,000 3,081,094

Shareholders’ funds 6,470,467 8,748,196 4,080,000 994,934

Current ratio 2.70 1.94 1.87 1.07

Profit margin (%) 19.04 18.53 13.52 16.52

Return on shareholders’ funds (%) 47.48 36.35 48.58 130.07

Return on capital employed (%) 46.11 32.51 n.a. 117.81

Solvency ratio (%) 73.28 64.99 57.75 32.29

Price/earnings ratio 19.76 19.86 n.a. n.a.

Number of employees 64,874 100,138 n.a. 4,150

Profitability ratios
Return on shareholders’ funds (%) 47.48 36.35 48.58 130.07

Return on capital employed (%) 46.11 32.51 n.a. 117.81

Return on total assets (%) 34.79 23.63 28.05 42.00

Profit margin (%) 19.04 18.53 13.52 16.52

Gross margin (%) 60.47 57.48 44.55 49.14

EBITDA margin (%) 21.49 23.71 17.89 n.a.

EBIT margin (%) 18.53 18.31 13.42 17.70

Cash flow/turnover (%) 17.35 19.22 12.68 n.a.

Structure ratios
Current ratio 2.70 1.94 1.87 1.07

Liquidity ratio 1.77 1.49 1.10 0.72

Shareholders’ liquidity ratio 33.24 8.35 4.58 9.48

Solvency ratio (%) 73.28 64.99 57.75 32.29

Gearing (%) 3.01 12.02 21.89 10.55

Notes :

1 As of 30 November 2011 and for 12 months

2 As of 29 January 2011 and for 12 months

3 As of 31 August 2011 and for 12 months

Sources : Mint Global, Bureau van Dijk

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H&M IN FAST FASHION 579

Store operations and management

The company always positions its stores in the very best
locations, whether in a city or a small-town shopping centre.
This has been a fi rm principle of H&M’s since the fi rst shop
opened in 1947, and the principle is still strictly adhered to.
The store is the most important communication channel
H&M has with its customers and it must be inviting and
inspiring, strengthening the brand and offering local cus-
tomers the best possible shopping experience.

Instead of claiming full ownership of the property, H&M
opts for renting store premises, which increases fl exibility
and adaptability. By renting space, the company is able to
adapt more quickly to the changing demand patterns and
location attraction in its key markets.

The window display – where the customer meets H&M
– is perhaps the most important part of the store. Guidelines
for store design and display windows are created centrally
based on a large ‘test store’ in Stockholm. Every two or
three years a completely new interiors programme is cre-
ated. Although centrally guided, every store is unique as it
showcases different items in the window display, although
they may come from the same collection. Displays, both in
windows and inside stores, are changed frequently. This
way, consumers are continually attracted to visit the stores
to keep up with the latest collections.

In line with H&M values, decision making is decentral-
ised and store managers have considerable autonomy. The
shop manager runs the business like an entrepreneur and
is authorised to take independent decisions within the over-
all guidelines, essentially like running one’s own business.
This increases employee loyalty and commitment to the
organisation and is a great motivator.

Marketing and social media

H&M’s strong brand image is associated with value and
stylish collections. In addition to 200 in-house designer
collaborations with famous designers, there is a unique
approach that has been employed by H&M over the years.
This includes the collections designed by Stella McCartney
in 2005, by avant-garde Dutch designers Viktor & Rolf in
2006, by Madonna in 2007, by the Italian designer Roberto
Cavalli and Kylie Minogue in 2007, by Sonia Rykiel in
2009, by Versace in 2011 and by Italian fashion label
Marni in 2012.

Highlighting the brand’s high level of awareness, H&M
was ranked 21st among the top 100 most valuable global
brands according to Interbrand in 2011, with a brand value
of $16.5 billion. In comparison, Zara ranked 44th with
US$8 billion, and Gap came in at number 84 with US$4
billion. This huge difference can partly be attributed to
H&M’s long-term advertising campaigns with high-profi le

celebrities. In order to enhance the value of its brand name,
H&M spends around 5% of its revenues on advertising.

In addition to conventional channels, H&M has also
established a strong social media presence. The company
aims to become part of its customers’ daily lives through
its pages on Facebook, Twitter, Instagram, Google+ and
YouTube as well as the Chinese social networks Youku and
Sina Weibo. Each network is updated on a regular basis.
Through social media, millions of H&M followers share
ideas and opinions and get quick answers to their queries.
New fashion videos and reports are uploaded onto YouTube
weekly and have already had more than 15 million hits.
Through the H&M apps customers can explore the latest
collections and campaigns, fi nd out what’s new at H&M
and locate stores. At its launch in August 2010, the iPhone
app was the most downloaded application in almost all of
H&M’s markets.

Design

Design is centralised at the Stockholm headquarters
and includes a team of almost 200 designers and about
100 pattern makers. The centralisation of design allows for
minimal time-to-market and the design team has direct
contact with the production offi ces around the globe. This
allows for a rapid-response manufacturing process to cap-
italise on design trends immediately. The design team
works intensively with new trends, materials and colours
from what is popularly known as the ‘White Room’ and is
supported by the 50 production offi ces around the world.

Much effort is put into researching and predicting
emerging market trends. H&M designers hold customer
surveys, dialogue sessions and focus groups, and pick up
trends from employees in the global stores and then add
their own particular features. They need to have an up-to-
the-minute fashion feedback focus and be conscious of the
very latest trends. According to Ann-Sofi e Johansson, head
of H&M design department: ‘We try to look out for trendset-
ters, what’s popping, vintage looks, what’s happening at
music festivals. The Internet is getting more important as
are catwalk shows, but these are more of a confi rmation of
what we know is out there.’

She and her team pick up inspiration in several ways –
notes from travels, fashion classics offered by Paris, Milan,
New York, London and Tokyo, textile fairs, street fashion
and exhibitions: ‘Celebrity inspiration is also important, as
well as what bloggers are saying and old-fashioned sources
such as music, magazines, movies and costume dramas.’ 12

However, H&M always adds its own touch to the design,
creating collections that strike a good balance between the
latest trends and the basics. Margareta Van den Bosch,
creative adviser and former head designer, says: ‘We get
inspiration from everywhere, but the most important thing

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580 H&M IN FAST FASHION

is to make it your own way. Quality means carefully testing
everything before it hits the shops, from jeans to lipstick.
But it also means H&M is a fashion house in its own right,
with its own trends. We do not copy.’ 13

Apart from size adjustments, for example in the Asian
market, no special changes are made to the collection to
adapt to the needs in specifi c countries. H&M argues that:
‘It is important that H&M keeps its own personality in each
country, and fashion has become more global, more inter-
national.’ 14 Similar trends are appearing the world over. Of
course, this is also driven by economies of scale in buying
and manufacturing.

Buying, local production offices and Corporate
Social Responsibility (CSR)

H&M does not own any factories. Instead, manufacturing is
primarily outsourced to low-cost countries with approx-
imately 70% of production in the Far East and South Asia
and the remainder in Africa, Europe and the Middle East.
With the focus on economies of scale, including low-wage
and high-volume production, the company maintains low
input costs and often has the latest trends in its stores
within a month of the initial design. 15 H&M also constantly
redefi nes its production and distribution in response to
changing market and production conditions to ensure that
they continuously improve the effi ciency of the production
fl ow. This way, H&M has been able to reduce lead times
by 15–20% in recent years. 16 In 2011 H&M worked with
747 suppliers of which 150 were considered long-term
stra tegic partners. Buying is centralised in Stockholm and
has always had a central role in H&M. Managers within
this function have often been the best paid in the entire
organisation.

To reduce lead times, the 50 production offi ces are in
direct contact with suppliers and report back to central
procurement in Stockholm. They mediate between the
large network of independent suppliers and the central
purchasing offi ce to identify the right suppliers to place
orders with, in order to optimise time and cost decisions
and ensure that these decisions follow H&M’s CSR policies.
Each supplier owns or subcontracts multiple factories;
globally, 1,652 factories were approved for making
goods for H&M. H&M conducted a total of 2,024 annual
audits of suppliers, of which 78% were unannounced.
CSR has increased in importance for H&M. Being a
high-profi le and visible player in the textile and apparel
industry, the company is under constant scrutiny in
terms of working conditions and wage levels in the over-
seas suppliers they work with. Being fully cognisant of
this, H&M pays particular attention to CSR and takes
several actions throughout its value chain to keep its
brand name away from the usual criticisms aimed at the

textile industry. H&M also produces a special collection
(the Con scious Collection) using sustainable materials.
The company has formulated seven commitments called
‘H&M Conscious Actions’. These include adopting ethical
practices, improving working conditions and using natural
resources responsibly. Other projects include community
investments. 17

Logistics: distribution, warehousing and IT

Buyers and production offi ces are closely integrated
throughout the value chain with distribution centres,
warehouses and the stores around the globe. To reduce
poor buying decisions and to increase fl exibility in allowing
stores to restock quickly during the season with best-
selling products, H&M makes sure not to place orders too
early. H&M puts more emphasis on economies of scale in
its supply chain set-up compared to Zara, which focuses
on fl exibility and speed:

‘Lead-times vary from two to three weeks up to six
months. The different lead-times refl ect differences in
the nature of the goods. The trick is to know the right
time to order each item. A short lead-time is not always
the best, since the right lead-time is a matter of bringing
price and quality into balance.’ 18

H&M controls virtually all logistics internally except for
external contractors handling transportation. The integ-
rated logistics function is a key business process for H&M
that supports cost-effi cient supply of goods and generates
economies of scale: ‘H&M can offer the best price by avoid-
ing middlemen, buying the right product from the right
market, being cost-conscious at every stage and having
effi cient distribution.’ 19

This integrated direct distribution channel ensures that
H&M stores receive new shipments daily, giving the com-
pany further control over supply and demand shifts. Store-
keeping of merchandise is minimised and individual stores
do not have backup stocks; they are replenished as required
from a central warehouse. They also shift merchandise
around internally, depending on demand. For example, if
a particular fashion proves exceptionally popular to men
in a particular region, but not in another, they can shift
inventory from the fi rst region to the second. The distri-
bution set-up also enables H&M to respond to market
segment changes within a country.

To support the swift and effi cient fl ow of goods, H&M
logistics depend on effective information sharing and the
latest IT systems that are continuously being developed.
These systems not only allow for more optimal decisions
regarding demand and supply, but also provide informa-
tion for understanding customer needs and the placement
of products.

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Account: s7348467

H&M IN FAST FASHION 581

Taking H&M’s mix of supply chain management, logis-
tics and IT into consideration, the company is considered a
world leader in these areas:

‘Its centralised logistics and warehouse system, close
coordination of the procurement staff with the produc-
tion offi ces, intelligent use of ICT [information and com-
munication technologies] tools, purchasing fl exibility
and overall a central governing model, has incredibly
reduced the lead time and improved logistics to have
lightning-fast turnaround speed of just 20 days, making
it a truly unique supply chain innovator.’ 20

Human Resource Management (HRM)

Key to the recipe of H&M’s success is its ability to establish
a strong corporate culture with well-defi ned values, and to
make sure its employees understand and internalise these
values in their job. One important element to ensure that
this culture is alive is to integrate it into HRM’s recruitment
process and training.

Internal promotion and job rotation are two central
ingredients in H&M’s HRM policies, and experience, loyalty
and continuity are highly regarded. These two aspects are
central to keep on cultivating and disseminating the H&M
spirit and culture throughout the organisation. The steady
growth in H&M provides ample opportunities for employees
to take on new challenges in another store, department,
role or country. Aligning corporate and individual goals
with development and growth strategies is essential for
H&M:

‘The key words for continual growth are responsibility
and commitment. We have committed employees and
we are prepared to delegate responsibility at every level.
I tell employees, if you do not grow, neither will H&M.’

Head of HRM, Pär Darj 21

A participative culture is thus central to the spirit of H&M
and the leadership philosophy emphasises straightforward
and direct relationships with employees. The HRM policies
emphasise the core value – ‘We believe in people’ – and the
open-door policy, granting all employees the right and pos-
sibility to discuss any work-related issue directly with the
management.

Consequently, H&M values personal qualities much
more than formal qualifi cations; great school grades and all
the university credits in the world are no guarantee of a job
or a fast-track career. More than anything, H&M looks for
people with the right personality – people can gather skills
as they go along, but personality and attitude can not be
taught. H&M is a fast company with a high tempo and
needs employees who are self-driven, who like responsibil-
ity and decision making and who are capable of leading. A

love of fashion combined with a focus on sales is perceived
as a major advantage.

Internationalisation and expansion

While H&M’s skill in providing fashionable and elegant
clothes at fashionable prices and catering for the dynamic
tastes and preferences of customers can broadly be identi-
fi ed as the main drivers of its success, perhaps its unique
advantage lies in its ability to replicate the same business
concept and ‘spirit’ across time and space. Since the 1990s,
international expansion has been aggressive and the
company has moved into Eastern European markets, the
Middle East, Asian markets and Russia. By 2005 H&M
had expanded into more than 20 countries with more than
1,000 stores.

Continuous growth by replicating the same business
model and store concept thus defi nes the core of the com-
pany’s expansion strategy. Prior to moving to a new coun-
try or city, H&M fi rst conducts a thorough evaluation
of market potential. This is done according to factors
like demographic structure, purchasing power, economic
growth, infrastructure and political risk.

H&M’s strategy is to recruit local people wherever it
opens a new store. H&M looks for those who have the
‘right’ personality and potential to understand and adopt
the core values of the organisation. Another element is to
use formal training programmes as well as on-the-job
training to socialise employees into this culture and make
sure that they understand and act according to the core
values of the company. These socialisation mechanisms are
the means by which H&M successfully adopts a ‘mental
franchising’ model, in which the ownership of each and
every store remains in the hands of H&M whereas the shop
managers often run their shop as if it were their own.

All of these initiatives are essential ingredients of H&M’s
constant growth strategy, in which the ambition is to cre-
ate and re-create the basic and fundamental values and the
overall H&M spirit. To this end, the company keeps formal
rules and procedures to a minimum and instead prefers to
equip its employees with tacit skills via experiential learn-
ing in the fi eld. This way, H&M makes sure that those who
work in new outlets are exposed to and infused with the
original spirit. Combining this with the values of initiative
taking and entrepreneurship, H&M has been able to stay
ahead of its competitors by moving fast and reaching large
markets based on applying a simple business model univer-
sally and making subtle modifi cations and adaptations at
the local level.

H&M’s growth to become one of the largest global
fashion retailers is an incredible success story – from one
store in 1947 to 2,500 in 2012. In 2013 H&M was plan-
ning to open another 300 stores and also plans to open a

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582 H&M IN FAST FASHION

much anticipated new luxury-label format of stores called
‘& Other Stories’. It also plans to develop online sales in
the USA and open its largest store in the world on Fifth
Avenue, New York. However, fashion retailing history is
full of companies that have confi dently expanded into new
international markets, but later have been forced to retreat
and drastically curtail their growth – from Marks & Spencer
to C&A and Benetton. The question for H&M and its third-
generation leader Karl-Johan Persson is to what extent will
H&M’s resources, capabilities, practices and knowledge be
enough to keep up with the competition, including new
and vigorous entrants? Will these entrants be able to repli-
cate H&M’s success?

Notes and references

1. As quoted in Financial Times , 29 September 2011: ‘H&M continue

aggressive expansion’ by Clare MacCarthy.

2. As quoted in Financial Times , 29 March 2012: ‘H&M to launch new

line of stores’ by Michael Stothard.

3. As quoted in Financial Times , 26 January 2012: ‘H&M defend

strategy as margins fall’ by Michael Stothard.

4. $1 = £0.65 = €0.77.
5. Marketline (2012) Industry Profile: Global Textiles, Apparel &

Luxury Goods. Ref. Code: 0199-1016.

6. Pettersson, B. (2001) Handelsmännen , Månpocket: Stockholm, p. 21.

7. H&M website: http://about.hm.com/AboutSection/en/About/Facts-

About-HM/About-HM/Business-Concept-and-Growth.html

8. Pettersson, B. (2001) Handelsmännen , Månpocket: Stockholm, p. 91.

9. http://about.hm.com/content/dam/hm/about/documents/en/

Corporate%20Governance/Remuneration/Presentation%20HM%20

Incentive%20Program%202010_en

10. As quoted by Daily Mail / Mail online : ‘H&M: Meet the brains behind fash-

ion’s megabrand’ by Jo Craven: http://www.dailymail.co.uk/home/

you/article-1249693/H-M-Meet-brains-fashions-megabrand.

html#ixzz27Tr5wTLk

11. Jan Jacobsen, as quoted in Pettersson, B. (2001) Handelsmännen ,

Månpocket: Stockholm, pp. 261–2.

12. As quoted by The Star online : ‘High street label H&M serves up

inspiring fashion at affordable prices’ by Patsy Kam: http://thestar.

com.my/lifestyle/story.asp?file=/2012/9/20/lifearts/12000618&se
c=lifearts

13. As quoted by Chinadaily.com , ‘H&M: from the inside’ by Nishita

Mehta-Jasani.

14. Margareta Van den Bosch, creative advisor, as quoted by Chinadaily.com ,

‘H&M: from the inside’ by Nishita Mehta-Jasani.

15. Capell, 2002, Business Week.

16. The European e-business market watch: http://ec.europa.eu/enter-

prise/archives/e-business-watch/studies/case_studies/documents/

Case%20Studies%202004/CS_SR01_Textile_2-HM

17. h t t p : / / a b o u t . h m . c o m / c o n t e n t / h m / A b o u t S e c t i o n / e n / A b o u t /

Sustainability/Commitments/Communities.html

18. Kihlén, T. On Logistics in the Strategy of the Firm , Linköping

University, Sweden.

19. Annual Report 2011.

20. Pal, R. (2011) ‘Identifying organizational distinctive competence by

business mapping in a global textile context’, Journal of Textile and

Apparel Technology and Management , 7(4), pp. 1–23.

21. Annual Report 2008.

Recommended videos

http://www.youtube.com/watch?v=CHYogtRrrUY – interview with CEO
Karl-Johan Persson by Bloomberg on strategy, costs and internet sales

(note: the correct name for the interviewed current H&M CEO is Karl-

Johan Persson).

http://www.youtube.com/hm – official YouTube channel of H&M where

video clips on new campaigns and promotions are shared.

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