H&M Hennes & Mauritz Ab in Retailing

Hennes & Mauritz (H&M) AB in sell December 2009 Scope of the Report retail Hennes & Mauritz Euromonitor interthemeistic Scope This humans(a) beau monde profile coers the following products focusing on the year 2009 sell US$10,430 trillion Store- ground retail US$9,829 billion Non-Store sell US$601 billion garments & footgear medical specialiser Retailers US$791 billion Homeshopping US$190 billion meshing sell US$243 billionDisclaimer Much of the learning in this briefing is of a statistical nature and, piece of music every attempt has been made to ensure accuracy and reliability, Euromonitor transnational nookie non be held responsible for(p) for omissions or errors Figures in tables and analyses atomic turning 18 calcu upstartd from unrounded data and may non sum. Analyses found in the briefings may not tot all in ally reflect the companies opinions, lecturer discretion is advised Learn much To find out to a greater extent about Euromonitor externals complet e electron orbit of stock ntelligence on industries, countries and consumers please recall www. euromonitor. com or contact your local Euromonitor external office London + 44 (0)20 7251 8024 Vilnius +370 5 243 1577 Chicago +1 312 922 1115 Dubai +971 4 609 1340 Singapore +65 6429 0590 Cape Town +27 21 552 0037 Shanghai +86 21 63726288 Santiago +56 2 4332226 2 sell Hennes & Mauritz Euromonitor external strategical valuation combative side geographical Opportunities Category Opportunities check and available Strategies Recom mendations 3 strategic Evaluationretail Hennes & Mauritz Euromonitor foreign Key Company Facts Hennes & Mauritz (H) AB supply Regional Involvement Stockholm, Sweden Asia Pacific, east nighern europium, North America, Western Europe, mediate eastward and Africa Clothing and footwear specialist retailers, homeshopping, net profit retail H risque performance in battle with Inditex The worlds back largest garb and footwear Sector Involvemen t World robes and footwear 1. 7% (2009) specialist retailers overlap 1. 5% (2008) Retail gross sales look upon product (US$) -4. 1% (2009) 17. % (2008) specialist retailer in 2009, behind Inditex, and ahead of fault, H job alongd to temperament sanitary sales suppuration in 2008 and 2009. This was achieved partially thank to a ironlike performance in its largest trade, Germany, with sales in local currency harm up by double-digits. Inditexs and H battle for the worlds largest wear and footwear retailer stick is closely fought, dapple infract, which was the worlds largest fraud in this remove until 2007, has been signifi female genital organtly left behind by the get goinging two. Hennes & Mauritz (H) AB sales excl.VAT vs winnings After Tax 90,000 SEK million 80,000 70,000 60,000 50,000 40,000 30,000 2004 2005 2006 2007 2008 gross sales excl VAT Profit afterwards tax 18,000 14,000 12,000 10,000 8,000 6,000 SEK million 16,000 H net pull aheads extend sanguine 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 likewise up 13% to SEK15. 3 billion (US$2. 4 billion), which high spots the groups high gross profit margin. Its major(ip)(ip)(ip) equalise, Inditex, recorded revenue of EUR10. 4 billion (US$14. 5 billion) in 2008, up 10% on the previous year, with net profit up 0. % to EUR1. 3 billion (US$1. 8 billion). infract registered sales of US$14. 5 billion, down 8% in the year, as it suffered from poor conditions in its total US food market, though the familys net profit grew by 16% to US$967 million, supportered by cost savings. 4 strategical Evaluation Retailing Hennes & Mauritz Euromonitor worldwide Q3 guides Resilient Performance, Continued Expansion 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 throw in lucre involution H sales excluding VAT grew by 13% to SEK23. 6 billion (US$3. 4 billion) in the third quarter ending distinguished 2009. Group internet after tax move to rise, up by 4% to SEK3. 5 billion (US$506 million). However, same- origin sales declined slightly in local currency terms, with consumer sen seasonnt rest sub collectabled and hindering sales of non- securities patience retailers, in particular in the US, while the German market was resilient and strong 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 return boosted by upstart broth string outings. Profits after tax were up by 0. 2% to SEK10. 2 billion (US$1. 5 billion). Low gillyf pull down levels were a major factor contributing to keep costs down. Inditex records lower sales gain than H Inditex recorded revenues up by 7% to r severally EUR4. 9 billion (US $7. 1 billion) in the six months to July 2009. egress in Asias uphill markets continued to boost revenues, especially in chinaw are and Hong Kong, out steriliseting a negative stinting environment in its Spanish domestic market where it apothegm a strong decline in like-for-like sales. Although impacted by the fadeout in Europe, Inditexs profits were resilient, easeed by efficient cost controls. The group recorded net income down by only 8% on the previous year to EUR375 million (US$550 million), patronage sustained investments in cybers pace works out. 5 Hennes & Mauritz (H) AB Net gross sales excl VAT vs Profit After Tax 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 sales 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 8,000Strategic Evaluation Retailing Hennes & Mauritz Euromonitor International SWOT Hennes & Mauritz (H) AB Brand recognition low di sbursal and style Combining style innovations and low termss are staple attributes of the H cross on which it has built strong consumer recognition. High profile publicizing and collaboration with designers help make set ups shopping destinations and raise the desirability of its ranges. usable efficiency A strong control of the whole logistics process helps H achieve low costs, while low inventory contributes to primary(prenominal)tain margins.Reliance on outsourcing The confidence on production outsourcing, unlike an variant(prenominal) rivals such as Inditex, puts H at greater risks of damaging its reputation in terms of product quality and poor labour conditions in developed countries. unassuming front in acclivitous markets Despite universe a orbicular thespian invest in 33 markets, H has developed its presence in Europe and North America loosely, unlike Inditex operating in over 70 countries including many acclivitous markets. Strengths Weaknesses Opportunit ies ThreatsInternet retailing The rapid evolution of habilitate and footwear sales through and through internet retailing is anticipate to continue and give H opportunities to reach a astrayr audience, especially in its core demographic keister, teenagers and young adults, whose purchases are often influenced by the internet. untapped potential in emerging markets Urbanisation, increased disposable incomes and changing lifestyles devising the population to a greater extent aware of mode slides give major growth opportunities in large emerging markets such as China and Russia. at that place is in like manner potential in markets where H is absent such as Turkey and Romania.Non-food expansion of grocery retailers Hypermarkets and kettle of fish merchandisers including Carrefour, Target, Tesco and Wal-Mart are set to continue developing their stand of non-food products and compete directly against H in the esteem segment of dress and footwear retailing. truehearted loo k becoming more(prenominal) than(prenominal) militant H faces a growing threat from a moment of direct competitors with progressively ball-shaped ambitions at the low- care ford end of the market such as Associated British Foods with Primark, dissolute Retailing with Uniqlo and Marks & Spencer, aboard a resurgent Gap. 6 Strategic Evaluation Retailing Hennes & Mauritz Euromonitor International Key Strategic Objectives and Challenges Speed to market and footing dodging degenerate product turn about, flexibility and speed to market are major elements determine luxuriant path retailers operational efficiency. H record is strong similar to Inditex in nearly aspects, although Inditex has an advantage regarding speed to market, as a result of its upright desegregation business model. In the midst of the globose economic crisis in particular affecting habiliments and footwear specialists, H chose to avoid leaden discounting in methodicalness to maintain its margins a nd profits.However, more offensive price wars may force it to discount more and extend to its margins. Ongoing international expansion with a focus on emerging markets H presence in emerging markets is slight important than Inditexs, which has a major store network in Latin America and more stores in the middle tocopherol and Africa. Expanding in emerging markets lies a priority for H, although growth prospects remain strong in developed markets such as Canada and the US where it can enter numerous un employ cities, especially in Southern States where it has a dispirited presence.H CEO KarlJohan Persson ap situati one and only(a)d in July 2009 restated the groups ball-shaped expansion targets, although it appears to be slower than expected, with around 160 rude(a) stores seeming to be scattered out of 225 initially plotted for 2009. Maintain provoker image and increase desirability Collaborations with designers give need to be continued and reinvented to make products more desirable, make stores more familiar shopping destinations and tone up the emotional bond with consumers and H.Distinctive store layout has been used in(predicate)ly by Inditex with its Zara reach to convey the desirability of its apparel, and this is a strategy that H could besides action to make the store designs a more important aspect of its strategy. This could stomach H to maintain an advantage over smaller rivals with increasing global ambitions for their sets such as Primark and Uniqlo. Late ledger entry into internet retailing Although growth in internet retailing sales is particularly promising for vestments and footwear retailers, H has been a late starting motor and pull up stakes trial to seize the opportunities furnished by this channel.It has left numerous other retailers including pure play internet retailers such as Amazon and Asos and the homeshopping specialist Otto take a lead. Hence, it depart be difficult for H to target these consumers and generate concern to its websites, although it could rely on high-profile advertising and innovative sites to succeed. 7 Retailing Hennes & Mauritz Euromonitor International Strategic Evaluation belligerent Positioning Geographic Opportunities Category Opportunities Brand and in operation(p) Strategies Recommendations 8 Competitive Positioning Retailing Hennes & Mauritz Euromonitor International H Performs Strongly but appendage is Matched by Inditex International expansion and cutting-edge product assortment led to strong growth for H and its main rival Inditex, despite a marked slowdown in 2009 due to the global economic crisis and the strength of the US dollar. Clothing & Footwear specializer Retailers World Retail valuate RSP excl Sales Tax 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 Gap Inc, The 2009A H sales record s trong growth, on a par with C, thanks to global store network expansion. However, Inditex outperforms H thanks to more aggressive network expansion not only in Western Europe, but likewise in emerging markets. B Gap to a lower place-performs its main rivals, hindered by a strong reliance on its low-growth domestic market and a less aggressive price strategy than H. Gaps image likewise suffers from a product assortment perceived as more staid than H and Inditexs. C The rise of the US dollar against other global currencies in 2009 is causing a repay in treasure sales for all retailers.H low-priced positioning and its wide global presence helps the company remain resilient in a challenging environment for non-grocery retailers. 9 Competitive Positioning Retailing Hennes & Mauritz Euromonitor International Competitive Context Inditex and H on the Rise World Top 10 Clothing & Footwear Specialist Retailers 2005-2009 Company happen upon 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 Brands Inc Benetton Group spa Burlington Coat pulverisation Warehouse Corp 5-year 2009 % 2005 2006 2007 2008 2009 trend packet ?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 change state and footwear specialists channel. Compared to H, Gaps higher price positioning hindered its sales, especially in 2008 and 2009 as the global economic crisis dampened consumer spending. Fast Retailing and Shinamura move japan-establish Fast Retailing posted a strong performance among the backsheesh ? 10 10 12 14 10 0. 4 10 global players, helped partly by the strengthening of the ye n to the Note 2009 probationary data US dollar. Competing with a similar price positioning to H, Fast Strong growth for H, overtakes Gap but is surpassed by Inditex Retailing expand outside Japan, Strong sales growth for H over the 2005-2008 stoppage enabled it to especially in China and South overtake key rival Gap. H business model based on low-priced fast Korea, and announced at the end of fashion be highly popular with consumers. 008 its intentions to open 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 on rightd outlets. Although As Japans second largest clothing and footwear retailer, Shinamuras H new store opening strategy was also ambitious, its presence in ranking was also boosted by emerging markets remained down in the mouth compared to Inditexs. avourable exchange rates, but also Ind itex also benefited from a just integrating business model enabling it to thanks to new store openings. rejuvenate collections more frequently than its main rivals, including H. 10 Competitive Positioning Retailing Hennes & Mauritz Euromonitor International H and Inditex Neck-and-Neck H and Inditex turn out two been highly winnerful 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 entrance recession.Their fast fashion business model also gives the two players the flexibility to change collections apace to lodge to consumer tastes, although Inditex has the edge over H in this respect. International network expansion was also a major part in unprompted 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 some resources and entails less risk for Inditex than for H, which is more biased towards company-owned outlets. Although both companies saw their World Retailing Sales 2004-2009 retail sales in US dollar terms hit by the fall in the grade 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 disproportionately 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 take a less aggressive pricing strategy than its 2,500 peers, therefrom losing take rapidly to H and Inditex, but also to players 0 in other channels 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 Exchange 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 Brands 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 pressing and general discounting in apparel retailing, accompanied by the growing reliance on production outsourcing to low labour 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 relation back resistance to discounting led to a sna ppy drop in sales per outlet, as it pted to maintain its margins at the expense of overall sales growth. 12 Retailing Hennes & Mauritz Euromonitor International Strategic Evaluation Competitive Positioning Geographic Opportunities Category Opportunities Brand and Operational Strategies Recommendations 13 Geographic Opportunities Retailing Hennes & Mauritz Euromonitor International A Global Player lock up Dependent on Western Europe Among H top 10 global markets in 2009, all of them were located in Western Europe apart from one, the US. This highlights the companys modest presence in emerging markets. Western Europe will account for 84% of the groups sales in 2009.This proportion exceeded 90% in 2005, which illustrates H relative success in expanding its presence globally in redact to offset the maturity and saturation 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 sh are of global sales exceeding 10%, while the domestic market, Sweden, accounts for 5%, which shows that H is not overly dependent on the prudence of a single market. In comparison to H, Inditex is more dependent on its domestic market, which will generate 37% of its world sales in 2009. twain companies seek 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 monstrousst Markets) 2. 0 1. 5 %CAGR 2009-2014 Netherlands Nor behavior Spain 1. 0 Austria 0. 5 Sweden 0. 0 -0. 5 -1. 0 -1. 5 -2. 0 -2. 5 0 25,000 50,000 75,000 carbon,000 Market Size 2009 (US$ mn) 125,000 150,000 175,000 France Switzerland the States Opportunity Zone Germany United Kingdom Bubble size shows company sales in market, range displayed US$536 3,497 mn 14 Geographic Opportunities Re tailing Hennes & Mauritz Euromonitor International Western Europe Ongoing Expansion for H&M and Inditex H&M has a wide presence natural covering most Western European markets, in which its two main competitors are Inditex and C&A. All three companies have 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 dogging 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 old-time image and an inferior international presence. The company is absent from major European markets includi ng 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 Tax 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 Euromonitor International Western Europe Primark Emerges as New Major Player Primark expends beyond the British Isles to emerge as a new European player Primark, owned by Associated British Foods, only latterly expanding outside Ireland and the UK with its commencement exercise outlets in Spain in 2008 and Portugal and test stores in Germany and the Netherlands in 2009, has ambitions to develop a wide pan-European network. A new market entry is planned in Belgium in 2010. The success recorded by its graduation exercise stores in Spain indicates that it could pay back a major Europe-wide player. With a strong shit 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 Recent and Planned Market Entries Japan, South Korea Although geographic expansion has been a central fe ature of H&Ms strategy, it has focused until recently on Europe nd North America, in contrast to Inditex venturing in several markets in Latin America and Asia Pacific and C&As major presence in brazil nut. Recent new market entries in Japan in September 2008 and the planned 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 original store in the upmarket shopping territorial dominion of Ginza in Tokyo, H&Ms market entry was successful. sign reception was very favourable to the new twine, with around 50,000 shoppers visiting the Ginza store over the first week of opening, and a second Tokyo store was opened in November 2008 in the trendy di grim of Harajuku. The Harajuku outlet was the first H&M planetary to sell the fashion labelComme des Garcons, with a collection designed by the Japanese designer Rei Kawakubo. This strategy helped relieve oneself anticipat ion ahead of the new store opening among fashion-conscious consumers and gives H&M a more exclusive image in Japan than it has in other markets. Two more outlets in Tokyo are planned by the end of 2009 and a fifth is due to open in 2010, in Osaka. In order to expand faster in the develop 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 disceptation 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 chains Justo (Aeon), Ito-Yokado (Seven & I) and Seiyu (Wal-Mart) commencement to spin 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 latest 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 think 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 March 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 expanded rapidly since. 17 Geographic Opportunities Retailing Hennes & Mauritz Euromonitor International Further Growth in Large Emerging Markets China, 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 almost 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 present in this newly renovated part of the city. In order to create more anticipation around the store opening among consumers, it coincided with the launch 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 existent cities and by entering new cities where it can target the rapidly growing number of upper-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 agonistic p rices 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 likely 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-term accusing to have 100 Uniqlo outlets in China. Russia untimely entry but good long-term prospects H&M opened its first store in Russia in Moscow in March 2009. However, suffering from a fall in gas and oil revenues, the agriculturals 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 booming economy until 2008 to expand and establish a wide customer base. Longer term, H&M is set to emerge from the reces sion 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 systema skeletale a major customer base. 18 Geographic Opportunities Retailing Hennes & Mauritz Euromonitor International Franchise Deals Give New middle 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 dealership 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 development in H&Ms global expansion strategy in emerging markets, which is likely to help accelerate its global expansion. Thanks to the partnership with Alshaya Group, H&M ent ered the markets of Bahrain and Oman in 2009, and also opened its first two stores in Egypt in the second 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 image for Saudi Arabia As store sentiment adaptation is an important broker in the success for foreign retailers operating in the Middle East and Africa, and require close attention, franchise partners are in a mitigate position than H&M to implement new concepts. For theoretical account, in order to comply with local sharia law that forces shops to have segregated 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 Competi tive 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 forecast to record modest growth over the 2009-2014 period. While channel sales were hindered by the global economic crisis in 2008 and 2009, they are likely to recover to or so extent, although they will remain affected by low price pressures on clothing prevailing within this distribution 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 ductile business model allowing the group to undercut most rivals while rest at the forefront of fashion trends. The remainder 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 carry, 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 Mass 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 conquerable to the direct competition from these channels and needs to cultivate its clear emulous advantage in terms of fashion and desirability. An showcase 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 an d 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 focus at least temporarily on more recession-proof food items, the longer-term trend is expected to see hypermarkets attempting to be more emulous 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 overtake Marks & 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 space allocated to non-food ranges in 2010 and 2011 and emit the reach of its successful TU range of clothes by offer ing it at more stores. 22 Category OpportunitiesRetailing Hennes & Mauritz Euromonitor International Internet Retailing H&Ms Late Entry H&M and Inditex both rise to the challenge 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 gild online generally 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 potently 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 contract in homeshopping in these markets prepares it well to tackle the logistics aspects to make internet retailing 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 bulky 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 plethora 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 initiativ e in 2009 to sell its products on the Asos. com website. In the US, Gap has a multibrand website and offers combined address 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 private 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-collect 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 promoti ons 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 associated with value and stylish 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 coverage 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. Exa mples of such stores include 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 ranked 21st among the top 100 most valuable 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 lemony 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 custo mers 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 sophisticated 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 large 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 mixed 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 gro ups vertical integration, which also contrasts with H strategy of outsourcing. 25 Brand and Operational Strategies Retailing Hennes & Mauritz Euromonitor International Operations and Private 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 absolute majority of its 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 ordinarily low thanks to the frequent renewal of its collection.However, the focus on cut down inventory in order to protect margins has been detrimental to sales in some months in 2009, especially over the summer, when the company had relatively few items available 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 only if 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 mom is a maternity range. Key point As European consumers awareness of ethical issues increases, H is vulnerable to negative publicity surrounding working 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 supply chain, H auditing of factories must be strict and transparent to limit the chances of poor labour conditions being publicised 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 alongsid e 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 enlarge its customer base and especially target wealthier 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 field of operation 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 effecti vely 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 vast 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 developed a major store network. In Latin America, Mexico offers opportunities in the value segment of clothing and footwear retailing. Although it is well covered by C and Wal-Mart, H can cater for more fashionconscious consumer groups. In Asia Pacific, H burgeoning presence could accelerate by expanding to new cities, especially in China and Japan. In the latter market, new store concepts and collections or new b anners 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 intelligence 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 insight published every month. Global Company ProfilesThe competitive positioning and strategic direction of the leading companies including uniquely sector-specific sales and share data. 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