H&M Strategy for Cooperation With High-End Fashion Houses

Hennes & Mauritz (H&M), is known as one of the biggest fashion retailers in the world. The company was established in the year of 1946 by the entrepreneur Erling Persson in Sweden as the womenswear and have been continued to expand in terms of opening new stores and business lines.

At the inception, the company only had the initial “H” which signify for Hennes, then in the year of 1968, because of the purchase of Mauritz Widforss, the company open the new menswear and clothing line for children.

H&M acknowledge the competition in the fashion industry hence the company always catch up with all the new trends that has been invented around the world.

Started with only menswear line, the company now has many brands such as: H&M and H&M Home – “offers fashion and quality at the best price in a sustainable way for women, men, teenagers and children”, COS “classics and wardrobe essentials for women, men and children”, & Other Stories – “offers everything a woman can wear – such as shoes, bags, accessories, beauty, stationery and ready-to-wear” , Monki – “creates on-trend lifestyle collections for young women”, Weekday – “the modern and mindful fashion and denim brand”, Cheap Monday – “offers a full range of denim, fashion collections and accessories for men and women” and ARKET – “A modern-day market that offers essential products for men, women, children and the home”

H&M started with the small store in Sweden then expand many countries in Europe such as Norway, Denmark, UK, Switzerland, Germany, Netherlands, France, and more.

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It became an international brand since 1990s. H&M got huge intention by opening the first online store in 1998 at Sweden. Then it rapidly expanded to Asia such as Hong Kong, Shanghai. Now it has over 4,700 stores in more than 62 countries across the globe and still continue to grow. The expansion in the number of stores of H&M proves the success of the business. Moreover, the company now is competing with many others successful fast fashion retailers such as Forever21, GAP, Zara, Topshop, Uniqlo.

In the fashion industry, H&M is incredibly successful. H&M, the brand itself, has 4293 stores which included 69 stores markets and 45 online markets. Behind the surface of the success of H&M over years, I believe that there are many factors contribute to it such as: technology innovation, marketing strategies, the nature of products, selling economic products, and the growth in the economy. Significantly, one of the strategies that help H&M hold their huge position in the fashion industry is the collaboration between H&M and famous high-end fashion houses, which has been held over the years.

Therefore, this essay will focus on the analysis of H&M’s performances and its collection with high-end fashion retailers in order to clarify the contribution of those collaboration to H&M’s successes from the year 2013 to 2017, and reach to the conclusion of whether should it continue collabing with other high-end brands in the future. Hence, this has led to the research question:

To what extent should H&M continue its strategy of collaborating with high-end fashion houses to enhance its brand image and profitability?

In undertaking this research, there are many areas that need to be considered focus on.

First of all, the financial performance of H&M from 2013 to 2017 was a necessary part to the research. The financial performance produces an overview of the company which decides whether the company is financially successful, especially for the for-profit public company like H&M. The researcher will look at the sales, expenses, profit in terms of measuring the success of the company. Moreover, some ratios such as gross profit margin, net profit margin, expenses will also be analysed in order to calculate the cost of marketing process, then the actual performance of those collaborations will be clear.

Moreover, besides the financial factor, the researcher will analyse marketing strategies that were used by H&M in those collaboration to communicate effectively with its customers in order to promote the collaborations.

Methodology

Sources:

For the purpose of this research, the researcher will mostly gather information from the the official website of H&M group which is http://about.hm.com/en.html. This website produces data that are necessary for my research question including: H&M’s financial reports, the history of the company, H&M group’s brand lines, the comments of experts on H&M’s performances through years.

This website can be trusted because it is authentically run by H&M which is also where H&M public their performances for their stakeholders. Moreover, I basically provide the majority of information that I need to answer my research question in a organized way which is easy to find.

On the other hand, I realized that the website http://about.hm.com/en.html only reflects a positive aspect of the company while I need a holistic opinion of the company over years. Hence, I find more sources to get those information in which benefit my research in terms of not only focus on the success of H&M but also negative factors that affect the company. Those sources are magazines and articles that report H&M’s related news. The information that I find in those websites would benefit my essay in terms of providing several thoughts of many experts in the industry. For example, many news has reported the H&M and its high-end collaboration each year constantly which contain reviews and analysis of the whole campaign and I think that would help answer this research question. However, it is difficult to validate those resources in which it could be provided by the unknown or bias writer/publisher.

Secondary research:

Profit and loss account table from 2013 to 2017 of H&M and some competitors in order to show the huge profit that H&M can earn compared to other fashion retailer

Marketing related: research of some campaigns that H&M collabed with high-end brands and celebrities from 2013 to 2017

H&M’s related news from magazines and articles.

Tools:

The SWOT method would be used to analyse H&M’s performances in term of not only showing its strengths with a huge position in the fashion industry but also its weaknesses with its competitors.

Moreover, many profitability ratios will also be used in order to reveal the answer of the question with financial evidence.

SWOT Analysis

Strength:

Hennes & Mauritz AB (H&M) group already has strength in the fashion industry by providing a huge range of products from clothing, accessories, shoes to skin care, hair, makeup products with many different designs which could appeal a huge range of customers with different interests. The fact that they choose to sell a huge range of products contribute to the success of their collaboration with high-end brands in which customers had more choices to pick up what they want to buy. If H&M had produced only clothing, hats/accessories’ fans would not have paid attention to the collaboration. Therefore, H&M knows how to use their strength to boost up their profit. For example, the collaboration between H&M and Kenzo sold out every pieces of the collection from shirts, pants, hoodies, to backpacks, hats, perfumes…

Weakness:

H&M is a big company but is dependent on many other luxury fashion houses. H&M clothing are mostly following-trend products with a cheaper price. Most of fast-fashion company as H&M tend to copy or redesign the original product from the luxury brands which negatively affect the image of the company. Therefore, H&M will need more changes in order to appeal the high-fashion buyers who respect the original design.

For example, the collaboration between H&M and Kenzo was a smart decision in which it boosted up H&M image by getting customers from Kenzo which is a high-end fashion brand.

Opportunity:

H&M has a opportunity to appeal new buyers by working closely with Non-profit organization and charities. H&M is working with Civil Rights Defenders and also producing environmentally-friendly products by purchasing sustainable materials such as organic cotton from Wheeland. H&M have such great opportunity to gain better image on the publicity and therefore new buyers will come to the company.

Threat:

In the fashion industry, trend is one of the factors that appeal customers. Normally fashion trends change fast and thus a company have to catch up with a new trend by providing a new collection to satisfy their customers. Moreover, social media plays a huge role on making trends and changing trend, and thus businesses sometimes do not produce new product on the right time. Therefore, it is a huge threat for fashion-related company like H&M to manage the trend and catch up with it in the industry.

On the other hand, H&M made a right choice by collabing with those trending fashion houses such as Stella McCartney, Jimmy Choo, Versace, Alexander Wang,… By working with those successful luxurious brands, H&M took away a threat of producing out-of-style products by the certain of design from those huge fashion houses that are in the industry for years.

The increase in sales of H&M and its price skimming strategy:

According to 2 figure 1 and 2 above, there was a positive trend in sales and gross profit of H&M from 2013 to 2017. Sales increased about $70 billion for 4 years.

One of the reasons to evaluate why their sales increased significantly since 2013 is that all the pieces from the collection of H&M and high-end brands were sold with the higher price than normal H&M’s products. By charging a premium price for those products from the collaboration, H&M maximise their profit in which this technique called ‘price skimming’ according to the IB Business Management book. Price skimming is when the business set a relatively higher price for product by considering its unique marketing mix elements. For example, H&M has been using the image of high-end fashion brands, which only sells expensive items, in order to maximise their product’s price in their collaboration.

According to the magazine Racked, the collection H&MxBalmain 2015 is “ one of the fast fashion retailer’s priciest collabs yet ”. Since 2013, H&M has collabed with Alexander Wang, Roberto Cavalli, Versace, Isabel Marant, and Balmain which are luxurious brands that aim for the upper class and therefore the price of their product is relatively high. H&M took the advantage of working with those luxurious brand to set a high price for the product in their collection. For example, a H&M’s daily basis clothing can cost from 5$ to $50 maximum which is much lower than clothing from the H&M x Balmain collection; the buyers have to pay at least $300 at least for a leather pant or a purse. Moreover, the price tag even went up when the collection was promoted by many famous fashion influencers in the industry such as Gigi Hadid, Kendall Jenner; the buyers have to pay over $649 for a party dress that was wear by Gigi. The higher price and the famous fashion influencers’ endorsement create such prestigious image for the collection, thriving customer’s attention into the collection and enhancing the sales for H&M.

One of the disadvantages or this skimming price technique is that after a long period of time, customers will neglect the product that consistently has high price in the market which cause the flop on sales for the business. However, H&M and its high-end collaborations are short-term campaigns that are only operated exclusively once a year in which customers can only buy the product from the collaboration at that time of the year. Because the collaboration exists for a short period of time each year, there is no need for H&M to reduce the price of the products from the collaboration to be competitive in the market.

H&M has been recognizing the exclusiveness of high-end fashion brands and successfully taken advantages of that into its collaboration with those luxurious fashion houses. H&M has been accomplished the usefulness of the price skimming technique to maximise their profit from those collaboration. Therefore, the collaboration of H&M and high-end brands should be consistently operated each year.

The power of social media

On the other hand, increasing the price only was not the only strategies that H&M used to promote successfully the collection (link back to the revenue), H&M also used social media to boost positive brand perception and spread out a trend. For example, a collaboration H&MxBalmain successfully gained huge attention from the audience by the media campaign in which H&M ran earlier before the actual release date; there were many posts, images, tweets about the campaign since June 2015 until the launch of campaign in September. The success of the campaign was measured by the positive marketing effect in which there were billion impression about the H&MxBalmain in social media . The figure above show the Tweeter volume that H&MxBalmain gained throughout the time before and after the campaign has been released. It is notable that there was a significant point that boosted up the total volume of the campaign in the 16th of October 2015; it was a H&MxBalmain fashion show that was live-streaming on Periscope. This collaborative fashion show had never operated before which unsurprisingly create excitement to the audience which also explains the rocket rise in social media volume at that time.

It wasn’t only Balmain, H&M has been consistently operating these collaboration every year: H&MxVersace (2011-2012), H&MxAlexanderWang (2014), and H&MxKenzo (2016). In the BusinessOfFashion site, the H&M creative advisor Ann-Sofie Johansson commented about the H&MxBalmain collection: “It’s brand building, of course. It creates a buzz and maybe gets people who never shopped at H&M before to shop with us,” “We’ve been doing [designer collaborations] for 11 years now — and we didn’t necessarily expect to. They are successful.” . There is lack in detailed financial report, but with the big increase in social interaction from Figure A and the comment from the H&M creative advisor, the success of the collaboration is confirmed.

The down side of H&M & the helpful of the collaboration with high-end brands

On the other hand, I need to look at the whole picture in order to determine the actual truth. Hence, I must look at the final net profit and the overall expenses of H&M to clarify whether those H&M x High-end Brands collaboration were a series of profitable pies or the huge waste of investment. However, the detailed financial report of those H&MxHigh-end brands remains unclear to public, hence my analysis will be based on the overall performances of H&M for the most accurate information.

The graph above (figure 3) shows the trend in the revenue growth and net profit margin of H&M from 2013 to 2017 in percentage. There was a huge flop in both revenue growth and net profit margin in the end of the time period. There was only 4% increase in sales in 2017 comparing around 20% in 2014. Hence, H&M was not financially successful in the time period from 2013 to 2017. There were many factors that pushed H&M into a downfall and one of them was the changes in the customer’s shopping behaviour. According to the Erik Sjostrom who was a fund manager in H&M but sold off his H&M’s stake, commented about H&M: ‘The fashion, the price, the distribution. I believe they are off both in terms of fashion and price.’ . Consumers didn’t want a fashion item that “is cheap and goes off style quickly” which basically describe H&M’s products. This change in behavior was proved by the increase of profit in COS which is the “higher-priced but better-quality sister brand” of H&M, even though COS has relatively a little amount of stores comparing to H&M. The change in customer’s behavior is clear. H&M recognized the changes; hence, the series of collaboration between H&M and high-end brands is one of the solutions for H&M to adapt with its customer new shopping behavior. Even though the collaborative collection had a potential to rescue H&M with better-quality, higher-price and exclusive products, it wasn’t enough to save H&M from its downfall which is the big drop in profit of H&M from 2013 to 2017 (figure 3).