Swedish multinational clothing company H&M is one of the largest clothing retailers in the world. It takes advantage of the fast-fashion business model similar to companies like Zara and Shein while also expanding its brand to include home furnishing items to compete with companies like Ikea. This article analyzes its industry and competitive positions using the Five Forces model of Michael E. Porter.
A Look Into the Industry and Competitive Positions of H&M Based on Porter’s Five Forces Framework
1. Industry or Competitive Rivalry
Competitive rivalry is a strong force for H&M. The intensity of competition in the clothing and apparel market comes from the abundance of global and local brands. Some of these brands cater to specific segments of the market including sportswear brands such as Nike and Adidas, and traditional casualwear and formalwear brands.
The company addresses this force by banking on its strengths or competitive advantages. These include its established production capabilities, global supply chain, and distribution networks, as well as its in-house team of designers and contracted celebrity designers. The following are the specific factors affecting rivalry in the clothing and apparel market:
• High Number of Firms and Low Market Growth: There is an abundance of firms and their respective brands selling clothing items. H&M has direct competitors like Zara but it also competes against other brands with different market segments and value propositions. Adding to this is the fact that the clothing and apparel market has a low growth rate due to market saturation.
• Low Consumers Loyalty in the Broader Market: Another factor to consider is the fact that the broader clothing and apparel market does not have loyal consumers. Several high-end consumers are loyal to specific luxury brands but mass-consumed brands are replaceable as evident from the high bargaining power of the consumers.
• High Level of Differentiation Among Competitors: Each notable clothing and apparel brand has its own unique value proposition. Zara focuses on more professional-looking designs while Shein banks on electronic commerce. Nike and Adidas are sport-centric brands while brands such as Gucci, Louis Vuitton, and Chanel are prominent luxury fashion houses targeting high-end consumers.
• High Level of Marketing Activities and Expenditures: Aggressive marketing intensifies further the competition in the clothing and apparel market. Established brands spend millions of dollars on advertising and other promotional tactics to include celebrity endorsements, event sponsorships, and sales promotions.
2. Threat of Substitutes
Fast-fashion retail companies were created as substitutes for high-end brands that follow the haute couture model and traditional designer-based model. Nevertheless, because H&M is more focused on casualwear, its main substitutes are sportswear and formalwear brands, as well as custom-made clothing items and even counterfeit products.
The threat of substitutes remains high for the company and even for other mass-consumed clothing and apparel brands. There are different kinds of clothing items to choose from with different uses. Consumers also have unique preferences that can change depending on a particular situation. Below are the more specific factors:
• High Availability of Substitute Brands and Products: H&M both have products for sportswear and formalwear. However, Nike and Adidas, and even more focused brands such as Lacoste and Ralph Lauren remain the top choice for sportswear. Zara is a more popular formalwear fast-fashion retail brand while global and local formalwear brands remain popular substitutes among consumers.
• Moderate Cost For Consumers to Switching to Substitutes: The switching cost can be low to moderate because fast-fashion brands are affordable by default. However, because of the abundance of substitute brands, the reputation of these substitutes, and the presence of counterfeits, switching costs can be negligible.
• High Propensity to Substitute and Ease of Substitution: Adding to low switching costs is the high propensity of consumers to switch to substitutes and the availability of market information that makes substitution easier. Consumers would choose substitutes depending on their current needs or the situation they are in. They can also readily purchase substitutes because of the high abundance of substitute brands.
• High Level of Differentiation Across Substitute Products: Part of the reason why consumers would choose substitute products is their value propositions or product differentiation. Remember that Nike and Adidas are sportswear brands known for their quality while Zara is known for its more formal but affordable designs.
3. Threat of New Entrants
Another force that affects the industry and competitive positions of H&M is the threat of new entrants. This has a low to moderate impact. Entering the clothing and apparel market has become easier due to the high availability of suppliers across the globe that can provide raw materials and outsourced manufacturing capabilities.
However, it is one thing to enter the market and another thing to build brand awareness. H&M manages the threat of new entrants through aggressive marketing and a product development strategy based on a fashion-forward approach. The arrival of Shein demonstrates the capacity of a new entrant to disrupt the market. Take note of the following factors:
• High Level of Brand Awareness But Low Brand Loyalty: Brand equity is a barrier to entry in the clothing and apparel market. It would be difficult to compete against more prominent brands without investing in brand development and marketing. However, because of low loyalty across the broader consumer base, it is still possible to build brand awareness and brand equity with enough resources.
• High Cost Advantage and High Dependence on Scale: New clothing and apparel companies need to scale up to compete against global brands. This means having the capability to mass produce and for mass distribution. Established brands tend to have a cost advantage because of their tenure and existing market shares.
• High Dependence on Supply Chain and Distribution Networks: Part of the success of global clothing and apparel brands rests on their supply chain and distribution networks. Building and maintaining these capabilities require time and resources. Startups would need to have access to reliable suppliers while also building their distribution networks to compete with brands that produce and sells in high volumes.
4. Bargaining Power of Buyers
The bargaining power of buyers in the broader clothing and apparel market tends to be high due to the presence of alternative brands and even substitute brands. Remember that there is an abundance of firms operating in the market. Most are global brands while others have established local presence. Options are available.
H&M manages this force through its value proposition that center on affordable fashion-forward clothing and apparel products. Still, the force remains strong because of the presence of other fast-fashion companies that have the same value proposition. The following are the factors contributing to the high bargaining power of the consumers:
• High Availability of Alternative and Substitute Products: Remember that there is an abundance of options to choose from. There are alternative casualwear products from others fast-fashion and traditional brands. There are also substitute clothing and apparel products from brands with pronounced differentiation.
• Low Switching Costs and High Availability of Information: Consumers can readily switch from one brand to another, regardless if it is an alternative or substitute brand. The switching cost is low due to the availability of low-priced options. The availability of market information enables informed purchasing decisions.
• High Price Sensitive of Clothing and Apparel Consumers: The market has a significant population of consumers that are sensitive to price. This works to the advantage of H&M but note that there are other fast-fashion brands. There are also other inexpensive brands and even counterfeit products in the market.
5. Bargaining Power of Suppliers
One of the strengths of H&M is its established network of suppliers across the globe. It is also worth mentioning that there is an abundance of suppliers providing inputs and manufacturing capabilities for the clothing and apparel market. These suppliers are also dependent on large companies that produce in high volumes. Their bargaining power is low.
The company does business with more than 600 commercial product suppliers and manufacturers in Africa, Asia, and Europe. Production inputs or raw materials are also sourced either by the company itself or through outsourced manufacturing partners. Below are the specific factors that lower the bargaining power of these suppliers:
• High Number of Supplies in Different Parts of the Globe: Remember that there is an abundance of suppliers in the clothing and apparel market across the world. These companies benefit from doing business with established brands that have a global presence and market reach or those that sell in large volumes.
• Low Degree of Differentiation Across Production Inputs: The raw materials used in the manufacturing of clothing and apparel products are fundamentally the same. These include cotton and other types of fabric, textile dyes, threads, machinery, packaging materials, and even manufacturing capabilities.
• Low Cost of Switching From One Supplier to Another: Companies like H&M have an abundance of options when it comes to suppliers due to the presence of numerous suppliers offering almost the same materials and services. Large companies have the advantage to negotiate lower costs in exchange for high order volumes.
• High Forward Integration or Direct Transactions: Large companies also tend to remove mediators both from their supply chain and distribution chain. Doing so allow them to build more solid relationships with their business partners while also removing unnecessary processes for a more optimized and cost-efficient value chain.