H&M and Hermes: A Comparative Analysis - Case Study Example

H&M and Hermes: A Comparative Analysis Hermes international S.A. is a French based company that specializes in the manufacturing and sales of goods like luxuries, ready-to-wear, lifestyle accessories, perfumes, and leather products. The company is also known as Hermes of Paris. The company was established in 1837 by a Frenchman, Thierry Hermes. The organization developed from a modest beginning to become an international company with branches worldwide. Currently, the company still holds fast to its original line of products and production (Sarl and Thomas, 2013, p.15). H&M is a Swedish company which deals with retail clothing of men, women, children and the youth. H&M is a multinational company with more than 2,325 retail stores in over 53 countries in the world. The company was started in 1946 by Erling Persson and has since grown in sales and size to be ranked the second largest multinational clothing retailing company in the world (Anonymous, 2013). H&M operates multiple production lines and suppliers internationally from China to Cambodia. Over the years, the companies have applied different marketing strategies that continue to differentiate them from other retailing companies in the world. Current and future performance Both companies have had a successful spell of performance based on their strong marketing strategies and brand differentiation. The industry is full retailers competing to dominate the market and increase their share. Currently, both companies are performing very well with their sales growing yearly. Hermes is known for its production of luxurious products like handbags and scarfs that retail at a higher price. Despite this, the company continues to increase its sales annually. The secret lies in exceeding customer expectations through production of high quality goods and services. The current CEO, Patrick Thomas, the only non-family member to hold the position believes that the company is better suited to perform well in the future. The strategic plans laid for the company in the future will establish a strong performance background for years to come. Hermes is facing a takeover bid from the minority shareholder; LVMH, which owns 20.21% of the shares, a fact denied by the family and LVMH management. This may stifle the performance of the company in the future (Bawden, 2010 and Vidalon and Wendlandt, 2011). H&M current performance is also high. Since its commencement, the organization has paid attention to expansion strategies and opened many retail outlets all over the world. This has benefitted the company with increased global presence and sales. Currently, the company expands through opening new stores at 10-15% per year. This translates to more than 325 new stores annually. Further, the company has partnered and taken over other retail stores in the world in a bid to increase its presence and revenue. In 2012, the company posted a net profit after tax of 16.9 billion shillings. This indicates that current performance of the company is well above the expected. Prospectively, the organization’s plan is to expand and increase the products offered. The company hopes to add more attractive and quality clothing to its existing arsenal. Further, the company launched an online sales and marketing program that has benefited customers in various countries. This has boosted its performance and will continue to grow its performance in the future. The company has plans to invest heavily for future development. This implies that the company will perform strongly in the future (Persson, 2013, p.11). 7P’s of Marketing Mix Price The two companies deal with different priced products. Hermes mostly deals with luxury goods that are hand-made and of high quality. The company’s vertical integration of pricing products which starts from the idea, marketing and distribution differs significantly with that of H&M. Hermes pricing strategy is based on the premises that production cost is not an ideal strategy to use in determining prices for the products. The pricing of the products comes from getting the concept of the cost of raw materials (Nilsson, and Rapp, 2005, p.35). Most of the Hermes products are manufactured from leather and other natural materials that are hard to get. Another strategy used by Hermes is homogeneous pricing of products across all the geographical zones of operation (Gris, Imadec-Bentata, and Zimmerman, 2009, p.9). H&M pricing strategy is concentrated on lowering the prices. Unlike, Hermes, H&M products retail at low prices due to the stiff competition in the industry. H&M is an established brand name with a wide range of products. To accomplish the objective of providing consumers with fashion and low prices at the same time, the company has outsourced most of its processes according to different products and market needs. This reduces the cost of production. Thus, H&M relies on the cost of production to determine the prices of its products. However, selecting a pricing strategy has been a problem for the company (Reuters, 2014). Product The two companies also retail different products although they target the same customers. While H&M deals with cheap fashion clothes, Hermes deals with luxury goods. Hermes also engages in production of ready-to-wear clothes for both men and women although luxury products which dominate 50% of the product line. Hermes’ line of luxury goods excels on producing high quality goods that are attractive to customers. Hermes philosophy is to maintain production of high quality and differentiated luxury goods and products. The core products of Hermes are on saddler, which cover the transportation and travel departments, for example, leather handbags. Over the years, Hermes has excelled in differentiating its products in the market through maintaining and perfecting the production of noble products from natural raw materials like crocodile skins. The company has ability to generate and expand its product assortment. The company does not rely on one product line only. Hermes products target silk, leather and other expensive areas of luxury living. Hermes also maintains perfumery production, which retail at high prices (Gris, Imadec-Bentata, and Zimmerman, 2009, p.9 and Sarl and Thomas, 2013, pp.16-18). Contrary to Hermes, H&M maintains a product line of fashion designs in the clothing industry. The company maintains a fast moving and rapid release of trends and fashions in the clothing industry. The company maintains constant association of its fashion trends with celebrities and designers. Recently, the company launched online marketing of its new products of home furnishing. The company also deals with cosmetics (Avail and Podbielak, 2012, p.6-7) Promotion The two companies use different promotion methods for their products, H&M invests heavily in advertising. In the year 2012, the company used more than $1 billion in advertisements only. H&M also uses a host of promotion strategies that aim at associating their fashion products with low prices. The company constantly uses events promotion, which involves to fashion designers and celebrities to promote their products, for example, Karl Lagerfeld in 2004, and Stella McCartney in 2005. Further, the company cooperates with other companies to promote their products, for example, in 2007, H&M cooperated with Sims 2 to promote and create brand image. Contrary to the H&M promotion strategy, Hermes has very low advertising budget. Instead the company uses company communication by utilizing rich contents provided by events and the Hermes Foundation. The organization has also ventured into online advertising through their e-commerce website launched in 2007. Most of the company’s promotion strategies aim at creating awareness of the uniqueness of the company’s products. The company’s promotion budget reached $105 million in 2008 and is expected to rise as the company looks at expanding. The company’s CEO asserts that advertising is not suited for Hermes as its brand name and unique products differentiate the product from others (Gris, Imadec-Bentata, and Zimmerman, 2009, p.9). Place One of the greatest advantages of Hermes as opposed to H&M is the ownership of the distribution networks. Most of the Hermes distribution networks are owned by the company and account for 78% of the total distribution network. The company also operates few distribution outlets, which enable it to fully manage and control the proceedings. The company’s strategy is to strengthen its overseas markets through opening other outlets. The company’s line of luxury goods necessitates the company to operate stores within areas where the consumers can afford them. Hermes also uses a strategy of making their goods not available in all markets. This works well in enhancing the company’s brand name as a producer of high quality luxury products (Gris, Imadec-Bentata, and Zimmerman, 2009, p.9). On the other hand, H&M has more than 2,700 retail outlets throughout the world. Most of the production at the company is outsourced. The company only owns retail outlets. The outsourcing enables the company to operate thousands of stores worldwide. Further, the low priced fashion trends can be accessible by a wide range of people, thus the need to have outlets everywhere. The company maintains a direct distribution channel, which ships goods from companies to customers directly. This enables H&M to maintain a fast moving flow of products to the market. People The two companies operate their production lines differently and thus, the strategies of enhancing personnel performance are different. While Hermes owns the production line, H&M outsources all its production, taking care of the finished goods only. Hermes production line depends on people and not machines. The company’s luxurious goods are handmade and thus, the willingness and motivation of its personnel influences the performance of the company. Great leadership is one aspect of personnel performance. While H&M is hit by scandals of poor wages and child labor in their outsourced companies, Hermes manages its labor excellently. The current Hermes CEO, Thomas spearheaded the move to give employees high salaries to maintain their loyalty. The management at Hermes realizes that employees’ loyalty and hard work drives the company forward. Further, the experience gained over the years by the employees is crucial in maintaining the quality standards of the company’s products (Tran, 2012, p.2-3). H&M outsources all production services to companies based on the cost of production. Most of the company’s production is in Asia, where cheap labor is available. The company is always faced by problems with employees’ wages. To solve this issue, the organization decided to increase the minimum wages to a life-sustaining level by 2014. However, the company’s problems are not over as hazards continued to befall employees due to the company’s negligence for safety. By 2012, the company had more than 104, 000 employees. Process Unlike Hermes, H&M relies on speed to deliver its products to the market. Dealing with fast moving fashion and trendy goods requires H&M to ensure that every new fashion reaches the market in time. To achieve this goal, H&M outsources all its production services. The process starts with designing of the fashions that is given to companies for production. This reduces costs and enables the company to have a competitive environment for production. Further, this strategy is important given the environment in which the company operates. The strategy also enables the company to focus on research and development that is customer-focused. The company constantly uses celebrities and designers to help integrate design features in their products. On the other hand, the production line at Hermes depends on the employees and is fully controlled by the company. Due to the differentiation and quality of its products, the company production line is slow moving. This enhances the quality of the products. The low productivity implies that customers must wait for a long time to get the products. However, the long waiting time enables the company to produce unique products that are highly priced in the market (Sarl and Thomas, 2013, p.70). As competition is lower, Hermes can afford long waiting time for its customers, as opposed to H&M. Further, Hermes does not produce fashion and trends; it has stuck with its original products and thus the slow production line (Tran, 2012, p.5). Physical evidence Hermes has a reputation of having some of the highest experienced personnel in the industry. The company depends on the expertise of the personnel in production of its high quality products. On the other hand, the company owns many of the retail outlets selling its products and is able to manage employees. Thus, the staff has high contact experience and understanding of the company’s brand. Hermes has a policy of retaining its employees by offering high salaries. Hermes products are identified by their uniqueness and their logo. In 2007, the company launched its e-commerce website that has information regarding its goods (Tran, 2012, p.5-7). Unlike Hermes, H&M relies on outsourced companies to produce its products. This implies that the hand on experience of the staff on the products is limited. Further, the control of the company on the production of the products is limited. However, the online experience of the company is high. H&M uses online portfolio to advertise its products as well as sell them. Through establishment of a huge following via the online media, the company is able to establish strong physical evidence. SWOT Analysis Strengths Hermes strengths lie in the value of the products produced by the company. The name is associated with high value and quality products. The organization has a wide array of products and is therefore not affected by decrease or increase in the demand of one product. The company’s products are not seasonal. Most of the products do not follow the fashion trend and are therefore all season products. The company maintains a well balanced distribution of its products based on demand and demand elasticity. The company opens retail outlets only in regions where the market is promising. The company owns most of the distribution network; therefore, it has the capability to control it. More than 78% of the outlets are company owned. The company has an established relationship with suppliers, which enables it to protect critical production knowledge. This reduces the chances of the company’s secrets going to competitors (Gris, Imadec-Bentata, and Zimmerman, 2009, p.17). H&M is ranked as the second major clothing dealer in the world today. The company’s products are affordable despite their high quality. The price does not affect the quality due to low costs of production. The company owns a vast network of retail outlets that fills its presence in the world. The company has a strong media presence due to constant use of celebrities to promote their products. H&M also relies on fast moving throw-away fashion clothing (Avail and Podbielak, 2012, p.9). Weaknesses One of the major weaknesses of H&M is the lack of brand awareness among its customers. Most of the customers do not recognize the brands sold in H&M retail outlets. This lack of awareness has relegated the company as a stop for people in need of changing one or two clothes in their wardrobe. H&M has not advertised itself as a one-stop shop for all clothes needs of its customers. The company also lacks consistency in its production due to use of numerous outsourced companies. This reduces the company’s control on the production of the products, which might interfere with the quality. Customer service is poor at the company’s retail outlets. This turns away repeat buyers (Avail and Podbielak, 2012, p.9). Hermes faces different weaknesses. The major weakness at Hermes is the restocking of raw materials. Hermes uses natural materials like crocodile skins, silk and other materials that are hard to get. These raw materials take years to replenish once they are depleted. For example, a crocodile takes six years to grow and produce the skin used to make leather bags. The company’s products face high exposure to Japanese and American market, which may require the company to increase its production volume. Further, this may expose the products to counterfeits. Hermes company rate of adapting to change is very low. For example, the company has never integrated line production despite the high demand of its luxurious products (Gris, Imadec-Bentata, and Zimmerman, 2009, p.17). Opportunities Both companies have a lot of unexploited opportunities. Hermes can expand its distribution network to enhance its market presence. Currently, the Hermes maintains few distribution networks of around 300 retail outlets. Low promotion activities can also be enhanced to increase the awareness of the company’s products. The budget for advertisements can be expanded and other strategies developed to ensure that there is more coverage of the market. From the beginning, Hermes has exploited a small market due to its few designs. The company has an opportunity to create more designs to exploit other markets and the existing markets. The company has low presence on the Asian market, despite the area’s potential for the company’s products. The company can therefore increase its outlets in Asia. The e-commerce website launched in 2007 has not fully been utilized and it has lots of potential for development of the company’s revenues (Gris, Imadec-Bentata, and Zimmerman, 2009, p.17). H&M opportunities lie in sustainability of its production, which can be enhanced by the company using few producers and suppliers. The company has not exploited personal communication, which can increase customer awareness of the company’s products. Further the company has not fully utilized the online marketing like using social media and online advertising. The platform for mobile marketing has little been used by many companies and this provides a real chance for the company to increase its global awareness (Avail and Podbielak, 2012, p.9). Threats H&M threats come from the many competitors in the industry. The company faces primary and secondary threats in the form of big and small retail outlets and producing companies. The biggest primary competitors include; Topshop, Zara, Forever21, and Urban Outfitters among others. These companies specialize in producing fast moving fashion designs. Secondary competitors include; Charlotte Rouse and Express, which retail fast moving fashion products in their outlets (Avail and Podbielak, 2012, p.9). Hermes main threat is the toughness in the luxury market. As time goes the market becomes tough due to emerging companies as well as other factors that are affecting production of the luxury goods like raw materials. Another threat to the company is LVMH, which is threatening to take over the company. This provides a threat in the company’s ability to hold on to the luxury groups of products. The internet also proves to be a threat as it offers other alternative sources of the luxury trend. Rival companies are using the internet to lure away customers. There are also demands from emerging markets which may force the company to rethink its production strategy and change its legacy (Gris, Imadec-Bentata, and Zimmerman, 2009, p.17). The company also faces a threat of suppliers. Bibliography Anonymous. 2013. Champions of design: H&M. Marketing, 38. [Online]. Available at [Accessed 6 March 2014]. Avail, R. and Podbielak, R. 2012. H&M Integrated marketing campaign. [Pdf]. Available at [Accessed 6 March 2014]. Bawden, T. 2011. 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