Zara and H&M - Business Management and Decision-Making Process - Report Example

ZARA AND H&M: BUSINESS MANAGEMENT AND DECISION-MAKING PROCESS al Affiliation Executive Summary The following management report targets to provide Board of Directors of Caifu Investment organization information on Zara and H&M. With the aim of investing in high-end street fashion industry, an evaluation of the two organizations will point the board in the right direction. Both Zara and H&M feature humble backgrounds but aggressive marketing efforts by founders made the firms the strong brands they are today. Caifu Investment Ltd should be aware of the management issues facing the fashion giants including recession, changing the global market, supply chain and global-local brand management. A profile of each company will reveal the leadership, management, problem-solving and decision-making processes. A more analytical outlook of the company will require the use of SWOT analysis to identify the internal and external factors affecting the success of Zara and H&M. The report will also cover general management functions challenges facing each firm. Introduction Zara and H&M are operating in a volatile fashion market. The general management issues facing the fashion giants include turbulent recession, adjustment to market changes due to globalization, competition, supply chain management and stock control, and global-local brand management. The recent recession did not affect strong industry firms as much as it did to street retailers. Zara and H&M are some of the strong fashion brands that have survived the turbulent recession cycles by retaining sales growth since 2009 (From Prada to Zara, 2009). The recession weakened consumer spending, but their attitude towards clothing and all fashion brands helped fashion firms generate a sales growth of 1.4percent. The shopping habits did not change due to a carefree attitude among young consumers. The recession has not affected the value of fashion consciousness and disposable income. Consumers have continued to spend and the act has led to the sustenance of sales in the fashion market. Sales have remained in a safe territory and have helped Zara and H&M fashion brands generate profits. The rapidly growing global market presents challenges for Zara and H&M. The global consumers are looking for a comprehensive shopping experience that includes getting quality service and products from local and apparel stores. According to Walter (2010) the fast-moving nature of apparel requires firms with a capacity to align their marketing strategies with the prevailing marketing trends. Additionally, the capacity of Zara and H&M to offer offers brands with global relevance are a primary factor of consideration for investment decisions. The market is expected to grow with double digits by the end of 2020 which prompts the fashion firms to fast track production for consumers with a high buying power and lifestyle. Chinese and Asian-Pacific will provide a source of apparel market for fashion brands in EU and developing economies across the globe (Walter, 2010). Caifu Investment Ltd is cognizant of the competition in the global market as countries put in measures to redeem themselves from economic troubles. The fashion industry has new entrants looking for ways to gain an integral share of the consumer market. The prevailing level of competition is calling for firms with efficient marketing and advertising tactics. Zara, H&M, Uniqlo, and Mango compete for the same apparel consumers with the aim of attaining a leading role in the market (Bruzzi and Gibson, 2013). A firm with unique developments ahead of the top competition will help take control of the marketplace and boost business image. Supply chain management and stock control are a top management issue (Laura and Claire, 2013). The supply chain is becoming more complex by day due to growing global markets. Managers are charged with handling shrinkage and fraud in the stock control process. Caifu Investment Ltd is aware of the new tracking technologies that can help retailers and apparel stores put supply chain management under control. A constant upgrade of the technology presents a huge challenge to firms because they must plan ahead and make informed decisions that can retain customers’ and generate increased sales (Nagurney and Yu, 2012). Keeping up with the speed of supply chain management and technology can assist Zara and H&M consider new developments in the Europe and other emerging markets. Zara and H&M have a compelling international uniform brand identity, but their consumers are demanding home brands at the expense of foreign brands. Laura and Claire (2013) argue that the fashion firms export both Mediterranean and Scandinavia lifestyles, but consumers in the new markets are reluctant to adopt their western styles. The companies face agile local competitors who have a competitive edge in global-local brand management. Zara and H&M are to set strategies to align their global brands with diverse cultures across Asia, Latin America, and Europe (Caro and Martínez-de-Albéniz, 2015). The management of global and local brands calls for management decisions that can help Zara and H&M match their brands with the buying power and consumer preferences in the target markets. Profile of Zara and H&M Outlining the profile of both companies will assist the board of Caifu Investment make investment decisions. Profile of Zara Zara belongs to a global distribution group called Inditex that has a unique business model (Tokatli, 2014). The firm’s business model features an extensive retail network, design, production and distribution platforms. The company’s mission is to provide apparels with class, style and unique designs on weekly basis considering that the world is growing into a small global village. Zara was established in 1975 and founded on business values including professional ethics, commitment, creativity, loyalty, and confidence (Zara.com, 2015). Amancio Ortega started the fashion line in Spain and sold high-end clothing fashions in stores distributed across Spain. The company has withstood the changing manufacturing and distribution trends with instant fashion methods. Zara has grown into a large fashion brand and has created Bershka, Oysho and Pull& Bear besides acquiring Massimo Dutti and Stradivarius (Ruddick, 2014). The company has taken control of its supply chain and adopting the aggressive expansion and limited advertising methods. Not only has the company survived Spanish financial crisis to gain a leading position in the Spanish stock market but also has generated consistent sales of $45 billion between 2009 and 2014. Currently, Zara trades with a brand value of $9.4 billion and is one of the largest fashion retailers in the globe (Tokatli, 2014). Zara has sales worth $9.4 billion generated from the 2000 retail stores across the globe (Ruddick, 2014).The strong financial capacity of the company helps it to develop a new product within a period of two weeks while close competitors take at least six months a similar product. The growth of the online market has prompted Zara to open up online stores to boost sales. The $9.4 billion sales in 2015 are attributed to the online sales launched in South Korea, Greece, Romania, and Mexico. The fashion retail giant is set to launch online sales in Hong Kong, Taiwan and Macau by the end of 2015. Profile of H&M H&M became a reputable firm following its establishment in 1947 in Sweden. The company has a workforce of 93,551 employees under the management of Karl-Johan Persson (About.hm.com, 2015). H&M has grown into a large fashion chain with 1500 retail outlets since its establishment in Hennes and Mauritz. The company has large fashion presence in at least 28 countries where it has generated a minimum of SEK92 billion sales turnovers. The multinational chain deals in clothes and cosmetic retail business that are in line with modern basics and high-end fashion. H&M growth is attributed to the focused internal process innovation that gives rise to high-end fashion products for all types of customers. H&M evades the costs of setting up factories by investing in massive designers and buyers (Caro and Martínez-de-Albéniz, 2015). Not only does the multinational fashion chain deal with 700 independent suppliers but it works with individuals looking for affordable apparels for consumption of sale. The establishment has adhered to the business concept of quality fashion and accompanied by affordable prices. H&M has a strong self-financing foothold that enables it to open 168 new stores in 2014. The retail chain expansion decisions are based on the availability of attractive and the capacity of new markets to offer new clientele and suppliers. H&M has turned its business focus to Eastern Europe, China, and Japan. With a sales averaging 72percent and 183percent earning per share, the chain is capable of entering the emerging markets and establishing competing brands. The firm has a net worth of $67.8 billion with annual sales of $22.33 billion (Thau et al., 2015). The company has launched Collection of Style to add to its upscale version stores with organic products (About.hm.com, 2015). H&M combines the expansion of new fashion store with competitive pricing to create a loyal clientele and increase its daily sales turnover. The success of H&M can be attributed to the established IT and logistics operations that allow the management to get in touch with the local customers. The IT network paves the way for fast feedback from customers whose tastes and preferences are constantly changing. Additionally, collaboration has also contributed to its success in the global market. H&M has worked with Karl Largerfield since 2004 and managing to implement celebrity endorsements with likes of Madonna, Roberto Cavalli, and Stella McCartney (Thau et al., 2015). Being a leader of global position has also enabled H&M participate in humanitarian programs with UN. A Comparative SWOT Analysis Caifu’s investment decisions will be based on the evaluation of internal and external factors affecting Zara and H&M business operations. The SWOT analysis tool will help in evaluating the systems in Zara and H&M and know the factors that promote and inhibit their success. The analysis will enable the board adopts a high strategic position. SWOT ZARA H&M Strengths The company has a strong market in the Spain and one of the largest fashion retailers in the world. A well-established brand name across the globe with a value of $9.4 billion Has a low-cost supply chain management with a Just in Time system. The operations and manufacturing processes are vertically integrated Zara has 2000 retail stores around the world Innovative, fashionable and low-cost clothes Fast delivery of fashion products H&M has 2300 outlets spread across 45 countries A strong brand name with a value of $67.8 billion Increased celebrity endorsements due to guest designing An established network of 700 independent suppliers Keeps affordable prices through middle-men and buyers Highly efficient delivery system that takes only 12 weeks between designer and retailer phases Weaknesses Low advertisement efforts and low online presence despite being a global leader Uncertain loyalty in the target segment that even considers cheap and newer collections Overstocking due to high volume purchases Constant changing target customer base High maintenance costs for machines that produce high-end clothes Global recession has reduced its expansion to emerging markets such as Eastern Europe Opportunities Increased brand presence through e-retail and online marketing in Mexico, Japan, and Hong Kong Available Global market in Eastern Europe, China, Asia-Pacific countries Venturing into retail market for local consumers Online shopping and e-retailing are gaining importance Expansion in emerging economies will support H&M extension strategies H&M can position itself to harness the niche organic apparel market Threats Stiff competition for market presence from Uniqlo, Mango, and H&M High-end merchandisers are source of threat Consumer switching is a challenge to marketing Target markets such as Europe have been hit by economic downturn Stiff competition from Zara, Gap, Uniqlo and Forever 21 The target segment is abandoning discretionary spending Failure of home-care line to pick in Europe might offset sales targets Prominence of value retailers and global premium brands such Louis Vuitton has increased Figure 1: A Table- SWOT analysis for Zara and H&M (Pahl and Mohring, 2008). General Management Function Challenges Facing Zara and H&M Leadership presents an immense challenge to the fashion retailers that set standards globally. H&M is struggling with creating a brand that has an affordable price tag. The implementation of H&M Conscious Collection has not been adequate to answer to the call of global leadership in producing eco-friendly and affordable brands. Conversely, leadership in Zara is yet to put up maximum leadership mileage that can help it achieve sustainability and help its overall business make sense (García-Álvarez, 2014). Organizing has also been a key function challenge for the organization (McCormick et al., 2014). Zara prides itself innovative designs that assist in overcome advertising and marketing challenge. However, maintaining contact with at least 2000 stores across the globe has upset the communication and unified marketing efforts. Zara hopes to introduce a fully-fledged online marketing and e-retailing platform to keep the global outlets together and offer management from a centralized location in Spain. Supply chain and operations management have offset control function of both Zara and H&M (Anderson.ucla.edu, 2015). Zara uses the quick response to changing customer tastes and preferences, but it does not have the speed to take direct control of its supply chain and sustain production of new brands in all selling seasons. On the other hand, H&M operates with risk and uncertainties despite the need to optimize fashion precision. McCormick et al. (2014) argues that the Swedish-based company’s challenge it to offer items on an ongoing basis with the right volumes and balance. The balance must be in line with prevailing trends, fashion basics, quality, and price. Maintaining a seniority level in such a glamorous sector as fashion is a problem for professional managers (Martínez et al., 2015). Zara has been forced to adopt headhunting and use recruiters to retain professional leaders. Managers in the fashion company selling international brands are aware that advancement is limited to a certain seniority level. However, lack of talent and skills in the fashion industry has increased overreliance on young or aged fashion brand practitioners. Organizational Structures Zara Zara features an organization structure where everything and facets communicates (Jeacle, 2014). Inditex requires all subsidiaries to use a horizontal communication model due to a growing workforce around the globe. Zara features a simple organizational structure where workers have definite tasks to manage. The responsibilities are diluted within the management, and each manager is responsible for 100 employees (Zara.com, 2015). Senior managers are required to maintain direct-line communication with sales persons, window designers, and design. Zara’s workforce has a sense of belonging due to newsletters, intranet and web service that allows for an efficient workflow and fast decision-making structure. A multi-faceted decision-making process and vertical integration model help Zara to adjust to the industry needs (Gremme, 2015). A lean organizational structure enhances high performance and reduces managerial hierarchy levels. According to Bøllingtoft (2009) multi-faceted decision-making process decentralizes decisions to departmental managers, workers, and customers. Therefore, Zara reduces redundant administrative procedures, shortens product life cycle and enhances customer satisfaction because consumers shape all the business decisions. A fast turnaround has created a strong customer base. Additionally, vertical integration procedures coupled with information technology allows Zara to take control of production and distribution from Spain. A vertically integrated demand and supply chain is managed through outsourcing and cheap labour from other textile chain houses (Zara.com, 2015). The values and principles are founded on a code of ethics that aligns itself to social and regulatory environment (Gremme, 2015). Zara uses sustainable management of natural resources, legal operations and sound business relationships. The company also binds employees and shareholders to ethical and professional conduct in all parts of the world. A flexible approach to business allows Zara to suit foreign markets. H&M organizational structure H&M features a matrix organizational structure where managing directors appoints executive management team members. The executive management team takes control of accounts, finance, marketing, human resources, IT, logistics and security and investment relations (Ho, 2014). Each member of the executive team takes control of each country and works with the head office to training and offer best work practices to all employees. The country managers must send sales, profitability and issues facing their outlets in each country. An insider trading function helps employees take part in the decision-making process (Bøllingtoft, 2009). Different teams in H&M departments adopt internal and external communications channels that are clear, relevant and consistent with the market (About.hm.com, 2015). H&M uses internal communications, media relations, fashion public relations and investor relations that communicates financial information through interim reports. The company places value on an informed workforce and outside world where it derives investors and customers for apparel products. the global fashion brands use communication, press, and online presence (Bøllingtoft, 2009). H&M adopts a stringent code of ethics that binds employees, shareholders and suppliers in its global network (Phillips and Gully, 2013).The company relies on professional ethics to create a sustainable supply chain. H&M is cognizant of housing conditions, worker’s rights, health and safety, and a ban on children labour enforced in all global markets. The fashion retail upholds integrity at all times with a code of ethics implemented in 2003. Phillips and Gully (2013) argue that H&M has zero tolerance for corruption and non-compliance with laws and business principles. Conclusion The decision-making process and business management in Zara and H&M is based on the prevailing trends in the global market. Caifu Investment Ltd investment decision is based on the capability of the two firms to manage their global brands and to sustain a competitive edge. Zara higher compelling and performance brand than H&M. The SWOT analysis has established that Zara has a higher growth potential despite having a lower brand value than H&M. The fast turnaround capability gives Zara strengths to compete with the constantly changing customer tastes and preferences. Entering the global market will require Caifu Investment Ltd to work with a firm with a multi-faceted decision making and organizational structure that factors the decisions of customers and shareholders. Reference List About.hm.com, (2015). About H&M. [online] Available at: http://about.hm.com/en/About.html#cm-menu Anderson.ucla.edu, (2015). Felipe Caro | UCLA Anderson School of Management. [online] Available at: http://www.anderson.ucla.edu/knowledge-assets/felipe-caro Bøllingtoft, A. (2009). New approaches to organization design. New York: Springer. Bruzzi, S. and Gibson, P. (2013). Fashion Cultures Revisited. Hoboken: Taylor and Francis. Caro, F. and Martínez-de-Albéniz, V. (2015). 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