Strategic Analysis of New Look, Hennes and Mauritz - Case Study Example

Strategic Analysis of New Look and H&M

Introduction

Among the top developing industries in the world are the clothing and the general fashion industries including foot wears. This industry has been growing incrementally because of some factors including favorable business terms globally and increased global per capita. Many people can now afford to buy clothing of their liking. However, the most compelling reason for the increased growth in the apparel industry is because of its fundamentality in the lives of people. As is known, humans have only three basic needs among which clothing is key. It is a must have product for any sane humanity regardless of the economic status. Among the apparel industry players, H&M and New Looks have continued to dominate and persistently increase their growth.

H&M also called Hennes and Mauritz is a Swedish multi-billion dollar global company with a rich history beginning from 1947 when it was founded by a man called Erling Persson. It began as a women's wear store and started to expand outside Sweden in 1964 to Norway. It was listed in 1974 on the Stockholm stock exchange after which it embarked on expansion strategies into other countries including America and Asian countries. Today it is one of the largest players in the clothing industry in the whole world employing various strategies to remain afloat in some of the very turbulent economic times (Petro, 2012). The company has six independent brands including H&M, Cheap Monday, Monki, Weekday, COS and other Stories. In 2014, it was reported that it's after tax profit had reached 18.1 million SEK. The Company is based on the mission of "Fashion and Quality at the best Price". In other words, its purpose is to give quality and fashion at the best price being conscious of economic, sustainability and social issues in the industry (Smith, 2014).

On the other hand, New Look PLC is a United Kingdom's company that prides itself in helping people to dress smartly but cheaply. It is also one of the fastest growing retail in the industry with over 550 retail stores dealing in women's clothing. It targets markets for a 9-15 year old set with its 915 labels and 15-35 with its low-priced fashions. It is mainly a discount store pricing its products up to between 10 and 15 percent lower than its majority competitors. It was founded by Tom Singh. It strategy is to employ faster rotation of stocks in all its store with an average time of one week being the time that it takes for the stores to receive new stock. The store has expanded outside of UK into France. In the UK alone, there are over 100 stores and 30 more in France (Ayling, 2009). By 2000, the company was already estimated to have over 7,677 employees with sales exceeding 700 million dollars.

Approaches to Management

New Look's approach to management and Leadership

The company manages their supply chain as seen by their program that is purposed to train managers of supplying companies as a way of having a close relationship with them. Moreover, they also train their own in the factories. They also train their buyers, so they can understand how the prices they pay impact on the wages paid to the workers. The company is more focused on developing and encouraging teamwork among its employees while continuously challenging what they do and the processes they do it with. The management believes in diversifying investment as seen by the company selling some of its stores in France for a stake in a different company. Moreover, the company practices stock rotation every week thus keeping customers regulars in the stores (Ayling, 2009).

H&M management and leadership Approach

The company prides itself in practicing open leadership where stakeholders are consulted during major business decisions on design. It lowers its prices so as to capture middle-income group who appear to be the majority. Moreover, the company also takes pride in its diversified workforce and sustainability efforts by ensuring that there is no discrimination of any kind. It sets rules for some of its suppliers to ensure the quality of supplies and that they don't exploit their labor (H&M, 2014). This is one of the ways they ensure they abide by their corporate responsibility. Like most companies, it is divided into departments which perform different functions but which complement each other. Moreover, it pays much attention to utility (time, place, cost, and form) in its business activities and value chain management. The company has a policy of local recruitment in the area where the stores are to be opened (H&M, 2013).

PESTEL Analysis

This is an analytical tool universally accepted across the academic world for analyzing the environment of a business unit (Philip & Alexander, 2001). The acronym was invented by Philip Kotler to help strategic managers in understanding external factors that affect their corporations (Collis & Montgomery, 2005).

Political

Politics is very important with regards to how a country's stability is and this also extends to the economic liveliness of the country. Similarly, poor political practices have impacted negatively on the treaties signed by different countries allowing for the globalization of business. For example, poor internal politics may affect the decisions of leaders of a given country with regards to whether they allow foreign companies to operate in their country or not especially if there are no good relations. On the other hand, politics can be an enhancing factor to internal democracy and openness to international treaties and protection of foreign companies from harsh domestic policies and may be piracy (Philip and Alexander, 2001).

For apparel industry, the political concerns are the types of regulations and acts that a given country may implement that directly or indirectly affects the whole industry or the operation of the said companies especially in foreign countries. This, in fact, is reported to also influence their entry strategies (David, 2003). For example for companies planning on expanding into Middle East countries with strong Islamic doctrines, it may consider diversifying its stock to also include Men's wear. Since H&M is already dealing with all kinds of apparel, it may end up having the most market. New Looks being a company that strategically deal in women's wear, may not enjoy much considering the culture there.

Additionally, some of the political factors that affect both companies are the restriction on imports and exports from and to other countries respectively. This is especially with regards to the shipment of products to their branches in foreign countries with unfriendly tax regimes for imports. Since they both outsource some of their products, it becomes difficult when they want to maintain their pricing culture in these countries yet taxes charged is huge (Smith, 2014).

Economic Analysis

According to Euromonitor, 2012 alone saw the trade in apparel reaching 1.18 trillion pounds globally (Euromonitor, 2012). This has been increasing with the year that passes by probably because of the necessity of the clothes and the increasing global trade. However, the industry as a whole is prone to be affected by downward changes in consumer income negatively should there be a recession of any kind especially in the UK for New Look and Asia, America and Europe for H&M. The recent exit of UK from Europe can be speculated to have the capacity to affect this industry especially New Look, which is established in the UK. Nevertheless, the rising income in developing countries provides a possible right future for both companies depending on their strategies in those countries. An example of bad times is the 2010 global recession which affected the industry globally.

Socio-cultural Analysis

Considering that immigration rules vary with different countries, this means it is hard to find a country with a uniform culture. The multicultural nature of countries means it is hard to design some fashion that will be appreciated by everyone assuming all of them have the minimum ability to purchase the product. Moreover, some countries have serious ethical issues with regards to what a particular gender or age should wear. This means that the companies have to customize their products to meet exactly that (Anand, et al., 2011). A good example is the Arabian countries with strict rules on the type of garments that women wear. This limits the variety or choices to market for women in such countries.

In India where H&M has subsidiaries, there is a tradition to wear certain types of clothes too. This is different from westerners and so the need to customize designs. Nevertheless, both companies boast of diversities in their workforce making them able to identify with many cultures. Poor working conditions in countries where manufacturing is outsourced and where cotton is harvested is also a social problem affecting especially H&M especially with fire accidents in Bangladesh manufacturing plants and forced child labor in Uzbegh cotton field. These are crimes according to US laws and the general sustainable laws which may compromise its operation in countries that look into such issues as serious concerns (Deri, 2013).

Technological

H&M is reported to be making use of technology in online sales in most of its branches in Europe.it is also reported to be using printing technology for the coloring of its fabrics. It has also increased its online and social media advertisements which all employ the use of technology. New Look similarly is using printing technology and in shop technology for real time monitoring of inventories interactive screens, the point of sale tablets just to mention a few (Emma, 2014). H&M relies on technology to communicate between departments (Lu, 2014). This is so with New Look (Emma, 2014).

Environment

Both companies are in one way or the other affected by environmental factors like rain. On the same note, they impact negatively on the environment by the use of chemicals in the factories where dying of clothes take place. Additionally, the chemicals used in cotton plantations for pest and disease control flow into the river and back to the air which comes back as acid rain. The two companies have an impact on the environment. Environmental factors like rainfall availability also affect the production of cotton and hence the survival of the companies.

Legal

Both companies are affected by the legal aspect of PESTEL. However, H&M is affected more considering that it is operating in more countries than New Look. Each country has a set of regulation especially with the operation of business. The law in Sweden may be different from those in China and or America and the UK. This means that both companies have to adhere to the local regulations as long as it's worthwhile.

Porters Five Forces

Threat of new Entrants

This is a real problem for both companies. Apparels industry is not very expensive to venture into and thus despite being already congested, it is highly likely that increase in per capita income across countries will only make it possible for more new entrants.

Bargaining power of suppliers

Since there are many suppliers in the industry, it is hard for them to be powerful since one can easily replace a supplier making hard demands. This has been made worse with globalization which has now made it easy to source for materials anywhere in the world.

Bargaining power of Buyers

Even though buyers are increasing every time owing to the basicity of the clothes, they command some level of power with regards to bargaining ability. This is enhanced by the many players that have recently joined the industry. Assuming other factors kept constant, an increase in price will lead to an embracing of the alternative brand. Buyers have low switching costs.

Threat of Substitutes

For the apparels industry, there is no threat of substitute. Probably the threat may be in competition.

Intensity of competitive rivalry

There is high competition in the industry. There are many players with some dealing in high-end garments while others are low price. Competition results from local dealers, international dealers, and second-hand clothes in some developing countries. This is a challenge to both companies. Zara, Calvin Klein, Tommy Hilfiger, Van Husein, Gap, old navy are some of the few competitors.

SWOT Analysis of New Look

Strengths

The company boasts of best managers in the industry and various reliable suppliers worldwide. The company also has a heavy presence online and with the adoption of technology, it has maintained a chain of customers. Moreover, the company has a brand reputation among customers who visit the store weekly to check new products arrival. Additionally, the company has many branches in UK, China, Germany and France thus can meet demands of customers. It is in planning stage for a global presence. Their operation in the UK means they enjoy the home support and negotiated tariffs in Europe. Finally, the company is known for hiring the best employees and keep a close-knit relationship with its suppliers thus able to remain assured of continued supply of needed materials.

Weaknesses

The company has a relatively less operating capital compared to H&M and other leading stores. There is the problem of cultural clash in some countries where they are not able to meet the needs of customers. It relies on external companies for supply of products which may be risky as there is no surety of business. An inefficiency in one company say in Asia can affect the entire business of the company. Finally, the company is yet to go global thus lacks skills needed during foreign entry.

Opportunities

Increasing per capita income in previously considered developing countries present opportunities for expansion. Low prices mean many people can afford the products hence customer loyalty. The globalization of trade also opens market in other countries previously protected by hostile tax regimes. This means opportunities for expansion. Additionally, online presence means it can also sell to international communities online and advertise itself more especially on social networks.

Threats

There is the threat of many competitors, weak consumer spending, and increase in prices of raw materials like cotton. The Exit of UK from Europe may also bring with it uncertainties.

SWOT Analysis of H&M

Strength

It has huge capital base thus can invest in more technology and is a well-known brand internationally. They discount their products' prices thus become the darling of many people. Moreover, the high number of designers it has only makes it effective in their line of business. It also has a culture of replenishing stock daily plus the global presence makes it a preferred choice.

Weaknesses

The company relies on outsourcing of almost everything. This removes control from management thus the company is unable to control its production process. The uncertainty in future supply of raw materials like cotton due to poor weather and climatic changes also threaten its very existence. This is so yet it still doesn't have a mechanism in place to leverage risks.

Opportunities

Increasing per capita income in India, China and most developing countries presents opportunities to market the products. With many customers ordering their products online, the company can invest its huge capital in building infrastructure that will enhance this.

Threats

There is a high presence of competitors and unreliable supply of raw materials. Poor risk management in some of the manufacturing companies supplying it with products can lead to loss of business should events like fire outbreak occur like happened in Bangladesh.

H&M Ways of motivating Employees

It is implemented the total reward management where its workers were not only financially rewarded for good work but also job satisfaction through devolved management functions to employees. This can be seen by managers reviewing daily business with their subordinates while seeking their inputs. This motivates the junior employees making them put their best to the company's development. The company also manages its diversity and team through setting out of guidelines to be used internationally in its branches. Similarly, shop managers are allowed to make independent decisions an act aimed to motivate them. Their prevailing organizational culture allows teamwork, effective leadership and provides adequate growth opportunity to all employees. New recruits are normally sent to already established stores to gain the needed experience from the experienced staff as a way of developing them. The company also gives learning and development opportunities to its employees and treating them as entrepreneurs rather than employees.

New Look's Ways of motivating employees

The management of the company believes in the proper remuneration as a way of motivating employees. This, however, they have attached to the prices that customers pay for the goods. The company is reported to have initiated a training program to educate its customers on the relationship of what they pay and what its workers get remunerated. Employees are also reported to be given chances to advance and new recruits posted in stores with experienced personnel to train them. Like H&M, New Look also places emphasis on teamwork among its employees.

Conclusion

Based on the above literature and the subsequent analysis, it is evident that clothing industry is prone to fierce competition but can always sustain many players due to its necessity to the users. Clothing is one of the basic human needs and hence will always be prioritized. However, the existence of many competitors means the players should adopt strategies that will guarantee their survival in the future. According to the analysis above, H&M is better placed in most aspects to beat the current competition with New Look. It has enough capital to enjoy economies of production. On the other hand, Good Look is making its way into Asian Market outside of Europe. This will require better strategies to outdoor the international and local competition. Nevertheless, with continuously improving global terms of trade, the future is bright especially in light with increasing per capita income in the developing countries. The only challenge would be the trade in second-hand clothes.

Recommendations

There are some recommendations that can be made with regards to survival of the above-discussed companies. For H&M, the company should consider checking the foreign entry strategy to adopt in India. This is because it is better placed to outdo New Look given its capital base. However, both companies should be ready to customize the designs according to the market to capture the market share.

Similarly, both companies should consider increasing the number of manufacturing companies they outsource and bargain for a reduced cost. This will allow them to further reduce prices to the customers in developing economies. Since the majority of the populations in such countries depend on second-hand clothes, that will be a way to beat the tradition of over-relying on second-hand clothes.

For sustainability issues, the companies should make it a rule only to deal with companies that are practicing ethical production. Failure to abide by the rule will lead to loss of business. This way they will ensure continuous business survival because the primary producers will be motivated for example to continue planting cotton because of its better rewards (Connolly and Prothero, 2003).

On the other hand, having control over manufacturing is always the best way of being sure of the quality and quantity of the products. This being so, none of the above companies can claim this because they both rely on outsourced manufacturing. This may compromise their standards. The companies should, therefore, consider owning some manufacturing plants for surety of production details.