H&M: International Business Expansion and Branding - Case Study Example

H&M: international business expansion and branding Introduction Overseas business expansion is arguably one of the most important strategies ever taken by a company in course of its operational lifecycle (Killing, 2012). The underlying aim behind an international business expansion strategy adopted by a company is to expand its customer base and target a bigger segment (Dunning, 2012). By spreading operations and dealing in different currencies enables companies to diversify their operations and spread the risk equivalently (Teece, 2010). The number of companies which have achieved incredible success by expanding their business internationally has increased manifolds over the past decade or so. Examples of such companies include big names like Wal-Mart, Microsoft, Apple, and Toyota. Overseas business expansion requires these companies to conduct a thorough analysis of the market that is to be ventured. They also need to tailor their strategies according to the factors that prevail in the market (Gaur and Pattnaik, 2012). Once such company is the Sweden based apparel retail company H&M, which has enjoyed significant commercial success through its international business expansion over the last 10 years. It is with observation of these facts that the researcher will be conducting a thorough analysis of H&M’s expansion strategy in the US and company performance in this market over the past few years. US retail clothing market US are largely a free market economy which provides ample opportunities for international companies to set up their hub and target ever growing cosmopolitan customers. Although the market in the US is relatively regulated but the growth prospect of this market is tremendous. That is why H&M decided to set up a part of its international operations in this country. The size of retail clothing market in the US is enormous which provided H&M with a huge base of target customers from every segment. With close to 28% of the international clothing retail market value, the US is known to have the largest clothing retail market in the world with an approximate market value of $331 billion (The Statistics Portal, 2014a). The US clothing retail market has a size of $225 billion as of 2012 out of which sales of woman clothing products amounts to more than $100 billion (The Statistics Portal, 2014a) (refer to figure 1). The average price per clothing product in the US has been reported to be $19 and the combined sales in all clothing stores amounted to $182.5 billion (The Statistics Portal, 2014a). Figure 1: Size of international clothing retail market as of 2012 (The Statistics Portal, 2014b) As far as segmented apparel sales in the US in the year 2012 are concerned, the amount was considerable high for women’s clothing followed by men’s and then juveniles. Women apparel sales in the US amounted to $11 billion whereas the sales of male apparel were more than $5.4 billion. The sales of juvenile apparel amounted to more than $3.4 billion (The Statistics Portal, 2014c) (refer to figure 2). Figure 2: Apparel sales according to segments (Source: The Statistics Portal, 2014c) H&M faces intense competition from companies like Bloomingdales, Abercrombie & Fitch, Gap Inc and Macys, Inc. However, in order to gain significant competitive advantage all these companies try and stay ahead in the race by means of adopting effective strategies to attract their customers. In-spite of the recent economic downturn that shook the very foundation of the US economy, the taste for stylist clothes have not dipped even a bit. In fact sales of apparels have increased more than ever before in this part of the world. This has enabled H&M to increase its market share significantly through its operations in the US. The US clothing retail market has grown by an unprecedented level over the past few years which has not only increased the competition among retailers but has also increased the bargaining power of customer owing o the fact that there is virtually no switching cost. Given the fact that clothing articles/products remains more of a discretionary purchase item for consumers in the US compared to other consumer goods, this industry is highly susceptible to market wide fluctuations and economic downturns. Even after such barriers, the apparel retail market in the US has generated considerable amount of sales in the year 2013 ($251 billion) compared to the sales generated in 2012 ($242.5 billion) (The Statistics Portal, 2014b). Role of internationalization in building company profile overseas Internationalization plays a significant role in helping a company build its profile overseas. Given the fact that internationalization is the mechanism of increasing organizational operations in the international market, it provides companies with the opportunity to reach out to a wider base of customers in order to satisfy their needs and requirements. Organizations while internationalizing their business have to formulate strategies according to the market that is being targeted so as to make sure that they convey their messages through their products to the target customers (Lindsay, et al, 2003). H&M has long been regarded as a company that believes in providing its customers with world class buying experience. This is one of the reasons behind the company’s growing physical presence (in terms of increase in the number of brick and mortar stores) in the intentional market. The company has complimented the improved lifestyle of people all round the world by increasing their line of fashion products so as to cater to the needs of the customers in every possible way. This is one of the major contributions of internationalization in building H&M’s company profile. Internationalization of business is a frequently witnessed phenomenon in the contemporary business environment. This is precisely because internationalization of business is one way to either venture into a relatively unexplored market or to enter into a considerably developed market. The underlying strategy behind expansion of business internationally is to either gain a fast mover’s advantage or expand the base of customers or to enter into a competitive market with the sole aim of increasing market share (Roberts, 1999). H&M’s entry into US was to not only expand its customer base but to also convey its dominance in the global apparel market. This is how H&M has used internationalization as a means to build its competitive company profile in front of the international apparel retail market. H&M also has its online shopping website which helped the company to reach out to a large number of internet audience. This is another aspect of internationalization that has played a major role in helping H&M managers to build their profile as a company that has an extensive presence all over the world. Internationalization has also helped H&M to procure raw materials from countries with cheaper source of labour. This in turn enabled H&M to not only increase its margin of profit by a significant level but also to prove itself as a company that has enhanced connectivity with large base of suppliers and logistic operators who have a significant contribution towards increased efficiency of the company (Burt and Carralero-Encinas, 2000). Internationalization requires companies like H&M to modify their strategy according to customer segments that is being targeted. For example, the marketing strategy that is adopted for men’s apparels will not be similar to the marketing strategy adopted for apparels designed for women. The marketing strategy needs to be formulated and subsequently implemented keeping in mind the culture that is followed in a particular company (Assaf, et al, 2012). This enables companies to build their profile in a way that conveys their vision, values and ideologies to their target customers. Branding strategies of H&M in different markets The immensely enhanced brand image of H&M suggests the effectiveness of the branding strategy adopted by this company over the course of the last two decades. The best part about H&M’s branding strategy is the fact that each and every one of those strategies is unique and specific to the market that is being targeted. This is has been one of the highlights of the clothing retailer’s unprecedented success over the past decade or so. One of the major characteristics of H&M is its brand distinction strategy. H&M follows a managerial fashion and its clear price point strategy prevents the managers from targeting customers with enhanced lifestyle. Given the fact that H&M targets the mass market, the company cannot forego this image as it would mean losing up on a considerable proportion of market share. That is why the company cannot market its premium priced markets under the H&M banner. One of the fundamental strategies adopted by the company is to have different brand chains from different customer segments. This would enable the company to tailor its marketing strategies according to the customer segments that are being targeted. In addition to that, this strategy has proven to be instrumental in helping the company preserving the wholesomeness of the core brand that is targeted towards the mass market. This is extremely important as the sales from the core brand accounts for a considerable proportion of the company’s total market share (Retail Week, 2014). H&M relies considerably on sub branding strategies which are designed in order to cater to the needs of the segmented customers in a better manner. The managers are able to emphasize on the individual segments with more vigour which in turn allows them comprehend their customers desire for fashion and enhanced lifestyle. This makes it relatively easier for them design their products according to the tastes and preferences of these customers. Establishing separate brands for segmented customers has also proven to be an extremely effective strategy in terms of establishing a distinct signature and identity of the brands. This has been a major breakthrough achieved by H&M’s managers as they are able to convey their messages clearly now more than ever before. Moreover creating separate brands has also allowed H&M to make sure that customers of one brand do not get jumbled up with the customers of the other brands created by the company (Retail Week, 2014). Another effective branding strategy adopted by H&M is to create smart marketing campaigns that grab the attention of the target customers. One common pattern noticed in case of these campaigns is that one big marketing campaign is equivalently complemented with several sub campaigns. This enables H&M managers to highlight their products more effectively to the target audience. The underlying strategy behind creating such marketing campaigns is to make sure that the company’s fundamental vision of providing unique lifestyle experience to customers is conveyed to the target audience distinctively. In addition to that, H&M keeps close network with media in order to fortify its public relations. Media plays an instrumental role in broadcasting the new fashion defined by H&M as well as propagating any other important knowledge related to the company. H&M also corresponds with the financial as well as press market on a daily basis in order to keep track of the movements in the industry. This allows the managers to highlight the new products to be sold by the company. The extensive analysis carried out by H&M also enables the managers to understand the strategies adopted by their competitors that in turn serve as a guidance tool for H&M strategists while formulating their own branding strategies (Ye and Wu, 2009). H&M’s CSR and practices of sustainability H&M has been known as a company that emphasizes a lot on its CSR and sustainability principles. The managers give their optimal effort in ensuring the safety and suitability of the society, environment as well as of their business as a whole. H&M managers believe in maintaining the sustainability of its products as well as the environment by relying on organic or recycled cotton as the major raw material for designing its garments. This is precisely because growing cotton involves consumption of a lot of water. According to the company’s analysis it takes close to 8500 litres of water in order to grow cotton for a pair of jeans. That is why the company aims to make sure that all of the cotton required for making its products is taken from sustainable sources by the year 2020 (H&M, 2014a). Freshwater is becoming a scant resource with every passing day. This is precisely the reason why H&M managers endeavour to make sure that that the aqua ecosystem is conserved by all means. The underlying rationale behind this principle is to make sure drinking as well as sanitation water easily available to people. H&M has its own water strategy and the company’s attempt to increase freshwater resource is equivalently supplemented by its tie up with the World Wildlife Fun in their quest to ensure that water is continuously recycled. The company water strategy has been considered by world leaders and analysts as a resounding strategy in terms of the way the company perceives water to be a universal resource. H&M emphasizes a lot on the water is used in their facilities and how their customer uses water to wash their clothes. The company also spreads awareness among its farmers in order to help them manage water resources as efficiently as possible (H&M, 2014b). One of the fundamental principles of H&M is to make sure that all its workers in its home country facilities as well in its supplier country facilities get fair payments for their work. The underlying rationale behind this urge to improve the wages for the workers is to enable them to live a better life with their family. The company understands the need of a stable income in this contemporary society where price rise has become a recurrent issue. That is why H&M managers make sure that their workers are paid a fair wage for their work that enables them to satisfy their basic requirements (H&M, 2014c). H&M managers follow the team or sound of leadership where they emphasize equally on the company’s productivity as well as on the welfare of their workers. That is why the managers give their optimal effort to maintain good health and safety of their workers. The company regularly inspects its home country facilities as well as its supplier country facilities so as to make sure that their workers work in safe and healthy working conditions. The company also stresses a lot about educating their workers about their rights and jurisdictions (H&M, 2014d). H&M also collects worn out clothes in an attempt to make sure that no clothes are laid to waste. They retrieve used clothes and redevelop them into different products such as hand towels, cleaning materials. Other materials from used clothes that cannot be converted to useful products are transformed into textile fibres (H&M, 2014e) Conclusion H&M’s expansion strategy in the US has proven to be highly profitable for the company as is evident from its growing market share over the past few years. The free market economy in the US has worked largely in favour of the clothing retail giant. This market has provided H&M with a huge of target customers from all segments which in turn allowed the company to formulate its marketing strategies accordingly. Internationalization played a great role in establishing the company’s profile in this part of the world. H&M managers put the benefits of internationalization to good use in order to establish itself as a premium brand amidst companies such as Abercrombie & Fitch, Macys, Inc and Gap Inc. One of the major reasons behind the company’s unprecedented success over the last decade or so has been the branding strategy adopted by the managers. The company chose to establish sub brands in order to design products for its premium customers as well as the mass market customers. This has enabled the company to create a sustainable source of revenue stream and in turn increase its margin of profit. Meanwhile, H&M has also been lauded as a company that emphasizes a lot on its corporate social responsibility and sustainability practices dedicated towards preserving the environment. This practice has been instrumental in enhancing the brand image of the company. Reference List Assaf, A. G., Josiassen, A., Ratchford, B. T. and Barros, C. P., 2012. Internationalization and performance of retail firms: a Bayesian dynamic model. Journal of Retailing, 88(2), pp. 191-205. Burt, S. and Carralero-Encinas, J., 2000. The role of store image in retail internationalisation. International Marketing Review, 17(4/5), pp. 433-453. Dunning, J. H., 2012. International Production and the Multinational Enterprise RLE International Business. London: Routledge. Gaur, A. P. A. S. and Pattnaik, C., 2012. Product Diversification and International Expansion of Business Groups. Management International Review, 52(2), pp. 175-192. H&M, 2014a. Cotton. [online] Available at: http://about.hm.com/en/About/sustainability/commitments/conscious-fashion/more-sustainable-materials/cotton.html [Accessed 9 November 2014]. H&M, 2014b. Water. [online] Available at: [Accessed 9 November 2014]. H&M, 2014c. A fair living wage to garment workers. [online] Available at: [Accessed 9 November 2014]. H&M, 2014d. Working conditions in production countries. [online] Available at: [Accessed 9 November 2014]. H&M, 2014e. Garment Collecting. [online] Available at: [Accessed 9 November 2014]. Killing, P., 2012. Strategies for Joint Venture Success RLE International Business. London: Routledge. Lindsay, V., Chadee, D., Mattsson, J., Johnston, R. and Millett, B., 2003. Relationships, the role of individuals and knowledge flows in the internationalisation of service firms. International Journal of Service Industry Management, 14(1), pp. 7-35. Retail Week, 2014. H&M’s brand new approach. [online] Available at: [Accessed 8 November 2014]. Roberts, J., 1999. The internationalisation of business service firms: A stages approach. Service Industries Journal, 19(4), pp. 68-88. Teece, D. J., 2010. Business models, business strategy and innovation. Long range planning, 43(2), pp. 172-194. The Statistics Portal, 2014a. Facts on the Apparel market in the U.S. [online] Available at: [Accessed 8 November 2014] The Statistics Portal, 2014b. Size of the global apparel market in 2012, by region (in billion U.S. dollars). [online] Available at: [Accessed 8 November 2014]. The Statistics Portal, 2014c. Sales of the U.S. apparel market in 2011, by segment (in million U.S. dollars). [online] Available at: Read More