Question

H&M, a Fashion Giant, Has a Problem: $4.3 Billion in Unsold Clothes

In the world of fashion retailing, where shopping is fast moving online and stores try to keep inventories closely matched to sales, even a small stack of unsold clothes can be a bad sign. What about a $4.3 billion pile of shirts, dresses and accessories? That is the problem facing H&M, the Swedish fashion retailer, which is struggling with a mounting stack of unsold inventory.

H&M outlined the buildup in its latest quarterly report on Tuesday, prompting questions of whether the company is able to adapt to the fierce competition and changing consumer demands reshaping the global apparel market. Signs of its expanding unsold inventory began emerging last year, when it reported an unexpected quarterly drop in sales. The decline was the first in two decades, a period in which H&M expanded from a lone women’s wear store west of Stockholm to a gargantuan network of 4,700 stores around the world.

Foot traffic in the past year fell as customers eschewed crowded shop floors in favor of online shopping, or lower-cost offerings elsewhere, a challenge hitting a wide array of “fast fashion” retailers. On Tuesday, the company said the pile of unsold stock had grown 7 percent in the past year and was now worth nearly 35 billion Swedish kronor. The scale of the problem illustrates H&M’s vast size — as one of the world’s largest clothing manufacturers, it produces hundreds of millions of items each year. There are so many that a power plant in Vasteras, the town where H&M founded its first store, relies partly on burning defective products the retailer cannot sell to create energy.

Analysts have been pressing Karl-Johan Persson, the company’s chief executive, over the issue. Inventory levels were up, Mr. Persson said, because H&M was opening 220 new stores and expanding its e-commerce operations, and so needed to fill the racks. Critics, however, blamed poor inventory management and underwhelming product offerings, prompting once-loyal shoppers to take their wallets elsewhere. The company said operating profit fell 62 percent in the three months through February, sending its shares to their lowest closing price since 2005 on the Stockholm stock exchange.

It is the latest in a series of issues for H&M. The company had to close stores in South Africa and faced a social media backlash after it ran an ad in January showing a black child model wearing a hooded sweatshirt that said, “Coolest monkey in the jungle.” Also, it and other retailers in Europe are girding themselves for an expected push by Amazon into clothing retailing, one that Amazon has already been making in the United States.

Since the early 2000s, business has largely boomed for fast fashion retailers such as ASOS, H&M and Inditex, which owns Zara. They profited off their ability to generate, at a vast scale, rapid translations of runway fashions into low-priced clothing and accessories. But while luxury brands have enjoyed a rebound in fortunes in recent months, fueled by millennial appetite and a recovery in demand from the lucrative Chinese market, mass-market companies have had to deal with enormous changes. In the digital era, the challenges around offering trendy apparel before it goes out of style have mounted, particularly as growing numbers of shoppers choose to buy from their smartphones and become more quality conscious. ASOS is an online-only retailer, and Inditex has managed to ramp up its digital sales. But H&M, which also owns brands like Cos, & Other Stories and Arket, has fallen behind the pack.

Analysts have been downbeat on the Swedish company’s outlook. Rahul Sharma, founder of Neev Capital, called H&M “a slow-motion wreck” after the release of the first-quarter results. Analysts at the Swiss bank UBS said in a note to investors this month that they had come away from an H&M presentation in November “with no clear view on why focus on the core customer had been lost, and what was being done to fix it.” H&M has insisted it has a plan, saying it would slash prices to reduce the stockpile and slow its expansion in stores. It said it hoped its online business would expand 25 percent this year. Still, Mr. Persson, a grandson of H&M’s founder, acknowledged that the rapid transformation of the industry was weighing on his company. “The start of the year,” he said, “has been tough.”

10. How do the concepts of price sensitivity and elasticity of demand impact the sale of clothing & accessories at H&M. Explain your thinking with examples.

8. How H&M could leverage the use of technology to enhance its online and offline channels? List and briefly describe three trends that are currently having the greatest impact on the future of retailing.

6. H&M needs to work on their integrated marketing communications plan, they need to build out a plan for changing people’s behaviors and adding a larger audience. What do you believe are the three best tools for this? Explain how your various tools would work to capture the audience and what you would do to maximize profits. Please provide more details.

Answer 1

H&M is a Sweden based apparel brand which stands for Hennes & Muaritz is one of the world's largest apparel brand which exists in 61 countries with over 3700 stores all over the world. H&M is known for is hot-off-the-runways fashions at an affordable prices and its fasy fashion concept has dominate the youth accross the world.

10. Price Sensitivity: The degree to which the price of a product affects consumers puchasing behaviouris known as price sensitivity. The demand created by customers is the driving force in the retail market. The price strategy of H&M is designed based on the needs of the customer and which is low price and high fashion. H&M ususally outsource the production of the products where the labour cost is too low. The company also conduct strict cost control plan. It has targeted middle class income group with great quality of product at lower price. Here, the low cost and high quality product attracts college graduates and the office goers.

Elasticity of demand: Consumer buy more or less of a product when the price changes.

Elasticity(E) = Percentage change in quantity demanded of good A / Percentage change in price of a good A

If E is greater than 1, demand is elastic.

If E is less than 1, demand is inelastic.

If E is equal to 1, demand is unitary.

8. The world's second largest fashion apparel group, H&M is investing heavily in areas like artificial intelligence and customer loyalty to improve the spot trends, to plan logistics and to reduce the stock piled up.

Online: The company is trying to make products available in different online apps and is reducing its piled stock by providing discounts on them.

Offline: The company insisited a plan which states they will slash prices to reduce the stockpile and slowdown its expansion stores.

3 trends that are currently having the greatest impact on the future of retailing are:

1. Multichannel sales : By offering customers the option to browse online and buy in store which is known as BOPIS. BOPIS moves beyond mass market during these years. Multichannel approach is becoming a key strategy in retailing, customers can search and buy product online and pick the item from store. This will save them spending their time on store and the wait time between the online purchase and delivery of the product is also reduced. Even they can tally the prices from online to those in stores.
2. Ethical and value based shopping: Recently college grads, more than Gen Xers and people born after WW2 like the items just as the organizations behind them. Here the customers feel like they are supporting an undertaking that thinks about more noteworthy's benefit.
3. Personalization and experiental shopping: Ecommerce business has made more brands and more items open to a larger number of individuals than anytime in recent memory. On the off chance that everybody can get everything, its just a characteristics that a few people will search out items, places, and encounters that vibe interesting. The retailers should come out with store personalization rather than product personalization.

6. Marketing communications: Marketing communication is the method to coummicate to customers about the product and services offerd by the company. It includes advertising, sales promotion, events and experiences, public relations and publicity, direct marketing and many more.

In integrated marketing communication a company carefully integrates and coordinates its communication channel to deliver a clear and consitent message or informatin about its product/services to customers.

3 best tools to communicate with large no. of audience:

1. Campaign based strategy: This will to increase customers knowledge of the slashing prices of the product which will help the company to reduce stockpile. Customer will get higg quality product in low prices.

2. E-mails: Emails are aslo the best option to communicate customers about the discounts and offers the brand is giving . personalized mails can be very effective it will make customer feel improtant.

3. Catalog and promotional coupons : Catalog and promotional coupons can be effective for next purchase of customers. They will come back again due to these coupon strategies.