H&M is included among the clothing fashion industry, having international presence. The company is based in Sweden and manages 4500 stores in different locations across the world. The PESTLE analysis of H&M covers the key factors present in the external environment and their subsequent impact on operations and profitability of the company.
About H&M
| Company Name | H&M |
|---|---|
| Founded | 1947 |
| Headquarters | Stockholm, Sweden |
| Industry | Retail |
| Products | Clothing, accessories, footwear, cosmetics |
| Number of Stores | 5,076 (as of August 31, 2021) |
| Number of Employees | 179,000 (as of November 30, 2020) |
| Revenue | SEK 187 billion (2020) |
| Website | www.hm.com |
Political Factors
The political stability facilitates fashion brands in continuing with the smooth flow of operations. On the other hand, geopolitical crisis necessitate the need to restrict business operations and respond to the external environment threats to reduce the damaging impact on the company. One of the major political issues that the company has faced is the Russia and Ukraine crisis.
H&M had to review the safety of operations in Russia, along with the ethical obligations of continuing with the business in the region. Due to the strained trading relationship of Russia with other countries due to war, the board of directors at H&M had decided to close down its stores, while facing financial loss in the process (Ray, 2022).
These decisions are a reflection of the way political crisis effects fashion brands decision. Apart from the political disturbance, government’s decisions such as taxation and trading policies define the way a fashion brand would operate. Currency exchange rates also effect the profit margin of H&M as seen in case of the stronger dollar rate causing increased cost of business.
Economic Factors
A high GDP and favorable economic performance of a country helps the businesses to prosper and achieve the revenue targets. However, when the economy of a country is weakened due to high inflation, the effect of this change is evident across prices of different commodities and materials.
H&M has been dealing with the negative effect of inflation and rising prices of raw materials and energy. Energy cost increase specifically in the European regions has resulted in a higher cost of operations. In addition, the freight charges had increased due to inflation, causing additional pressure on the management to make cost reduction decisions (Provan, 2022).
Besides inflation, the unemployment rates influence the consumer buying decision and the overall sales and revenue generated by H&M. The company has faced issues in terms of low sales which was linked with the weaker financial condition of the market. Unemployment restricts the financial choices of the people, reducing sales of clothing brands.
Social Factors
Population rise indicates the expected demand for the company products and the expansion of the target market. Financial status of the people also determines the types of stores they would visit for purchasing clothing. H&M recognized the financial constraints its customers were facing due to high inflation and low buying power.
The range of products were offered keeping the notion of value for money into view to keep the brand relevant for the target market. In addition, the fast paced changing preference of the customers creates a need to develop clothing items that are aligned with the evolving customer choice.
COVID brought social changes across the world, which resulted in a lower demand for clothing and fashion items, leading to lower sales. Continued pattern of low sales had motivated H&M to make decisions regarding cost reduction. One such example is the closure of its stores and the decision to temporarily reduce the workforce to offset the effect of declining profits (Thomas, 2020).
Technological Factors
The fashion and clothing segment has greatly benefited from the technological developments in the form of 3D and virtual reality. H&M has been able to use these technologies to connect the customers to a satisfactory shopping experience. The use of virtual showrooms has also helped the company in lowering the operational expenses, making the sample sharing process efficient (H&M Group, 2022).
Moreover, Artificial Intelligence and data analytics have further helped H&M in streamlining its supply chain and manufacturing process with the market demand patterns. The customer data is examined to identify the probable demand of different fashion domains and the manufacturing process is managed accordingly.
Another way AI has been a source of benefit for the company is through making the process of fault identification more effective, improving the production process. Technology has also been integrated as a part of the raw material growth, such as the use of technology to bring improvement in the cotton quality.
Legal Factors
The employment laws such as fair compensation and equal employment opportunity have been applied in H&M. Copyright laws are also pertinent in the fashion industry and the company can sue or face litigations in case violation of copyright occurs. Employee health and safety standards are also aligned with the legal framework.
The company is also required to provide accurate information to the stakeholders about its operations. There has been criticism concerning the sustainability image the management has been trying to create in the market through false information. As a consequence, the company had to face a lawsuit against its green washing tactics.
In case of dealing with customers, the company is required to follow The General Data Protection Regulation (GDPR) and retain privacy of consumer data (H&M Group, 2022). The quality of the material needs to be in accordance to the standards and the company needs to refrain from the use of chemicals that are harmful for the customers.
Environmental Factors
Concerns over environmental changes have motivated fashion industry players to adopt sustainability based practices. H&M has also engaged in bringing sustainability as a part of its different business operations. The focus on environment friendly fashion has resulted in the use of 3D designing technology, which minimizes the use and wastage of resources.
Emissions have also been curtailed at H&M, with the target of further reducing the emissions by 56% in the next 7 years. The management has become focused on procurement of material from suppliers that adhere to eco-friendly practices through its Green Fashion Initiative (DeAcetis, 2021). Also, renewable energy has been incorporated to fulfil sustainability targets.
Conclusion
H&M has been significantly impacted due to Russia and Ukraine war and the rising inflation. The decision to close its stores and layoff of the employees has been taken as a response to the challenging external environment. Overall, H&M is dealing with moderately favorable industry dynamics, supported by its positive image and focus on value for money.
References:
- DeAcetis, J. (2021). H&M Drives Innovation In Sustainability With 2021 Style. Forbes. Retrieved from: https://www.forbes.com/sites/josephdeacetis/2021/05/06/hm-drives-innovation-in-sustainability-with-2021-style/?sh=64a73fff5346
- H&M Group (2022). Annual and Sustainability Report. Retrieved from: https://hmgroup.com/wp-content/uploads/2023/03/HM-Group-Annual-and-Sustainability-Report-2022.pdf
- Provan, S. (2022). H&M hit by closure of Russia business and surging costs. Financial Times. Retrieved from: https://www.ft.com/content/96d71548-1267-4e31-8325-32e9d7377654
- Ray, S. (2022). H&M Fully Exits Russia, Joining Global Brands Like Nike And McDonald’s. Forbes. Retrieved from: https://www.forbes.com/sites/siladityaray/2022/07/18/hm-fully-exits-russia-as-it-joins-global-brands-like-nike-mcdonalds/?sh=60232502759e
- Thomas, L. (2020). Fashion retailer H&M weighs tens of thousands of job cuts because of coronavirus. CNBC. Retrieved from: https://www.cnbc.com/2020/03/23/fashion-retailer-hm-weighs-tens-of-thousands-of-job-cuts-because-of-coronavirus.html