About H&M

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

Political

H & M has been under pressure by the international community for opening stores in Israel because Israel does not respect international laws. H&M denied taking any political or religious stance but Israeli officials stated that by opening a store H&M is helping them economically to establish peace in the region. The stores were also opened on controversial sites from where Palestinians were expelled, brutally killed and wiped off so they can never return again. 24 organizations protested against this action of H&M and many even boycotted them.

Second incident which made H&M controversial is the fact that they used to get their products made from Bangladesh due to cheap labor and cotton; most of the factories in Bangladesh are not socially responsible with safety rules being ignored completely. In 2006 alone there were 1100 deaths due to fire cases in Bangladesh and H&M used to source their merchandize from one of these factories. This made them realize that exploitation of underdeveloped market is destroying their image and leading to decrease in sales. Another such incident happened in Cambodian factory too. After that media started condemning them so they signed fire protection treaty according to which they will only work with factories who have proper equipment and safety measures implemented. (Nieuwhof, 2010)

Economic

They ensure best prices through efficient procurement by buying in bulk and from markets that offer the best rates, in house designing, and efficient inventory management system. Besides being able to maintain competitive pricing strategy, H&M is exposed to economic shocks due to expansion in so many countries. Interest rates, inflation and currency rates fluctuations make it difficult for an MNC to operate while maintaining a stable pricing scheme. Also taxes, import duties and other import laws changes in different countries make it difficult to source at the catalogue price. (H&M)

Social

It has catered to women participation in economic activities issue by employing more women than men in its offices and at board levels, thus providing women the equal chance to showcase their talent in an industry which concerns them the most. Secondly it has started working with International Labor Organization to provide better wages and ensure proper hygienic working conditions that are safe to work in. the idea is to help develop the third world markets by introducing them to modernized procedures of working and in the process secure profits, but ensuring that workers are not exploited.

H&M has realized that access to safe and clean drinking water is the most pressing issue in developing countries; therefore it has formed coalition with UN agencies and helped around 150,000 people until now in Pakistan, India and Bangladesh to access hygienic drinking water. H&M has also embarked upon the journey to save electricity in its retail outlets. Recycling of unwanted and wasted clothes and use of organic cotton in its products shows H&Ms efforts for safer and better world.

Technological

For H&M it is very important to stay updated as the world is changing as it is in the business of fashion and new trends are coming up every season, plus it is in the catalogue business which means that it stays one season ahead of what is offered in stores for example if it is summer then sourcing of winter collection would be in process due to the lead time for products. Considering the complexity involved in clothing business it has to embrace new technologies as they pave their path in this world in order to keep up with the current demand. Designs have to rapidly change and be in line with the fashion industry.

Environmental

H&M is a giant in retailing therefore it is always in spotlight one way or the other, it has to be really careful in whatever actions it takes. It makes sure that from whichever country it is souring its merchandize, there are no environmental hazards involved in the making of these products. The factories are following environmental law; there is no illegal dumping in the water.

Legal / Law

It makes compulsory to all its suppliers to follow the national laws of the countries in which they operate, and if any of H&M’s requirements are in conflict with the national law then they must be informed. No child labor is allowed in the manufacturing of company’s goods, in this case also national law will be followed. It will be ensured that the factory has safety and emergency exits, fire alarms, fire extinguishers and other relevant equipments. Other basic laws will be implemented regarding the hiring employee on his/her own free will and not making any forced contract, also not hiring any criminal. There will be equal employment opportunity for all genders, cast, race, culture and religion. All employees will be given wages, benefits and leaves that they are entitled to according to their position in the company. H&M also performs regular financial audits to maintain transparency in operations and business.

Bibliography

(n.d.). Retrieved December 09, 2015, from H&M: http://about.hm.com/en/About/Corporate-Governance/Other/Risk-management.html

Lo, D. (2013, March 21). Did You Know H&M is the Biggest User of Organic Cotton in the World + Other Fun Facts. Retrieved December 09, 2015, from Livingly: http://www.livingly.com/Shopping+News/articles/vnJF-jUcwyO/Know+H+Biggest+User+Organic+Cotton+World+Other

Nieuwhof, A. (2010, March 31). Swedish fashion chain H&M under pressure. Retrieved December 09, 2015, from The Electronic Intifada: https://electronicintifada.net/content/swedish-fashion-chain-hm-under-pressure/8759