Final Presentation H&M (Again)

The company
Okemena Egbabor Kim Anh Pham Chinasa Okonwo Zhai Yingxue Chloé Chabert
M28BSS –M36BSS Coventry University 2014-2015
Table of content
• Company analysis
• Country selection
• New target market – in depth analysis
• Entry strategy
• Conclusion and recommendations
Company background:
• H&M belong to the group Hennes and Mauritz AB.
• The group was created in 1947 by Erling Persson in Sweden. The same year, a store was opened in the
home country, in Västerås.
• Presence of H&M stores in the world :
(Source: H&M annual report 2013)

H&M Sales $ (Billion) Profit $ (Billion)
• Sales and profit of the company for the past 3 years 2013 19.538 2.607
(Source: Financial statement of H&M) 2012 17.843 2.491
2011 16.272 2.340
Product Portfolio
HENNES & MAURITZ GROUP
WEEKDAY COS MONKI H&M CHEAPMONDAY &OTHER STORIES
Chosen brand
H&M
Clothes Bags Cosmetics Jewelleries Underwear Home In

Company mission and corporate value

Group Mission
• They also ensure to meet the customers’ expectations and
beyond.
• Having a good working conditions
Group • Integrating social and environmental concerns into their
mission business operations and investments
H&M
mission
Group Value
H&M • Straight forward and open minded, keeping it simple.
Value
• Entrepreneurial spirit and constant improvement
• Cost consciousness.
• Helping to meet the needs of both present and future
generation
Brand sustainable vision

Mission statement • The vision is for all operations to be economically, socially
« Fashion and quality at the best price » and environmentally sustainable.
Global Readiness 2.5

Market Share in 2012
Uppsala Model : 2
1.5
Step 1: No regular export 1
activities
0.5
Step 2: Export via 0
independent
representative
Strategy
Step 3: Establishment of a
foreign sales subsidiary
Step 4: Foreign (Source: Euromonitor 2014)

production or • Expansion includes
manufacturing. both new stores and
online sales
• Increase the number of

stores by 10-15% each
year Methods
Experience
• Company owned
•Stated in 1964 retail store
• 54 countries • E-Commerce
• Franchising
Internal analysis Key resources Core competencies
• Relationship with suppliers • Low cost suppliers

• Brand image • Fashionable products
• In-house designers • Fast product turnover
• Quality of suppliers
• Low price
• Cost leadership Competitive
• Adapt to a rapidly changing demand advantage
• Diversification of products
H&M positioning :
Strengths Weaknesses
• Fast fashion retailer • Depends on third
• Low price tiers party
• Strong worldwide • Over-reliance on
presence Western Europe
• Effective supply
chain
• Huge experience
Apparel Industry Industry trends
 A growing number of low cost

Opportunities competitors
• Growing preference to shop online

• The demand for fashion product is
remaining high.
Porter Five Force
• The industry is in the growth stage
• Growing demand in emerging mark
Threats
• Speed of fashion change
• Weak consumer speeding in Europe
• Risk of foreign exchange
fluctuations
• Market saturation.
Growth
Year Sales $
rate %
2013 1,300,900,000 4.10
2012 1,249,300,000 3.10
(Source: Eurononitor 2014)

Target market • Mostly middle

income
• Women 18 – 45 year old INCOME customer
• Men 18 – 45 year old • Annual income
• Teenagers 15 – 17 year old above 10,000
• Youngsters 9 – 14 year old USD
• Children 18 months – 8 year old
• Babies 0 – 18 months  People that have concerns
about fashion trends.
 Purchasing most
fashionable clothes each
season.
 Wanting to follow the trends LIFESTYLE
AGE without spending a lot of
money.
 Consider shopping as an act
of providing pleasure,
excitement and satisfaction
• Fashionable
• Male & Female and trendy
consumers
• Mostly urban
DEMOGRA • Consider
• Young people PHIC shopping as a
social activity
Findings of the internal analysis
The current market of H&M is

saturated
The company have to find new

markets
H&M have experience and financial

strength for the new expansion plan
Country selection
Colombia
Brazil
Nigeria
South Africa
Vietnam
New Zealand
Reasons for choosing these markets
• No current presence of H&M

• Positive outlook apparel markets
• Huge opportunities in Emerging markets
• High expenditures on clothes for local customers
Country evaluation
Country Evaluation
72
57 58
53
51 51
NIGERIA SOUTH AFRICA VIETNAM NEW ZEALAND COLOMBIA BRAZIL
Criteria Selection
• Demographics
• Economic
• Infrastructure
• Local Consumption
• Political/Legal Environment
The best target market country

Criteria Brazil Colombia Criteria Brazil Colombia
Balance of payment Tariffs 34% 15%

475 85.8
(US$ billion)
Starting a
Trading across border 124 94 123 79
business (rank)
Number of documents
8 6 Corporate Taxes 34% 25%
of import
Cost to import (US$ per Banking system
2,275 2,470 32 46
container) (rank)
(Source: Doing Business 2014)
20
18 The best target market is
16
14
12
Brazil :
10
8
6
4
• Higher market potential
2
0
• Financial and market
Contact Market & Sales Competition Entry conditions Financial & Total conditions are more
potential Market
Conditions favorable
Brazil Colombia • Lower risk of crime
PEST Analysis of Brazil
P • Stable political conditions.

• Seventh largest economy in E
terms of GDP - US$ 2,245,673
• High import tariffs and taxes.
million (WB)
• Require registration to Siscomex.
• Population of 198,656,019 and
an unemployment rate of 5.4%
• Program for accelerated growth
(PAC).
• FDI in Brazil reached US$ 64
billion in 2013
• Corruption
• An increasing use of • Heavily influenced by brands.

e-commerce in Brazil.
• The use of credit for a number
of everyday purchasing
decisions
• Growing middle class

T S
TMP of Brazil Criteria Brazil
Number of potential consumers 12,600,000

140
Frequency of purchase on an
120 13.00
annual basis
100
80 Selling price of the product ($) 22
60
Total market potential (TMP) 3,603,600,000
40
20
Desired Market Share (%) 0.5
0
2003 2011 2014
Company Sales Potential (CSP) 18,018,000
Class A and B Class C Class D and E
(Source: OECD 2014)
Class Annual income

Class A > 52,806
Class B 40,506 - 52,806
Class C 9,396 - 40,506
Class D 5,879 - 9,396
> 75% is ABC class Class E < 5,879
2009 2014
Brazilian Apparel Industry
% RETAIL VALUE in 2013

APPAREL SALE (R$ million)
100,000.00
80,000.00
60,000.00
40,000.00
20,000.00 C&A Ltda Lojas Renner SA
Lojas Riachuelo SA Grendene SA
0.00
Marisa SA Alpargatas SA
2008 2009
2010 2011 Nike Ltda Cia Hering SA
2012 2013
Others
(Source: Euromonitor 2014)
BRAZIL Lojas Renner SA – Renner C&A
Sales US$ 2,133,000.00 US$ not public

Number of employees 14,881 17,000
Year in Business 49 38
Market share (2013) 3.3 % 3.7%
Brazilian Apparel industry

MARKET SEGMENTATION
Womenswear Menswear Childrenswear
Consumer behavior in Brazil
• Per capita expenditure on clothing: R$505.90 (2012).

• Influence by world fashion trends. 19%
• Heavily influenced by international brands. 48%
• Tend to imitate the styles of their favorite celebrities.
• Associate quality with price. 34%
• Shopping malls are the most popular places to shop for
clothing.
• The use of credit for a number of everyday purchase decision.
Evaluation of entry modes
Corporate
Factors owned retail Indirect export Direct export Joint venture Franchising E commerce
stores
Goals/Objective 5 3 4 2 3 3
Control 4 3 4 3 3 4
Resources 3 3 4 2 4 3
Experiences 4 4 5 1 4 3
Competition 3 3 3 2 3 3
Regulation 3 2 3 3 4 3
Market Size 4 3 4 4 4 4
Risk 2 2 3 3 3 4
Flexibility 3 3 3 3 3 4
Feedback 4 2 3 3 2 4
TOTAL 35 28 36 26 33 35
Reasons for the chosen mode of entry

Corporate Owned Retail Stores and e-commerce
are chosen for the following reasons:
► Full control ► Have experience

► Earn 100% profit ► Widely spread the brand image
► Foundation for future expansion ► Cater to the increasing of e-commerce
Export Mode Franchising
Alternative  Is usually used in

the initial stage
 Faster and wider
entry
entry  Exporting is not

relevant to a
retailer
 Lower resource
commitment
 Lack of control
strategies  Contradicts the
company’s
 Risk with the brand
reputation
strategy
Risk analysis
• Low quality of infrastructure
 Operate in the place which has high quality infrastructure
 Do research to find the best trading route
• Inefficient government, bureaucracy and corruption

=> Cooperation with a local business consultant.
• Lack of educated workforce

=> Provide Employee Training Program,
Risks Management Skill Development Program
• Counterfeit goods are common in Brazil

=> Promotions, increase the consumer’s
shopping experience
• Instability of foreign exchange rates

=> Insurance
=> Hedging
Export pricing strategy
18% of the CIF Value added tax

= 6,331.10 $
35% of the CIF Import duties

= 9,118.80
Foreign Freight
Forwarder's Fees
2,791.78$ from
China to Brazil Insurance
cost
2% of the exported Shipping
value = 22,000$ cost
For 40 feet container
= 1,240$ Product
price
Product price = 22$
Export pricing
US $
Value of export products 1,100,000
Selling price of the product 22
Shipping cost 1,240
Insurance cost 22,000
Foreign Freight Forwarder's Fees 2,791.8
Total C.I.F price or landed cost 26,053.78

Import procedure
H&M
Guangzhou
H&M supplier
Brazil
2. Establishing a LC
6. Documents
4. LC
8. Documents

5 5
South Pacific
Atlanti Ocean
c Ocean
Indian
Bank of
Importer
 Ocean
3. Letter of Credit
7. Documents
 Bank of
Exporter
Import checklist
Imports documents
Bank document
H&M doesn’t produce its own Bill of lading
products
Cargo release order
Commercial invoice
Customs import declaration
Entry Invoice (Nota Fiscal)
Packing list
Focus only on imports
Technical standard/health certificate
(Source: Doing Business 2014)

Certificates Labels
An IN permit through Tradenet to import goods Product name
Incoterms Country of origin
Registration to Foreign Trade Secretariat (SECEX) through

a system named Sistema integrado de comercio exterior Importer’s information
(Siscomex)
Entry condition
Corporate tax rate 34%

Balance of payment ($ billion) -77.63
GDP per capita (PPP) $12,100
Inflation rate (2013) 6.2%
Currency stability stable
Import tariffs 35%
Member of WTO Since 1995
Ease of doing business (out of 189) 116
High tax rate, high administrative tax, bureaucratic and
Political/Financial risks
corruption
Free trade agreement Mercosur
Shipping Route
DISTANCE TIME (Source: Ports 2014)
23007.4 km 17 days
Financial Plan US$ 2015 2016 2017

Unit 819,000.00 900,900.00 990,990.00
Unit price 22 22 22
Net sales 18,018,000.00 19,819,800.00 21,801,780.00
CGS 7,207,200.00 7,927,920.00 8,720,712.00
Gross profit 10,810,800.00 11,891,880.00 13,081,068.00
OpExpenditure 8,034,194.70 8,809,316.00 9,641,748.00
Net Profit 2,776,605.30 3,082,564.00 3,439,320.00

24,000,000.00
22,000,000.00
20,000,000.00
18,000,000.00 Break Even Point

16,000,000.00 2015 13,390,324.5
14,000,000.00
2016 14,682,193.3
12,000,000.00
10,000,000.00 2017 16,069,580

2015 2016 2017
BEP Profit
Sales
Pricing and promotion strategy
GROWTH
TIME
Introduction Growth Maturity Decline

Buyers Few Higher Highest Less
Medium: Due to the

Competitions different competitors in High Medium Low
Brazil H&M
Products Same Same Same Same
Lots of sales due to

Give discounts and
Pricing strategy Penetration strategy Have a standard price short life span and
sales
festivity
• Creating awareness • Building a customer • Meet the rapid • Sales and
• E-Marketing relationship development of online promotions
Promotion market expansion.
strategy • Being innovative
and developing all the
time
Marketing Mix strategy
Advertising’s price
300 seconds in TV 2,500$ – 3,500$
25 radio station spots 2,800$ - 3,500$
1 month magazine (tiny add) 2,200$ - 5,000$
2,500 Google AdWords click 1,000$ (0.4$ each)

Conclusion
• The company develop a huge campaign of expansion with an increase of new
store between 10% and 15%.
• The apparel market is saturated and so, H&M have to continue its expansion
strategy to new high potential market, in our case, Brazil.
• The apparel industry in Brazil represent an opportunity for H&M, where the
sales increased every year and the growth is constant.
• However, the huge cost of imports and tax can create a bottleneck for the
company and decrease its competitive advantage of low cost products
Recommendations
Use of direct export/import.
Use the method of company owned retail store in order to keep a maximum
control.
Develop a huge marketing campaign to attract new customers.
On-shore manufacturing to reduce the cost such as Zara’s strategy.

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The company

(Source: H&M annual report 2013)

WEEKDAY COS MONKI H&M CHEAPMONDAY &OTHER STORIES

Clothes Bags Cosmetics Jewelleries Underwear Home In

Company mission and corporate value

Brand sustainable vision

Global Readiness 2.5

Step 4: Foreign (Source: Euromonitor 2014)

• Increase the number of

Internal analysis Key resources Core competencies

• Relationship with suppliers • Low cost suppliers

Apparel Industry Industry trends

 A growing number of low cost

• Growing preference to shop online

(Source: Eurononitor 2014)

Target market • Mostly middle

Findings of the internal analysis

The current market of H&M is

The company have to find new

H&M have experience and financial

Reasons for choosing these markets

• No current presence of H&M

NIGERIA SOUTH AFRICA VIETNAM NEW ZEALAND COLOMBIA BRAZIL

The best target market country

Balance of payment Tariffs 34% 15%

PEST Analysis of Brazil

P • Stable political conditions.

• An increasing use of • Heavily influenced by brands.

• Growing middle class

TMP of Brazil Criteria Brazil

Number of potential consumers 12,600,000

80 Selling price of the product ($) 22

(Source: OECD 2014)

Class Annual income

Brazilian Apparel Industry

% RETAIL VALUE in 2013

(Source: Euromonitor 2014)

BRAZIL Lojas Renner SA – Renner C&A

Sales US$ 2,133,000.00 US$ not public

Brazilian Apparel industry

• Per capita expenditure on clothing: R$505.90 (2012).

Evaluation of entry modes

Reasons for the chosen mode of entry

► Full control ► Have experience

Export Mode Franchising

Alternative  Is usually used in

entry  Exporting is not

• Inefficient government, bureaucracy and corruption

• Lack of educated workforce

• Counterfeit goods are common in Brazil

• Instability of foreign exchange rates

Export pricing strategy

18% of the CIF Value added tax

35% of the CIF Import duties

Total C.I.F price or landed cost 26,053.78

(Source: Doing Business 2014)

Registration to Foreign Trade Secretariat (SECEX) through

Corporate tax rate 34%

DISTANCE TIME (Source: Ports 2014)

Financial Plan US$ 2015 2016 2017

Net Profit 2,776,605.30 3,082,564.00 3,439,320.00

18,000,000.00 Break Even Point

10,000,000.00 2017 16,069,580