Executive Summary

H&M is a Swedish company that is renowned worldwide for its products and scale. The company has branches in several continents over the world, which makes it one of the biggest fashion retailers in the world. Moreover, the company’s involvement in production and social responsibilities has improved its market and increased its competitive ability. The company has been maintaining its status of a household organization for years, due to consideration of some market factors and conforming conditions. The biggest competitor of H&M in the market is the company called Zara Retailers. The Spanish giant has adopted working conditions principles and policies similar to those of H&M’s, which made the competitive ground stiff and highly sensitive to any changes in the economical environment. The two companies compete well, but it would be much more effective if they adopted more aggressive and strategic work plans to ensure that they remain close to the consumers and continue to satisfy the market demands, retaining their products’ quality.

Introduction

H&M Retailers is a giant retail outlet dealing with clothes. The giant enterprise has its shops and outlets in its home country, Sweden and other countries in Europe. The company has also established branches in Asia and America. The store has a total of about 94,000 employees and operates in 43 countries on different continents. In contrast, Zara is a fashion firm based in Spain. The company was founded in 1975. The company is known for its zero percent policy on advertising. The company uses its revenue to open up new branches instead of advertising. Over years, the company has gained popularity for its cheap but qualitative products. The company is recognized as a strong competitor in the fashion industry.

External Industry Environment

The external factors that influence the analyzed companies are very similar in both cases. Undoubtedly, these factors are of considerable concern to the managements of the two giants. The two companies have use different approaches for dealing with the external factors and ensuring that the companies remain in business and continue to retain their customers. One of the companies’ most weighty concerns is the global financial recess that many giant companies had to face, which led to crashing or going under receivership. The global economic crisis that saw the backdrop of the American and European markets has affected other factors in the market. For instance, the recess caused a reduction of the purchasing power of the locals of the regions; it also slowed down the production and development of infrastructures. This, in turn, affected trade, causing a collapse of the insurance industry which facilitates trade and production with the reduced expansion of retail and other businesses. Furthermore, the recession caused the downfall of currency, reduced the international trade rate and also led to a fall in levels of investment in the securities markets like the Great Wall and New York stock markets. This all has led to a reduced capital flow, slow and reduced production and general uncertainty in the market.

The change in the trade pattern and development of the Asian markets which often exceed the European and American markets also affected the markets negatively in the recent years. The market dynamics in this process faced a shift of trade in different patterns, making it difficult to plan and execute development and expansion plans.  Moreover, the reduced trade between USA and other countries of the world, especially African and Asian ones, led to the reduction of the rate of export in these countries. This has significantly reduced the business opportunities for the two companies.

In addition, the competition rate for the H&M and Zara has gone up in the recent years. Apart from competition of the two companies, there is an increased competition with other companies in Asia, Europe, Canada and America. Indeed, small scale fashion lines which are cheap and customer friendly are also a significant source of concern for the giants. This issue has been elevated by diversification of other businesses, which are getting engaged in different lines of trade, including fashion and technology. This has considerably rised the competition levels for the two businesses. The licensing of other firms, mergers, acquisitions and franchises has also led to competition in the clothing industry.

The other factor that contributed to the changes in trade industry is the change of government policies. It increased taxation levels, production costs, and created a need for new operation policies. This has seen an increase in shipping costs, insurance and operation. All these factors made these businesses reduce the rate and level of production, as they fight to fit and conform to the market demands. Thus, customer pressure and demand is another significant factor that has externally affected the trade and business well-being of the two companies. The development in technology, trend and demand for better and improved products is a difficult challenge in retaining the consumers. Opening stores in new geographical regions requires that the company be equipped with the prior knowledge of the culture, way of life and consumers demands. This requires a lot of research and knowledge in the new environments. Conforming to the new environments and the new trends requires that the companies keep their eyes on the ground to ensure that they get a glimpse of any new trend or demand and deliver to ensure consumers satisfaction (Garth & Andread & Joel, 2000).

Stability of the External Environment

In general, it has to be noted that the external environment can rarely be described as stable due to the availability of dynamic market factors. The market factors range from legal and economic to social. These factors are as a result of changing and conforming factors, which by all means tend to alter the market and trade. In other words, these factors are a result of changing international relations, culture, climate and political differentiation. Therefore, the business has to conform and adapt to the changes in order to fit into the new environment. This can only be possible by adopting new working policies, diversifying the products and advancing the technology in use.

Adaptive Mechanism of H&M Retailers

H&M Retailers as a retail outlet and a substantial performer in the market has adopted several methods of covering up in the market demands and retaining their consumers. Following is a list of these methods.

Market Diversification

Opening the new branches in new outlets on different continents caused the outlet retain of a large number of consumers worldwide. This has reduced the cost of shipping and insurance of new deliveries. In addition, the new outlets have stocked different products from different cultural backgrounds. This has tremendously enhanced the company’s  market potential and trade level.

Franchise and Mergers

The company H&M Retailers has come into an agreement with different companies in different fields for franchise or mergers to create and improve business in a symbiotic relationship. The company collaborated with companies producing sportswear, gaming companies and motoring related industries. This allowed the company to acquire a new and large breed of consumers over a short period. The company has partnered with KarlLagefeld, Viktor& Rolf and Stella McCartney, and a number of others. Moreover, the company has partnered with sports personalities to boost its sales, including football stars (Madonna  & Collins, 2005).

Advertisement

The company has taken up a massive and aggressive advertisement campaign to boost its sales and to make its name more established in the market, especially in the new areas. This has been done through participation in corporate sponsorship programs, sponsoring events and involving super stars for commercials, and also through use of media and bill boards. This was aimed at improving and raising the company sales in the markets and improving its competitive position.

Adaptive Mechanism of Zara Retailers

Opening up New Branches

Zara retailers have opted to increase its competitive advantages by opening up new stores and outlets in different parts of the world. This was a strategy they used to replace advertisement campaigns, which the firm feels have no material benefit to consumers. The company decided that it is better to offer the products to consumers and let them make a choice. This strategy is aimed at capturing a wide market and improving relationships with the consumers who feel that the retail outlet is trustworthy as it gives them an opportunity to be sure about the quality of the products.

Mergers and Franchise

Zara Retailers Company has gone into joint ventures with several other companies in the same line of production with the aim to improve their sales and allow them access easily into new markets. The partnerships has helped the company reduce the taxation levels and the expansion time otherwise taken for a monopoly single business company to acquire new markets and treaties, which are mostly politically indulged in other states.

Corporate Social Responsibilities

Zara Retailers

Zara Retailers Company has rolled out several environmental conservation and human development programs. In fact, the firm wanted to improve the interaction between people and environment. The company is undertaking the programs with the support of their staff members, consumers and the governments of their regions of operation.

Energy Sustainability

Zara Retailers Company has rolled out a program aimed at saving and conserving energy. This was done through planning an effective and efficient use of energy. The company implied the use of eco friendly and energy saving materials and techniques in their manufacturing programs and setting up of similar structures for their premises. The technology is being used in their cooling, heating, air conditioning and manufacturing systems. The firm has also adopted a system that consumes less electricity for recycling their decorative and display structures. This includes recycling of furniture, clothing and other materials.

Reduction of Waste Production and Recycling

The firm has taken under the recycling of all plastic materials in the stores and changing them into useful plastic materials. The things to be recycled include hangers, security seals and display stands. This is meant to reduce the amount of plastic materials in the environments of operation in various countries. The program aims at making use of millions of hangers and security seals from the stores year after year. The program will also involve reusing of Cardboards and plastic materials.

Team Members Training

The firm has unveiled an employee’s training program aimed at educating the employees on the importance of the environment. The program is aimed at making the employees aware of the sustainable practices that are friendly to the environment. The training involves encouraging energy trimming, consumption and use of sustainable means of transport. It also touches the topic of modifying the behavioral habits among the employees.

Environmental Practices at Customer Service

Use of Paper or Biodegradable Plastic Bags

Use of 90% non plastic material is what the retail stores want to achieve in their packaging department. The firm wants to encourage the use of paper material in its packaging. According to the plan, plastic materials should only come in rare cases. In addition, even if plastic materials are used, they should be refined to a biodegradable level in order to allow them to decompose through natural means without heaping up in the environment, which causes damage. The biodegradable plastics from this particular retail store are defined by the logo d2w.

Generating of Recyclable Information

The company has gone ahead to generate biodegradable information. This has been done though the use of PEFC paper and recyclable materials to give product information to consumers. The printing of the price lists, catalogues and fashion details is done on purely biodegradable and environmental friendly materials.

Environmental Policies with the Product

Use of Ecological Fabrics, Like Organic Cotton

Zara uses organic cotton in the process of manufacturing of its products. The cotton is free of any pesticides, chemical additives and bleachers. Moreover, the firm encourages farming and development of cotton in different areas of the world.

Producing PVC –Free Footwear

The use of organic and biodegradable materials to manufacture footwear is one of the strategies used by Zara Retailers to conserve the environment. Thus, the materials are free of any petroleum products.

Environmental Policy in the Transport

The firm ensures that its fleet of Lorries that transport over 200 million items annually use biodiesel fuel at the rate of about 5% of all fuel used. This is aimed at reducing the rate of emission of CO2 gas, which is harmful to the ozone layer.

Animal Welfare Policy

The firm ensures that the animal products used in the manufacture of all the clothing products are attained properly. The company also organizes its production in a way that allows no animals to be sacrificed for their skin or fur. They purchase their raw materials from farms that rear animals for the purpose.

H&M Social Responsibilities

Use of Organic Cotton

H&M Retail Company has taken up the initiative of using pure organic cotton in manufacturing of its products. The use of cotton , which, as it was mentioned earlier in this paper, is not harful for the environment, is meant to protect the water basins and sources, soil and air. The practice also discourages the use of pesticides in the companies that are targeting H&M as their prime market for their cotton.

Use of Biodegradable Packaging Materials

The use of less or no plastic materials in packaging is one of the measures of controlling pollution in most countries. H&M has taken up the initiative of ensuring that its stores use less plastic materials in the packaging department. In addition, the company has made a follow up program to ensure that the plastic materials used are recycled to reduce the rate of environmental pollution.

Animal Welfare

The company ensures that all animal products used in production of clothing and other products are attained in a proper way. To do this, the firm has launched a campaign discouraging the torture of animals, illegal use of animal products and use of animal carcass for other purposes, not permitted by laws of different countries.

Financial Analysis

H&M Retailers

H&M Retailers company is a multinational Company making massive profits. The company has been able to channel its profits to its expansion programs making it an influential giant in clothing production.

Year Financial Report

Sales for Year 2010

The company made a massive profit after full year sales. The company’s total sales for the year 2010 was 108 483 million of items. This is equal to $ 101 393 million. This established an increase of 15 percent excluding the VAT pre taxation. It was also an increase of 5% of the strong sales over a period of one year. The sales increase was as a result of increased sales, reduced cost of production and improving global economy. The sales boosted the annual profits and increased the company opportunities for expansion. The gross profits for the financial year amounted to approximately 68,970 items. This was an increase of 62% comparing to the previous financial year. The profits were attributed to improved products delivery, customer relations, improving global economy and nutritional management (Manfred, 2008).

The post tax profits were at SEK 25,000 for the year. This was due to the above mentioned factors. This helped attract more investors into the company and thus raise its share price in the stock markets. This allowed the firm to gain more capital inflow, leading to expansion of the business in other parts of the world. The increased profits saw the share price rise to about SEK 11.90 per share in the securities market. The income, profits and taxation values were distributed within the four quarters of the financial year.

Zara Retailers

Zara Retailers Company reported an increase in profits of the year by 68%. The sales and profit expansion was in line with the expansion in number of stores, customer base and products diversification. Moreover, profits at the end of the first six months of the financial year stood at $ 836 million. This was an increase compared to the previous year when the profits stood at $543 million. The poor performance in the previous year was as a result of global economic recession, job insecurity among the employees and unfavorable credit conditions. The new record caused an increase in sales by 14% and an expansion on the store basis at a rate of 5%. The expansion led to opening of 171 stores in 37 countries. This saw the company starting its operations in Mumbai, India (Garth & Andrea & Joel, 2000).

Competitive Strategy of the Companies

H&M Retailers

Advertisement

The company has taken on massive advertisement campaigns to entice more consumers and increase its customer base. This was aimed to help the company compete with other outlets dealing with the same products. Thus, the company is now able to familiarize itself with the publics and make its products known to the people.

Expansion to New Markets

In order to enable the company to compete on a high level in the market, it has gone ahead to establish new branches in other parts of the world. Indeed, the company opened new branches in different cities, countries and continents in order to make its products available to a multitude of consumers in these regions. This has enabled the company spread its wings and compete with the companies in the new geographical regions.

Social Responsibility

The company has engaged itself in corporate social responsibilities in order to ensure that it has a tight connection with its clients. This enables the consumers to view the company as a part of their company, thus allowing it to expand easily due to the assurance of new consumers.

Zara Retailers

Opening up New Branches

As it was already mentioned, the company chose to open up new branches instead of running advertisement campaigns. The company is doing this to provide consumers with the material benefit of their products instead of just knowledge and ideas of the same. Thus, the company is opening new branches in different geographical regions to get a decent grip of the consumers. The company has used this policy for a long time, which, obviously, was successful, as it led to opening new branches in different parts of the world.

Diversification

The company has diversified its products by producing different types of clothing and shoes for different activities. This ensures that the company reaches all types of consumers in the market. This has significantly improved its competitive position by enabling it penetrate different markets simultaneously.

Social Responsibility

The company has improved its status and public image by taking part in different social activities. This helped the company to get corporate consumers and attain some recognition in areas of operation. The company has further bought the consumers faith as it got an opportunity to display its products for the consumers in the scope of such activities (Rebel, 2010).

Share Market

The company had its shares listed in the stocks market. This enabled the company to generate more capital, which allowed to attain and purchase new technologies. This has ensured that the company remains competitive with the modern well-equipped firms. It has also enabled easy distribution of its products and increased the capacity to franchise.

Conclusions and recommendations

Recommendations

H&M Retailers

I would recommend that the H&M Retailers company take up more community related responsibilities to be able to familiarize with the consumers of the company’s products. I would also propose that the company tried sponsoring some activities like beauty pageants, where they can demonstrate their products to potential consumers. The company should also take up more mergers and franchise opportunities in different places to enhance its sales and expand its business. This will help the company to merge with well known and established businesses to enhance its expansion capacity. In my opinion, the company should further diversify its products to start producing sportswear, uniforms and other unique gears. This will help the company to expand its consumer base and attain corporate consumers. This will ensure that the company stands in a better position to compete in the modern dynamic market. In addition, the company should adopt the new technology in production, packaging and distribution of its products. This should be done to reduce the number of employees in these departments. By this way, the company will be able to reduce the production cost, thus increasing its profits. This will see to it that the business has better chances of expansion (Stuart, 2009).

Zara Retailers

The company should work on increasing the diversion of its products to expand on its consumer’s base. This will enable the company to produce greater quantity of various gears for use in different areas. The company can do this by taking part in in production of industrial gears, uniforms and other unique clothing. This will help the company cover all cultures and interests in the areas of operation. It should also be taken into consideration that advertisement is one of the most effective ways of informing the consumers about any product. This is why Zara Retailers Company should end their zero advertising policy. The company should take up advertising to enhance the sales and distribution of their products. The company should consider lowering the prices of their products to enhance consumption and a to establish a strong consumer base. This will ensure that consumers can easily access the products.

Conclusion

To conclude, it is evident that both companies are performing fairly well, but both of them have a chance to do even better. The two companies have managed to cope and conform to the market dynamics during a long period of time. It is evident that the managements of the two companies have a satisfactory understanding of the overall external environment and its outcomes. This research shows that the both companies have qualitative products and excellent customer service. The companies are very promising and are expected to achieve a lot in the global market. Moreover, the companies have demonstrated a strong desire to conquer and hold markets all over the world. The companies are a great examples of how far retail business can go on the different continents. In addition, the companies have a considerable share price index and a promising profit margin. The two businesses can only be described as a great success.

Appendix One

This section covers the details of the secondary reports I did to establish the underlying factors behind the success, strength and weaknesses of the two companies. The research mostly involved reading and going through financial reports from different sources. The sources included online search engines, financial journals, magazines and other significant financial records. The financial records were derived from the stock markets, financial papers, magazines and banks all over the world. The reflection papers of different companies were also vital in making the research successful.

The reports from the company’s respective websites gave a detailed information on the financial aspect of the companies and their prospects for the future. They also provided the vision and mission statements of the companies and their managements. The lack of flowing information on different factors hindered the development of timelines, while different development aspects took place. The lack of comprehensive financial report for different financial years caused a difficulty in comparing the financial performances of the two companies.

The secretive nature of the development programs of the two firms posed an elephantine problem in determining the prospects of the two firms and their financial muscle. Access to this data was denied due to security and competition concerns. In addition, the claims of human rights abuses, mistreatment of workers and poor pay came up, making the response to questions during some information seeking sessions difficult, and sometimes even impossible. Lack of crucial information from the different areas led to a production of incomplete and not very reliable report. Furthermore, it has to be said that the comparison of the two reports from the different firms was not easy, taking into consideration the fact that the analyzed firms operate in different environments and have different backgrounds and management.

The data collected for the report was solely secondary. It was data collected and compiled for certain duration of time. The collected data showed that the two companies have been on a continuous growth line for the respective time they have been in operation. The both companies have provided the economy with massive revenue and employment opportunities. The records show that the two companies were affected massively by the 2010/2011 global economic recess, which considerably reduced their sales and expansion capacity. The records further indicate that the two companies have experienced significant challengse in penetrating and accessing new markets, due to the legal requirements in these new regions. The support offered by their respective governments appears to be the pillar behind the success of the companies.

None of the analyzed companies has a record of poor management or serious legal battles. This shows that the businesses have been in constant control of their internal environments. The businesses have been able to cope with their internal conflicts within their strong management teams. However, H&M has displayed a slightly better performance, compared to Zara Retailers. It is proved by the fact that it has a wider profit margin, higher share price and a bigger market base in different regions of the world.

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