Hennes & Mauritz (H&M): High Cost of Fast Fashion

Hennes & Mauritz (H&M): High Cost of Fast Fashion
Case Code: OPER146
Case Length: 11 Pages
Period: 2019-2020
Pub Date: 2020
Teaching Note: Available
Price: Rs.400
Organization : Hennes & Mauritz
Industry :Retailing
Countries : Sweden
Themes: Supply Chain Management/ Inventory Management/ Logistics & Supply Chain/Supply Chain Transformation
Hennes & Mauritz (H&M): High Cost of Fast Fashion
Abstract Case Intro 1 Case Intro 2 Excerpts

Abstract

Sweden-based Hennes and Mauritz (H&M), one of the leading fast fashion retailers in the world, was staring at an uncertain future in 2018. As of November 2017, the company had unsold stock worth US$ 4.3 billion. While the CEO, Karl-Johan Persson, said that the problem was due to decreasing traffic to the physical stores and the growing impact of online retailers, analysts were of the view that it was due to H&M’s weak supply chain, which could not keep up with more nimble competitors like Zara.

H&M designed the clothes in-house, but it did not own any production facilities and outsourced its manufacturing to factories located in Asia to reduce costs. It took about three weeks for the clothes to be designed, made, and shipped to stores across the world. Competitors like Zara, however, finished this whole process within a span of ten days to two weeks. There were exclusively online retailers like ASOS which had short supply chains. With H&M’s products not able to keep up with customers’ expectations, inventory started to pile up. The company did not make any major changes to its supply chain for over two decades, and continued to produce in Asia without paying any attention to the changing trends in the fast fashion industry.

Users said that the offerings from H&M had become dull and unfashionable. This was because H&M designed 80% of its clothes before the season and only 20% during the season. As the clothes were not attractive, they remained unsold, leading to a buildup of inventory. In the fast fashion era, these clothes went out of fashion within a few weeks, and H&M was unable to sell them. This only added to its inventory. H&M’s supply chain was unable to react to the unsold stocks and it continued to replenish stocks with styles that were not always trendy.

It also started facing competition from online retailers who were extremely quick in introducing new styles and fashions. Though H&M went online in the late 1990s itself, it did not do much to develop its e-commerce capabilities. As a result, the company’s unsold inventory swelled to 20% of its total sales. H&M resorted to markdowns, which adversely impacted its profits. The inventory problem plagued it for seven quarters, and the company appeared to be caught in a vicious circle of low sales, markdowns, and excess inventory.

To address these issues, the company went in for an overhaul of its supply chain. But the new supply chain led to more problems as the merchandise could not reach the stores on time. It again went in for a change of the supply chain and also the design process to include analytics to understand demand. It also automated the warehouses and logistics centers. The company announced investments in artificial intelligence, RFID, and omnichannel programs.

H&M then announced a transformation that was guided by three action areas – be restless around the core; invest in enablers – new technology and ways of working; and drive growth – both traditional and new. It remained to be seen whether the supply chain transformation would help the company regain the glory it had lost.

Issues

The case is structured to achieve the following teaching objectives:

  • Assess the challenges facing the fast fashion companies in the age of e-commerce and technology.
  • Understand the importance of inventory management in fast fashion supply chains.
  • Analyze the pros and cons of having production facilities in developing countries.

Contents

Keywords

Supply Chain Management, Global Supply Chains, Fashion Retailing, Fast Response Networks, Digitization, Supply Chain Transformation, Responsive Supply Chains, inventory management, Outsourcing production, Competition, Fast Fashion, Omnichannel, Cost Vs. Fashion Delivery

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