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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
Global Economic Impact of Coronavirus – Assessment and Mitigation (B)
Abstract Case Intro 1 Case Intro 2 Excerpts

Excerpts

The Perils of Fast Fashion

As H&M relied heavily on production in Asia, its supply chain lead time was much longer than that of competitors like Zara. This longer lead time actually helped H&M to maintain a lower price point compared to its competitors. For example, making a T-shirt in Bangladesh cost around US$ 3.3, with the materials accounting for US$ 3 and labor accounting US$ 0.22. Producing a T-shirt in European countries came at cost of about US$ 13, with labor accounting for US$ 7.5 and material for US$3. At the same time, production costs in Eastern European countries like Poland and Romania, etc, were a little lower than in Western Europe...

Limited Presence Online

Though H&M started selling online way back in 1998, it did not make much headway. Nor did it invest much in taking online shopping ahead. According to RBC analyst Richard Chamberlain, “H&M was fast into online in the late 1990s but has been stuck with legacy infrastructure in some established markets. It has been working on adapting its IT infrastructure to support the business, but this has taken time due to some teething problems.”..

Sales Decline

All these factors were affecting the company, and this became evident in 2017, when it witnessed its first sales decline in two decades. Though the number of its stores had increased, quarterly sales remained unchanged. For the year ending November 2017, H&M’s group sales rose to SEK 231.8 billion while profit was SEK 20.8 million as against SEK 24 million the previous year. In March 2018, the company announced that its operating profit had fallen by 62% for three months. (Refer to Exhibit III for the financials of the company)..

The Revamp

In April 2017, H&M announced an overhaul of its supply chain after it reported a 3% fall in the first quarter net profit, while rival Zara recorded a 14% rise in net profit for the fourth quarter. Persson said,..

The Road Ahead

The new logistics system further burdened the company, which witnessed a fall of 21% in the net profit to SKR 4.6 billion between March and May 2018. (Refer to Exhibit V for quarter-wise financials)..

Exhibits

Exhibit I: H&M – Stock Price Chart
Exhibit II: Global Fast Fashion
Exhibit III: H&M – Financials
Exhibit VI: H&M Transformation
Exhibit V: H&M – Quarterly Financials
Exhibit VI: H&M – Inventory

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