H&M is a retail fashion firm that is characterized by the diversity of products, highly-qualitative services, profitability, and ability to penetrate new markets. The current business situation of the company demonstrates that it targets towards the expansion of new stores nets and the creation of online markets. However, it is evident that there are aspects that should be improved for the company to occupy one of the leading positions in the UK market that is at present highly competitive. One should mention that the state of affairs of H&M is preconditioned by the UK market. Thus, it is necessary to analyse it in the context of the market. Consequently, this paper intends to assess the character of the UK marketing environment for H&M applying Porter’s Five Forces Model.
H&M has a rich experience in the market as it has been operating there for 60 years. It is characterized by a large scale as it has more than 2000 stores in the world (H&M 2016). The conception of the company is to provide fashion and quality at best prices. H&M is oriented towards the following aspects: design, unique stores, and location. Thus, it collaborates with international designs, creates new stores taking into consideration the demographic and gender characteristics of its customers, and chooses famous places for opening its stores. The product strategy of H&M is based on the following categories: clothing, shoes, accessories, and cosmetics. The market distribution presupposes operating in Europe, North America, Asia, and the Middle East. The main competitors of H&M are Zara, Mango, and Primark (H&M 2016).
The perspective plans of H&M include extending e-commerce to nine existing markets and opening a net of 425 new stores (Full-Year Report 2015). The strength of H&M is that it has created a new campaign that is based on diversity as it combines eye-popping colours, clashing prints, and structured mise-en-scene (Elan 2016). The weakness of H&M is that it employs anyone who wants to work (Butler 2016). Such an approach can provoke the legal issues of the company in the UK market.
Porter’s Five Forces Model
Porter’s Five Forces Model was introduced by Michael Porter in 1979 as an essential tool for the analysis of the organization, the market where it operated, the intensity of competition, and the attractiveness of the industry. Porter’s Five Forces Model is based on the following aspects: the risk of entry, the bargaining power of suppliers, the threat of substitutes, the bargaining power of buyers, and the intensity of rivalry. According to Porter, the competitive advantage of the company is preconditioned by the unity of these five aspects (Roy 2011). One should mention that rivalry is the most powerful force as it can become the driving and restraining factor for any company operating in the market. The risk of entry is also the condition that reinforces the competition. The threat of substitute is another aspect that should be taken into consideration while introducing new products and services. The bargaining power of suppliers influences the intensity of competition as it gives more opportunities to suppliers, thereby affecting the company’s profitability and sales (Roy 2011).
The Current Position of H&M in the UK Market
The UK fashion market is a magnet that attracts international brands and retailers who are interested in the unstoppable appetite of the UK customers for shopping and the liberal attitude to foreign organizations. Over the last 25 years, the UK retailing has been increasing with the help of the easy access of customers to credit (I2I Events n.a.). The UK customers prefer digital marketing to the direct one. Thus, many retailers offer them the endless opportunities of the Internet shopping (Armstrong & Kotler 2012). In the UK, e-commerce has one of the highest penetration trends of the retail market in the world. These massive changes of the UK market create many possibilities for international organizations. Consequently, the UK is at the omni-channel retail age full of numerous retailers (I2I Events n.a.).
The fashion industry is a highly competitive area in the UK. The UK fashion is oriented towards originality, the breadth of expertise, commercial mindset, educational excellence, and an increase in manufacturing. One should say that UK fashion industry has unique energy and spirit reinforced by the professionalism and refined craftsmanship of designers. The UK fashion is international in outlook as the British creativity is popular in the global market. The most recognized clothing brands are Whistles, Missguided, Dorothy Perkins, and Boohoo. It is evident that they are serious competitors for such a fashion retailer as H&M. Consequently, the UK continues to exercise leadership in fashion creating the opportunities for the local and foreign retailers. Moreover, the UK fashion industry brings £26 billion and 800, 000 jobs to the economy (I2I Events n.a.).
The Threat of New Entrants
The UK fashion market has many barriers for new entrants. As it is characterized by a strong competitive advantage and economic growth, it creates financial and legal barriers. It means that if the company has a sufficient amount of finance, it can enter the fashion industry easily. Moreover, the new entrants have to offer a unique design of their products to differ from other organizations. As to legal aspects, they can create the barriers if the new company is going not only to sell but manufacture. With regard to the government policies, the new entrants should have the license for import and export (Armstrong 2009). Furthermore, the capital requirement is also high as the new company should spend money to reach British customers.
Thus, the threat of new entrants is low for such a company as H&M as it offers cheap and fashionable clothes, while new companies cannot afford this as they do not have such costs. Moreover, the barriers of the UK market and fashion industry are high enough to block potential new entrants. Furthermore, new retailers cannot immediately create such strong brand image as H&M’s. One should also mention that H&M has well-developed marketing skills and great locations of stores that are unachievable by novices. As H&M has much experience in the market, its financial goals enable it to continue enjoying growth and development (Full Year Report 2015). Moreover, H&M has high product differentiation related to advertising, customers’ services, quality, brand loyalty, and brand identification that are not available for new companies.
Bargaining Power of Suppliers
The bargaining power of suppliers refers to the possibilities of suppliers to increase the prices of the costs of industry, services, raw materials, and labour. Supplier power in the UK fashion market is low as the number of fashion companies is great there. However, supplier power will be high when it is done for less product differentiation and when the products are unique. As the UK market is highly competitive, product differentiation is a must. Thus, all fashion retailers should provide a variety of choices to their customers. However, the problem is that high competitiveness prevents the achievement of originality. The power of suppliers can be high if it is done for a unique product and for less product differentiation (Baker & Hart 2008).
The bargaining power of suppliers for H&M is low. The company has a wide choice of suppliers in the UK. However, it is high in the Far East as H&M is dependent on the suppliers there. Moreover, operating in the UK, H&M collaborates with the suppliers from India and China as they are cheaper than those in the UK. As manufacturers and suppliers in the UK are numerous, H&M has the options to source by merging or buying the suppliers to meet the organizational requirements (H&M 2016).
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Bargaining Power of Buyers
Buyers are the customers who consume the products and services. The bargaining power of buyers is considered high if it can influence the pricing strategy of the company (50 Minutes 2015). Moreover, it is high when the customer can increase the organization’s costs in the fashion industry demanding better service of the product and quality. In the UK, the bargaining power of buyers is high as the customers can find alternative suppliers who can provide qualitative products at lower prices. It means that the UK is a paradise for the customers as they can buy the necessary items in stores and with the help of online shops. It is worth mentioning that weather conditions also influence the state of affairs in the company and the customers’ choice (Monaghan 2016).
The bargaining power of buyers for H&M is high in the UK market because they can influence the company’s profitability and sales. Moreover, there are such alternatives as UNIQLO, Zara, and Gap; thus, the customers can switch their attention from H&M to its competitors. Consequently, it leads to the low customer’s loyalty to the brand. It means that H&M should monitor customers’ needs as they are the source of their profitability.
Threat of Substitutes
In the UK market, there are many substitutes that include the alternative brand products that can satisfy the similar needs of customers. When the switching costs are high, substitute products are influential. Moreover, the threat of substitute can be high if the customers switch for status, durability, quality, and the better price (Baker & Hart 2008). In the UK, the threat of substitutes is high as there are many companies specializing in the fashion industry and offering products unique in their design, quality, and price policy (Mihm 2010).
The threat of substitutes for H&M is low when it comes to the product substitution but high when it comes to the brand substitution. One should mention that there are no substitute products offered by other areas which can perform the functions of clothing. However, the customers have many alternatives related to the brand choice. The apparels of H&M are irreplaceable; therefore, it is impossible to substitute them. However, the problem of H&M is that online competitors can decrease sales from H&M's physical stores that are more numerous than the Internet ones. It means that the threat of substitute for this aspect is high. Hence, H&M should pay much attention to digital marketing to avoid high competition. Thus, digital marketing is more effective and progressive that the direct one (Bird 2007).
Intensity of Rivalry
Rivalry presupposes the competitive struggle for profitability, sales, and market share between companies in a certain industry. Extreme rivalry is a strong threat to the company’s profitability and position in the market (Jobber 2010). The intensity of rivalry is high in the UK fashion market where competitors include retailers, importers, distributors, manufacturers, and designers. The intensity of competitors in the UK market should be regarded according to their brand awareness, product diversification, and the popularity of industry. As the fashion industry is one of the leading ones in the UK, it presupposes the intensity of struggle for the customers’ attention.
For H&M, the intensity of rivalry is high as there are many small and large companies that specialize in fashion in the UK market. Moreover, the economic crisis influenced the customers negatively reducing their spending and demand, what makes the competition even more intensive (Raspin 2007). Consequently, H&M should constantly renew their products to be able to compete with such successful companies as Mango, Gap, Zara, and other brands of Inditex Group, thereby capturing the market share on equal terms with them. Moreover, H&M should invest much into research and design to preserve the competitive advantage in the UK market. Furthermore, H&M should improve its quality as it loses considerablt when it comes to the quality of its clothing among competitors.
In conclusion, one should say that the fashion market opens many opportunities for such a retailer as the UK as it is a leader in fashion industry, with its high competition and many customers demonstrating an interest in both fashion and shopping. The analysis of H&M's activity according to Porter’s 5 Forces Model revealed that the threat of entrants is low, and they cannot replace such a company as H&M. The power of buyers is high as the customers have many alternatives in the UK market demanding the quality and being sensitive to prices. The power of suppliers, in turn, is low as the UK market is full of fashion retailers, manufacturers, and suppliers. As to the competitive rivalry, it is high as Mango and Inditex Group win when it comes to the quality. Therefore, the threat of substitutes is low.