Hennes and Mauritz (H&M) was first established in 1947 and have since expanded internationally and currently operate in 34 countries (H&M, 2009). As H&M continues to expand every year, the following report has chosen Australia as the new market, where analysis has been conducted to provide H&M with recommendations of which market entry method they should adopt and the threats and issues they must overcome to be able to succeed.
1. Country Analysis – Australia
For the purpose of this report H&M (Hennes & Mauritz) has chosen Australia as the foreign country in which they wish to enter and introduce their products. Australia is the largest island, however, is also the smallest continent in the world which is situated below South East Asia (Department of Immigration and Citizenship, 2009). Being the sixth largest nation on earth it also consists of six states and two territories with the lowest population density per square metre.
As it is practically impossible for H&M to enter the whole Australian market simultaneously, H&M has, therefore, chosen Melbourne as the first Australian state they wish to enter. There are many reasons for choosing Australia and Melbourne in particular including:
Melbourne is the second largest capital city in Australia with a population of 3,634,200 (REFERENCE).
Melbourne is renowned as the fashion capital of Australia, where the Melbourne Spring Fashion Week (MSFW) is one of the largest and most popular consumer fashion events in Australia (City of Melbourne, 2009).
This may then make it easier for H&M to launch their products and also obtain brand awareness, as Melbournians are relatively ‘fashion conscious’.
New business opportunity, since 2006 there has been a 15% growth in the segment where young female consumers are demanding for low priced yet high quality and fashionable apparel (Euromonitor, 2009).
Australia has a similar country profile as previous countries H&M has successfully entered and launched its product. Hence, H&M appears to have prior knowledge and experience in expanding internationally into a Western country.
1. Product Analysis
Hennes and Mauritz (H&M) was founded by Erling Persson in Vasteras, Sweden, in 1947. It was initially known as Hennes, which is the Swedish word for “hers”, as the company only sold women clothing. Persson purchased Mauritz Widforss a small sporting apparel company and since then formed Hennes and Mauritz (REFERENCE). The company now operates in 34 countries including Germany, France, Hong Kong, USA and the UK. H&M continues to expand internationally where they expanded into the Japanese market in 2008 and will further expand into Russia and Lebanon by the end of 2009 and Israel and South Korea in 2010 (H&M, 2009).
The core concept of H&M is to provide fashionable products at the lowest price possible, to compete with expensive department stores. H&M has 6 main product lines which include:
Women – diverse range of apparel pning from basic sportswear to corporate and party garments.
Men – includes tailored garments such as jackets to fashionable apparel that reflect the latest trends.
Children – is divided into three categories – babies, children and H&M Young which is aimed at children up to the age of 14.
Divided – targeted at teenagers and young adult, which offers fashion with a young look with creative designs that reflect those of the latest trends.
denim Jeans – provides both traditional five-pocket jeans to the trendiest cuts.
Accessories – H&M also produces its own footwear, handbags, jewellery and even cosmetics. It should also be noted that H&M does not own manufacture any products, instead they rely on over 700 independent suppliers primarily in Asia and Europe which enables them to select the best supplier (H&M, 2008).
3. Market Segments
With the diverse range of product lines, it appears that H&M has the ability to target different market segments simultaneously, this is reasonably difficult to achieve. Therefore, for the purpose of this report, two specific market segments have been selected and profiled to provide an overview of which segments H&M should specially target when launching in Melbourne.
3. 1 Profile One
Women's outwear segment The foremost market segment that H should target would be the women's outerwear segment which includes all garments from tops to blouses to jackets. Main reason being, this market segment is reasonably profitable with a Retail Value of over $3000 million (Refer to figure XX), where women have traditionally been the dominate consumer in the clothing and footwear industry. However, there appears to be a new social trend where men are becoming more fashion-minded and are also looking for cheaper options. In recent times, there has been a change in preference for young women, where they do not only demand for high quality yet fashionable products, it must also be low priced.
H&M should then be able to target this segment, as the company's core concept coincides with this new trend. Where H's women's clothing are designed for women of all ages who are fashion minded, where its product line includes “everything from modern basics to tailored classics, sportswear, maternity clothes and cutting-edge fashion. ” (H, 2008, pg. 17). However, for the purpose of this report and to make it easier to target, the primary segment will be young women aged 18 to 24, while the secondary segment will be women aged 25 to 40.
3.2 – Profile Two – Childrenswear
The second market that H should consider targeting once the women’s outerwear market has been successfully targeted would be Childrenswear in Australia, as figure XX illustrates the steady increase in the market share of childrenswear in Australia. There are many reasons to the growth of the childrenwears market share; this may be because Australians are choosing to have fewer children. In addition, household isposable incomes have increased providing, the key buyer generally mothers, will be more willing to purchase good quality childrenwears at a low price. Therefore, H intensive range of children clothing which caters from infants to children aged up to 14, should be able to target the childrenwears market in Australia. Where the concepts for the children’s clothing are made to be fashionable, practical and hard-wearing (H, 2009).
Home Country, Foreign Country and Company Culture Each and every country, city and company will have its own distinct culture. There are many definitions of culture where Fletcher and Brown, 2009 has defined culture as “…prescriptive of behaviour that are acceptable to people in a specific community…learned…people are born into a culture…dynamic because…our behaviour influences the culture and culture is subjective” (Fletcher and Brown, 2009, pg. 76). It is crucial for H to have understandings of the culture of the home country, foreign country and also the company’s culture. Main reason being, cultural differences play an important role in launching and establishing H as competent competitor in the Australian market. . 1 – Swedish Culture The Swedish culture is typically perceived as egalitarian, simple and open to international influences. This may be caused due to the predominance of the Social Democratic Party where it promotes the culture of equality, pluralism and individual freedom. As the Swedish culture is relatively similar to the Scandinavian, it can be assumed as a low context cultural country in contrast to Australia. Low context culture can be classified as “... messages are mostly explicit and the words covey most of the meaning in the communication... (Fletcher and Brown, 2009, pg. 88). Meaning in Sweden people mainly communicates through words and do not place emphasis on non-verbal cues. Therefore, this culture may affect business negotiations between Sweden and Australians, due to the differences in cultural context, where Australians rely more on body language and facial expressions. In regards to the fashion culture, Sweden is greatly influenced by European fashion, where there is a strong ‘dressed up’ working man’s culture.
4. 2 Australian Culture
It is relatively difficult to identify and analyse Australian culture, in comparisons to other countries, as Australia is newly formed country and is a predominantly multicultural society where it consists of different races and ethnic groups (Live in Victoria, 2009). However, there are gradual changes to social trends which may become part of the Australian culture (REFERENCE). Similar to Sweden, Australia also has a low cultural context, yet in contrast, Australians appear to place more emphasis on non-verbal cues. Relating this to the Australian clothing culture, Australians generally dress in business attire during business hours.
Though outside of working hours, Australians tend to choose clothing that is comfortable such as track suit pants and a loose fitted t-shirt, in comparison to a pair of jeans and jacket (Department of Immigration and Citizenship). This is an important factor; H must take into consideration, as this will directly affect the products and marketing strategies used to target the market segments. For instance, as Australia appears to have a ‘laidback’ culture, it would probably suit the market more if H was able to launch products that suited the Australian culture and preferences. . 3 – H Culture Company culture can be defined as “a system of values and beliefs shared by people in an organisation – the company’s collective identity and meaning” (Fletcher and Brown, 2009, pg. 334). As stated on the official H website, the company believes its employees, teamwork, working at a face past and constantly improving (H, 2009). This suggests that H appears to have a relatively open, carefree and energetic company culture, where it strongly promotes open communication between managers and their employees (H, 2009).
In addition, H is a firm believer of non-discrimination where all qualified applicants are given equal opportunities regardless of any characteristics including, race, religion, sexual orientation, sex, age marital status or disability. The company culture of H should not cause any implications when entering the Australian market. However, it may cause implications when international marketing strategies does not coincide with the company’s culture, as strategies are designed to accommodate the company’s culture and not vice versa.
5. Economic Factor
The Australian economy has recently experienced a market downturn where economic factors such as consumer confidence and disposable income will have a direct and indirect impact on the market entry and success of H in the Australian market. ?Gross Domestic Production (GDP) The GDP for Australia has been relatively flat in 2009, where there is no significant growth, however, there is an anticipated growth of 0. 5% in 2010 and with the recession ceasing there should be gradual growth of 3. 25% in 2011 (ANZ, 2009).
In recent times, the interest rate has continued to drop, where in 2009, the nominal interest rate had dropped by 3% (Refer to Figure 2. 0 in Appendix). As interest rates are low Australians are discouraged from depositing money in the banks as it does not generate interest. ?Household Income From figure XX and XX the equivalised disposable household income for Australians appears to have gradually increased. For instance in 1995-96 there were 11% of total income categorised as being low income, however, in 2007-08, this had decreased to 10. 1%. While there has been a significant increase of high income earners, from 37. % in 1994-95 and 40. 5% in 2007-08 (ABS, 2009). Overall, the Australian economy appears to be reasonably attractive as both GDP and equivalent disposable household income have increased, which suggests that consumers have more money and are more likely to spend and purchase consumer goods which include clothing and footwear. Therefore, H should take advantage of this consumer confidence and enter the Australian market rapidly as consumer currently have the ability to purchase more consumer goods that are not considered to be a necessity.
6. Competitors Analysis
Even though the clothing and footwear industry in Australia is viewed to be an attractive market to enter, there does appear to have intense competition. Referring to figure XX, there is no dominant market leader in the Australian market; however, there are a number of brands who have gained substantial brand share, such as Just Jeans (1. 9%) and Jays Jays (2%) respectively (REFERENCE). All brands operating in the clothing and footwear industry could be considered as H competitor, however, Just Jeans and Jay Jays are the two most similar brands compared to H.
Where they have also identified the demand for fashionable yet low priced products, therefore, all three companies have similar product offerings and also customer profiles. Hence, to successfully enter and establish H in the Australian market, it would be essential to have sound knowledge of competitors and develop core competencies such as designs that are exclusion and is able to differentiate H from other similar brands.
7. Social Trends
Sizes Overall, both Australian men and women’s body weight has gradually increased in recent times. However, as the primary segment for H are young women aged between 18 to 24, only the body weight of women will be discussed. From previous surveys conducted there appears to be a steady increase of the average weight of women from 62. 6kg in 1989-90 to 67. 7kg in 2004-05 (ABS, 2009). From figure XX there also appears to be considerable increase in the Body Mass Index (BMI), where there are less women classified as being normal weight, while there are more women who are overweight and obese.
As a result of this increase in body weight, the dress size as also increased from size 12 to size 14. Hence, to accommodate to this increase in weight, most clothing brands have now introduced larger sizes for instance, Portmans now has size 16 as part of their standard dress size. Therefore, to ensure that H is able to compete with other competitors it would be essential for them to manufacture products that are the suitable size for Australian women.
In conclusion, this report has thoroughly analysed a variety of factors to identify the attributes and threats of the Australian market in relation to the launch of H. Taken as a whole Australia appears to be an attractive market which consists of a stable economy and high consumer confidence. Where H is able to use these attributes to help them better penetrate and expand in the Australian market. In contrast, many threats were also identified including cultural differences, changes in social trends and also intense competition.
It is absolutely essential for H to gain thorough understanding of the threats and furthermore the business and social environment of the Australian market. Main reason being, H will then be able to develop specific marketing strategies to address and overcome these issues to successfully enter and become a market leader of the women’s outerwear segment in the Australian clothing and footwear industry.
From previous analysis Australia and the city of Melbourne in particular appears to be a possible market for H to enter and expand into. Therefore, the following recommendations are written in correspondent to the threats and issues identified in the conclusion and throughout the report.
Market Entry Option
Direct Exporting It is suggested that H adopts a direct exporting method to enter the Australian market. Direct exporting can be identified as “... the firm itself contacts the buyers overseas and either sells direct to the end-user” (Fletcher and Brown, 2009, pg. 290). Mainly because this is the market entry option H are experienced in using and is also one of the most commonly used method. As it is relatively simple to operate and provides the company with more control over the operation of the business.
Adapting to Australian fashion culture
Style and Size For H to succeed and be able to obtain market share, the company must adapt to the Australian fashion culture and the physical body size of Australians. Therefore, H is recommended to use product development strategies where they manufactured products that suit the Australian market.
Suitable store location
Chadstone Shopping Centre Finding a suitable store location also plays an important role to the launch of H in Melbourne. Therefore, Chadstone Shopping Centre is suggested as a suitable store location for the first H store to be established. Main reason being, the shopping centre is well-known and has a solid customer base, which makes obtaining brand awareness easier.