Published by MBA Skool Team, Last Updated: February 16, 2022
Porter’s Five Forces Analysis of H&M covers the company’s competitive landscape as well as the factors affecting its sector. The analysis focuses on measuring the company’s position based on forces like threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers and competitive rivalry.
H&M Five Forces analysis helps to analyze its current position in the market based on multiple internal and external factors like competitors, customers, suppliers (vendors and partners), financial strength, future scope & alternate solutions.
The threat of new entrants in the H&M Porter Five Forces Analysis can be explained as follows:
The Threat of new in the apparel industry is High as the barriers to entry are relatively low, no significant amount of technical knowledge is needed, and with the emergence of several online platforms like Amazon it is becoming more accessible and easier to sell the product online.
Being the 3rd largest market shareholder H&M tries to target the people with stylish yet affordable clothing and accessories. The brand positions itself as a go-to brand for trendy clothes without breaking the bank of the customers. They mostly attract the working class, middle class, and students who are looking to follow the new trend without burning a hole in their pocket.
Given the fact that the apparel market is a very volatile one and as the barrier to entry is virtually nonexistent, and the loyalty of customers towards the brand is moderate at best, we can conclude that the threat of new entrants is High.
Threat of Substitutes:
Below are the threats of substitute products of Porter’s Five Forces analysis of H&M:
The threat of Substitutes is moderate for H&M as the people tend to shift to newer types of clothes by following the latest fashion trends, and hence if H&M doesn’t constantly innovate and follow the fashion trend, the threat of substitution increases.
Although the threat is high, people who are current customers of H&M tend to stick with the brand as they provide trendy yet cheaper alternatives to costly trends; the target audience of H&M usually doesn’t want to pay much and would instead stick to H&M.
The apparel market is highly volatile and is under constant change, and one needs to on ones tows to ensure that they are not left behind in this race; the threat of substitution by a replacement product is relatively low the need for clothes would be constant, although, with the increasing online mode of communication and WFH culture, the demand for trendier clothes has seen a dip and hence platform like zoom and google meet that allows people to meet without the need to dress in fashionable clothes may possess a minor threat.
Bargaining Power of Customers:
In the H&M Porter Five Forces Analysis the bargaining power of the customers can be explained as:
The Bargaining power of the customer is relatively on the higher side, there is little to no cost of switching, and the competition is fierce; the customer can easily switch to the competitors, the influence of the customers in this industry is significantly higher and hence the bargaining power.
However, the customers usually don’t bargain as the brand already provides apparel at a cheaper rate than the competitors while maintaining the quality.
The brand recognizes this and ensures that the customers are satisfied with the prices and hence they retain customers for a longer time; this can be seen by the fact that the market share of H&M has constantly increased in the last five years and the brand loyalty for H&M is relatively higher compared to the market leaders. The Brand provides a particular niche and has tapped into the market with a set target audience.
After taking all the points into account, we can say that for H&M, the Bargaining power of the customers is moderate.
Bargaining Power of Suppliers:
Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of H&M:
The bargaining power of the suppliers is moderate to high in this domain. With over 700 suppliers, H&M is under constant pressure, with an average length of 6 years with their supplier and the highest being 25 years H&M has to deal with a variety of suppliers. The supply chain plays a vital role in this industry needs to be appropriately maintained.
With virtually no barrier to entry and little to no technical knowledge needed to enter, the threat of suppliers becoming competitors is very grave, and hence the power that the supplier hold is high.
Another reason for this is the fact that the quality of raw material plays a vital role in the brand’s image, and procuring the same quality raw material from a different vendor is a difficult task also, the cost of replacing the supplier Is high.
Therefore, the overall Bargaining power of suppliers for H&M is Moderate to high.
The impact of key competitors in the H&M Porter Five Forces Analysis is as follows:
The Competitive rivalry for H&M is intense; although they have a niche market and are the dominant player there, the apparel market is very competitive and a very dynamic one. As already mentioned, the cost of shifting in the apparel market is very low, the threat of competition is high.
Competitive rivalry is, in fact, one of the driving forces of the industry, especially for H&M; even after being a market leader, it is still under constant threat of competition taking over its market share.
Given the fact that the industry is extremely dynamic and changes constantly because of changing market trends, it all boils down to changing accordingly based on the market demand and the firm that does that first enjoys the major market share.
After considering all the facts we can conclude that the overall competitive rivalry is high for H&M.
To conclude, the above H&M Porter Five Forces Analysis highlights the various elements which impact its competitive environment. This understanding helps to evaluate the various external business factors for any company.
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