H&M FM

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University Collage of Nordjyland

Hennes & Mauritz AB (H&M) expansion in Lithuania. How
much would H&M entrance into Lithuanian market reflect
on H&M's profit?

Author: Ignas Stanislovaitis
Supervisor: Henning Gerner Mikkelsen
Class: FIE4
Keystrokes: 95.384
Date: 2012.05.29

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Contents
Problem Statement ..................................................................................................................................... 4
Introduction ................................................................................................................................................ 4
Methodology ............................................................................................................................................... 5
PEST analyze ............................................................................................................................................ 5
Value Chain analyze ................................................................................................................................. 5
SWOT analyze .......................................................................................................................................... 5
Survey Expansion of H&M in Lithuania .................................................................................................. 6
H&M in figures ......................................................................................................................................... 6
Business plan-Budgeting .......................................................................................................................... 6
Income statement .................................................................................................................................... 6
Conclusion ............................................................................................................................................... 6
Introduction of H&M ................................................................................................................................... 7
PEST Analyze of Lithuania ........................................................................................................................... 9
Lithuanias political landscape .................................................................................................................. 9
Strengths.............................................................................................................................................. 9
Challenges .......................................................................................................................................... 10
Lithuanias economy .............................................................................................................................. 11
Strengths............................................................................................................................................ 11
Challenges .......................................................................................................................................... 12
Lithuanias social system ........................................................................................................................ 13
Technologies in Lithuania ....................................................................................................................... 14
H&Ms Value Chain ................................................................................................................................... 15
Support activities ................................................................................................................................... 15
Firm Infrastructure ............................................................................................................................. 15
Human resource management ........................................................................................................... 16
Technology development ................................................................................................................... 18
Procurement ...................................................................................................................................... 18
Primary activities ................................................................................................................................... 19
Inbounds logistics ............................................................................................................................... 19
Operations ......................................................................................................................................... 19
Outbound logistics ............................................................................................................................. 20
Marketing and Sales ........................................................................................................................... 20

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SWOT analyze of H&M .............................................................................................................................. 24
STRENGTHS ............................................................................................................................................ 24
WEAKNESSES ......................................................................................................................................... 25
OPPORTUNITIES ..................................................................................................................................... 25
THREATS ................................................................................................................................................ 26
Survey Expansion of H&M in Lithuania .................................................................................................. 27
Lithuanians preferences in buying behavior .......................................................................................... 28
More Advantages of H&M ...................................................................................................................... 31
Disadvantages for H&M ......................................................................................................................... 32
Opportunities of H&M ........................................................................................................................... 33
Buying on the internet ........................................................................................................................... 34
Conclusion of survey Expansion of H&M in Lithuania .......................................................................... 35
H&M in figures .......................................................................................................................................... 36
Stock Turnover Ratio and Period ............................................................................................................ 39
Profitability Ratios .................................................................................................................................. 39
Conclusion ............................................................................................................................................. 42
Business plan- Budgeting .......................................................................................................................... 44
Income statement ..................................................................................................................................... 50
Determination of expected market share for H&M in Lithuania.............................................................. 50
Conclusion of the project .......................................................................................................................... 53
Appendix 1................................................................................................................................................. 54
Appendix 2................................................................................................................................................. 57
Appendix 3................................................................................................................................................. 64
Appendix 4................................................................................................................................................. 66

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Problem Statement

Hennes & Mauritz AB (H&M) expansion in Lithuania. How much would H&M entrance into
Lithuanian market reflect on H&M's profit?
Introduction
To begin with, I am going to introduce my project in order to make it easy to understand for
readers. As I am studying in program Financial Management in UCN (University Collage of
Nordjyland), Denmark, I got an assignment to make a final project of the 2 years of studying.
Therefore, I am going to include all the subjects (Financial businesses and markets including
marketing and personal finances, Business economics, Global economics, Business law, Statistics,
Customer relations management, Management and communication
1
) which I have studied for 2
years in order to show my ability to create a methodological and analytical foundation for solving
complex issues and problems within financial management.
The reasons why I have chosen and created this problem statement are because H&M is origin
from Sweden a country which has many common things in business with Denmark, country
where I am having AP degree. Moreover, H&M is worldwide company with a long history. One of
the main targets of this firm is to maintain expanding into the new markets every year.
Furthermore, H&M is supposed to open its first store in Vilnius, Lithuania in real life in near future.
For this reason, it makes my project more intriguing to read now or/and in the few years also. In
addition, I would like to note that the conclusion of this project is meant to be an answer for the
stated problem statement. In the end of the project you will get knowledge about all aspects of
marketing of H&M, about Lithuanian politics, economics, social-life and technology. Also, as
Lithuanians were asked about H&M and deeply analyze of survey was done, you will be able to
know the preferences of Lithuanians buying behavior. Finally, the question of problem statements
will be answered and readers could see whether this expansion is profitable for H&M and it will
reflect on H&Ms profit.
In addition, I would like to inform that the agreement with the H&M to work together was not
arranged because of their refusal.

1
http://www.ucnorth.dk/Home/Programmes_-_Courses/Financial_Management/About_the_programme.aspx

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Methodology
In order to see the whole structure of the project, part of methodology is very necessary in this
case. Thus, I am going to explain What, Why and How my project is going to be done. Projects will
consist of 8 different parts (The list is made by the sequence):
1. PEST of Lithuania
2. Value Chain of H&M
3. SWOT analyze of H&M
4. Survey H&M expansion in Lithuania
5. H&M in figures
6. Business plan budgeting
7. Income statement
8. Conclusion
Now I am going to give the brief explanation of each part where questions How and Why will be
answered.
PEST analyze
PEST analyze is meant to analyze countries. This analyze consists of 4 different parts: Politics,
Economics, Social, Technologies. In our case, it will help to see the environment of the country
which H&M invests money in. After this analyze, we will get knowledge about all advantages and
disadvantages of H&M investment in Lithuania as a country. The way this analyze is going to be
made is a collecting information from websites and making conclusion of it.
Value Chain analyze
This analyze is supposed to look at the company more deeply. Wide and useful analyze of each
part of business chain (Firm infrastructure, Human Resource Management, Technology
development, Procurement, Inbound logistics, Operations, Outbound logistics, Marketing and
Sales, Service) of H&M will let us make a conclusion what positive and negative features H&M has.
For this reason, we could assume how the business development in Lithuania would look like after
expansion. The way this analyze is going to be made is a collecting information from websites and
making conclusion of it.
SWOT analyze
SWOT analyze is another marketing analyze. However, the results of this analyze is different from
Value Chain analyze and gives us a chance to see Strengths, Weaknesses, Opportunities, Threats of
the company. Furthermore, as this analyze is going to be split into the two parts: Worldwide and
Lithuania, it would be a perfect analyze in this project case. After this test of the H&M, we will be
able to predict H&Ms future of developing in Lithuania better. The used information in SWOT
analyze is taken from Survey Expansion of H&M in Lithuania, part of project H&M in figures
and internet.

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Survey Expansion of H&M in Lithuania
In order to get better knowledge of Lithuanian clothes market I decided to make a survey and ask
people about their buying habits and company H&M. After analyze of results readers will be able
to predict the size of the market which H&M could gain after entrance into the new market.
Thereby, H&M could find the best way to enter and present itself for people from the answers of
respondents. Survey is going to be made in the special website www.apklausa.lt. Moreover, the
results will be checked whether they are representative by program Heha tools.
H&M in figures
This part of the project is going to be about the facts and numbers of the H&M. Moreover, in
order I could determine the market share which H&M is expected to get after expansion in
Lithuania I am going to compare company Apranga Groups (Biggest competitors) and H&Ms
profitability ratios. This way, we could analyze theirs financial performance. Calculations are going
to be made by the author of the project.
Business plan-Budgeting
Business plan is a part of the project where the way how investment of H&M will be used will be
shown. In order to see whether this investment is profitable for H&M, the all expenditures
including loan for entering to the new market must be calculated very correctly. This part of the
project will consist of all expenses which H&M will have to have when it enters to Lithuanian
market. All numbers and prices were taken from the internet or by calls to companies which
provide relevant service, product.
Income statement
This is the last part of the projects main body where the income statement and the prediction of
market size of H&M in Lithuania will be given. In other words, this part is supposed to be the most
important in the project and the answer will be shown if this investment is going to be profitable
for H&M. Moreover, the way how I calculate and explanation of it will be given as well. All
calculations are going to be made by the author of the project.
Conclusion
The final answer of the project will be revealed.

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Introduction of H&M
To begin with, today H&M is a well-known global Swedish company offering fashion clothes for
the whole family and their home. Company started its existence in 1947. At that time in Sweden
shop was opened. It was called Hennes. It was just a single women wear shop. However, store
started to expand and in 1964 the first Hennes store was opened in Norway. In 1968 the founder
Erling Persson buys fishing equipment store Mauritz Widforss. Sales of mens and childrens
clothing begin and so shop was renamed to Hennes & Mauritz, now known as just H&M. From the
1974 as H&M was listed to stock exchange in Stockholm, H&M started expanding outside the
Scandinavia to Europe and later in 2000th even to United States.
Today almost 2,500 stores are spread across 44 markets. Also H&M owns other companies such as
COS, Monki, Weekday and Cheap Monday. However, company did not stop there. In their nearest
future plans are to open 275 stores more and to expand its online sales. Furthermore, H&M has
established a strong media presence which is still growing. Company has a big role in their
customer life through pages of Facebook, Twitter, Instagram, Google+ and YouTube as well as the
Chinese social networks such as Youku and Sina Weibo.
When thinking about new market place H&M have few most important criteria. One of it is always
to find the best business location combined with most favorable market terms. Moreover, H&M
does not own any premises, which makes very easy for them to be flexible. Every time when H&M
is planning to move to new country a very careful investigation is made about markets potential.
Factors such as demographic structure, purchasing power, economic growth, infrastructure and
political risk are analyzed.
H&M is also working actively to make all stores sustainable in the long term, for example through
energy-saving initiatives and environmentally adapted materials. Also H&M one of the biggest
target is that all the cotton comes from more sustainable sources by 2020. H&M does not own any
factories. Instead, clothes and other products are ordered from around 700 independent
suppliers, mostly from Asia and Europe.
Fashion and quality at the best price that is H&Ms basic business concept. In order to create a
fashionable and suitable for everyone collection a lot of efforts are put and a lot of people works
for this purpose, including H&M designers, pattern makers and buyers. The overall collection
themes are always planned in advance, when the latest trends are chosen in a very short notice.
The main goal is to make a perfect balance between fashion, quality and the best suitable price. At
the end men, women youth and children can find something suitable just their taste and individual
style.

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However, to have that perfect balance is not that easy. H&M has the whole system to reach that
goal. The best price is insured by 4 factors: having few middlemen, having a broad, in-depth
knowledge of design, fashion and textiles, being cost-conscious at every stage, buying the right
products from the right markets. However quality is a central issue, from the very beginning to the
very end of the production. Also it is very important to sure that goods are produced with the least
possible environmental impact and under good working conditions.
1

1
All information is from official H&M website www.hm.com

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PEST Analyze of Lithuania
In order to analyze the situation in market of Lithuania, I have chosen a PEST analyzes. PEST
analyze was invented and made for evaluating external environment of countries. PEST includes
four different subjects such as Politics, Economics, Social and Technologies. For many reasons PEST
analyze makes us understand all threats and opportunities in the country firm or corporation is
going to invest money in. In this case, according to a PEST analyze, H&M could summarize all
advantages and disadvantages of expansion in Lithuania. As a result, that decreases the risk of
investment and it helps H&M to make the best decisions for them.
Moreover, all data I have used in this analyze is very new and I got it only from reliable references.
Thus, it makes readers better insight of macro aspects in Lithuania. Also, I am going to use tables
and graphs in order to attract attention at the relevant market aspects or changes.

Lithuanias political landscape
Strengths Challenges

Members of EU Press from the East
Members of NATO
Conflicts with Poland because of ethnic
minority
5 years President Public distrust Lithuanian government
Member of World Trade Organization
Strong employment laws
Majority of parties in government are 6 parties
Independent minister of finance

Strengths
Lithuania is claimed to be a developed country. However, it still has potential to grow or improve
its political system. Lithuania recovered its independency in 11
th
of March, 1990. Thus, that makes
Lithuania very young as a country comparing with other countries in the world. Moreover,
Lithuania joined to EU in 2004 with huge group of other countries
1
(Cyprus, Czech Republic,
Estonia, Hungary, Latvia, Malta, Poland, Slovakia, Slovenia).
For many reasons, member of European Union means a lot in many cases. There are many reasons
why investors must be safety with his investment in the country which belongs to EU.

1
http://europa.eu/about-eu/countries/index_en.htm

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Biggest advantages of investing in EU countries are that many legislations, rules and law are placed
by EUs parliament in order to secure investors and reduce risk of unexpected looses. Even the
probability of war is low, being a member of NATO also helps us to make a better view of the
country.
One of the biggest positive features in Lithuania is its independent minister of finance. Ingrida
Simonyte does not belong to any party and controls Lithuanian finance independently from the
pressure from government.
While talking about employment legislations, there are few most important aspects. According to
the Lithuanias law, there are 5 main rules how an employment contract is terminated:
1. Agreement between the parties
2. Notice of an employee
3. Notice of an employer
4. Initiative of an employer without notice
5. Other cases provided by the law.
Moreover, without any mistakes from employee side such as professional competence,
circumstances related with the employees qualification or behavior at work, employer is not
liable to fire people. In addition, during economic crises or due to technical issues those 5 main
rules could be not taken into a account. Employer must warn employee 2 months before she/he
wants to fire worker.
1

Challenges
One of the biggest competition for Lithuanian politicians is a press from East or Russia. Even
Lithuania has recovered its independency for more than 20 years, we still feel how Russia behaves
against Lithuania and its people. However, H&M should not be afraid of this kind of problems
because Lithuania and all Baltic countries belong to NATO and European Union.
Secondly, polish people discrimination and disagreements in many situations with Poland is more
serious problem. Because of Poland size and its economical matter for Lithuania, we should focus
on solving this kind of problems and staying in good relationships with our neighbors in order to
keep our business growing.
Furthermore, government of Lithuania must work on recovering trust and respect from public
back after economy crises happened. As much bigger confidence of authority is, the stronger state
becomes.

1
http://www.investlithuania.com/en/doing-business/set-up/employment-in-lithuania

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Lithuanias economy
Strengths Challenges

Huge support from EU High unemployment rate
2 free economic zones High corruption rate
Pledged currency ( 1 eur= 3.4258 litas) Lack of young people (15-24y.) employment
Biggest economy in Baltic states Increase in prices of services and products
Low inflation rate
Stage of business cycle- recovering
Interest rate is 1,85%
Stable and strong Scandinavian banks

Strengths
Lithuania is the biggest country in Baltic. Thus, that makes Lithuania biggest economy in Baltic with
the biggest opportunity to invest and get higher profit. Moreover, Lithuania gets one the biggest
support from EU taking proportion into account. Therefore, Lithuanias economy is supposed to be
potential to grow and expand in the future. For this reason, environment of economy must attract
investments from foreign. Statistically, Lithuania has received 7.3 for a period 2007-2013. 3.3
billion EUR has been designated for the Operational Program for Economic Growth
1
.
While continuing analyzing Lithuanias market, we should discuss more about macro-economy
aspects. GDP rate decreased from 32.2 Eur bn to 26.7 Eur bn in 2009 before it has started rising:
27.2 in 2010 and 28.6 in 2011. In order to see more clearly how Lithuanias economy developed, I
am going to show it in percentages of GDP growth:
GDP annual growth
(%)

2006 2007 2008 2009 2010 2011
7,8 9,8 2,8 -14,8 1,2 2,8

Inflation rate reached 2.8% in 2010 and 1.8% in 2011. In comparison, the lowest rate of inflation in
Europe is 1.5%.
2

1
http://www.development.lt/2011/node/12
2

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Furthermore, FDI rate which is important in H&M case, is increasing each year despite economy
crises. Thus, we can claim Lithuania attracts investments.
1

Also, we should take banks system of Lithuania into a consideration. As Lithuania and other
countries joined to EU, foreign banks started expanding their services in Baltic countries as well.
Nowadays, Scandinavian capital banks or banks which are supported by Scandinavian hold biggest
part of market share. As economy crises proved us, those banks such as Danske Bank, Nordea or
Swedbank etc. are strong and we can trust them.
Challenges
Unemployment rate is very high and it decreases very slowly. The highest level of unemployment
was in 2010 with a rate of 17.8. According to changes in the market, it has decreased only by 2
percentages to 15.8. Moreover, inflation rate is not so high as it is in another part of Europe. Thus,
we can claim Lithuania is recovering faster and another part of Europe (Greece, Portugal, Spain
etc.).
Furthermore, the one of the most common problem in all developed countries is a lack of activity
for young people (15-24y.). 70.6% percentages of this group of people are financially non active
individuals they are not looking for a job and they do not get any salary yet. 9.7% of people are
unemployed, but they are seeking for a job. The last part of persons (19.7%) is bused people
they get salary or they have earnings from somewhere (dividends, honorariums etc.).
2
For these
reasons, government must focus on creating busyness for this group of people. It could cause
bigger amount of money colleting for authority budget.
Thirdly, there is one huge problem in Lithuania. It is a corruption and its aftereffects for Lithuanian
budget. This problem is common almost in all East of Europe countries. This problem does not
make country attractive for investments. However, there are solutions to solve this problem and
government works on it a lot.

1
2
http://www.stat.gov.lt/lt/news/view?id=11305

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Even inflation in Lithuania is not very high, the increase in few categories of products and services
is seemed. Thus, expression has bad impact on people buying behavior and power. Products which
are used mostly, for example: water, food or everyday goods have increased by 4% percentages
since last year. Moreover, price of gasoline raised by 9% percentages.
1

Lithuanias social system
Second most educated country in Europe
Ethnic composition: Lithuanians: 83.5%,
Poles: 6.7%, Russians: 6.3%
4 borders with other countries
Life expectancy: average life expectancy
for Lithuanians: 71 years; men: 66,
women: 77.
Coast with Baltic sea
14 universities and academies

Population 3.329.000 New life-style and culture
Capital of Lithuania is Vilnius 5 cities with more than 100.000 people

While talking about social life in Lithuania, I would like to start from introducing country. Lithuania
has more than 3 million people. The capital is Vilnius with more than 600.000 people. Also, despite
Vilnius there are 4 other cities with over 100.000 people. H&M is going to open the first shop in
Vilnius. However, H&M could expand their shops in the future in other cities. Lithuania has a lot of
high education institution. Therefore, somebody says there are too many of it, because, as we
have already known, unemployment rate is very high. As a result, Lithuania is named as a second
most educated country in Europe. In 2009 91.3% of people aged 25-64 in Lithuania had secondary
or higher education. Moreover, 90% of Lithuanians speak at least one foreign language. While
average of the EU is only 50%. Lithuanians are able to speak mostly Russian (80% out of
population) and English (33.3%).
2
This situation in Lithuania helps in a business with foreign
companies. See what other people talk about East Europe and its culture:
No other country has got such a unique know-how in Western European as well as eastern countries languages,
different cultures and variety of business habits, which naturally developed in Lithuanias close historical relations with
other nations.
Martin Loeffler, CEO of Eastern Europe Operations,
Computer Sciences Corporation (CSC)

1
http://www.stat.gov.lt/lt/news/view/?id=11300
2

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In addition, I could mention a new life-style. 20 years ago Lithuania got its independency back
from Soviet Union. Since then, almost all Lithuanians started copying Western of Europeans
behavior and their life-style because of the disappointment of old Soviet Union system and
communism. For this reason, nowadays people in Lithuania are very welcome for all new
companies or people coming to their country.
Technologies in Lithuania
Still dependent from Russian energy
Not huge support from government for researches
Developed in IT systems
Experience in nuclear technologies

Lithuania is not a leader of innovations in technologies, however country is developed enough to
be considered as a normal state. Moreover, Lithuania had the strongest nuclear Power Plant many
years ago. Power Plant was built in Visaginas (City near Belarus) and that time it produced the
biggest amount of energy in Europe. However, when Lithuania entered to EU, we were supposed
to close it. Even Lithuania does not have any own power supply of energy Lithuanians have
experience in working with Power Plants. Therefore, Lithuania is building new electric in order to
reduce a dependency from Russia and decrease the amount of energy Lithuania import from
there.
Furthermore, Lithuania is not a rich country. As a result, Lithuanias government is not able to
support all experiments which universities would like to do and not all researches are paid by
authority. This is a sad side of technologies in Lithuania, because if country and companies in that
country is behind innovations that reduces a competitiveness of a state.

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H&Ms Value Chain
It is very important to analyze company as much more as it is possible in order to see how
company structure is created. Thus, I am going to use analyze called Value Chain made by Michael
Porter. Value Chain consists of two parts: support activities and primary activities. Furthermore,
after this analyze will be done, we will find it out why H&M is able to offer such a good products at
very kind price. Moreover, as this analyze includes Firm Infrastructure, Human Resource
Management, Technology development and procurement, we could be able to understand how
H&M is going to work in Lithuania after its expansion in it. Thereby, the prognoses of H&M
development in Lithuania could be predicted more correctly by using data from this analyze.
Therefore, this is why Value Chain of Michael Porter is useful for us right now. Moreover, to better
understand how H&M achieves its advantages against competitors, we are going to analyze
H&Ms primary activities. That consists of Inbound Logistics, Operations, Outbound Logistics,
Marketing and Sales, Service. In order to gain bigger market share, H&M has to work very
efficiently on primary activities.

1

Support activities
Firm Infrastructure
H&M group holds over 2.500 stores in the whole world. Today over 94.000 people are employed
in H&M in over 44 markets in the world: Europe, North America, North Africa, Middle East and
Asia. Only developed infrastructure could let them achieve such as wonderful results as it is right
now. The head office of H&M is in Stockholm, Sweden. Stockholm is also where the main
departments for design and buying, finance, accounts, expansion, interior design and display,
advertising, communications, IR, HR, logistics, security, IT and CSR and environment are located.

1
www.valuebasedmanagement.net

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Moreover, H&M has expanded its offices through 25 countries and each of it is responsible for a
various departments in every country. H&M group also has 16 production offices which take care
of contacts with the approximately 700 independent suppliers that H&M works with. The
chairman of H&M is Stefan Persson.
1
Furthermore, H&M is driven by strong values such as
simplicity, continuous improvement, team spirit, cost-consciousness and entrepreneurship. As I
have already said many things about H&M in whole world, we are able to expect them to be the
same in Lithuania. H&M of Lithuania is going to work by all requirements and orders from
Stockholm. Furthermore, in my opinion, H&M is going to open a one office for all Baltic countries
which will be responsible for all the results that H&M stores in Baltic show.
NAME NUMBER OF SHARES % OF TOTAL SHARES % OF VOTING RIGHTS
Familjen Persson and
family
623,849,332* 37,7 69,7
Lottie Tham and family
88,080,400 5,3 2,6
Alecta
Pensionsfrskring
64,340,000 3,9 1,9
JP Morgan Chase Bank
43,389,095 2,7 1,3
Swedbank Robur
fonder
43,264,160 2,7 1,3
2

* where of 194,400,000 class A shares (ten votes per share).
When we talk about the firm infrastructure and management of it, it is very important to look at
who controls that company. Therefore, I use this table in order to see the holders of shares. In
H&M case, the situation is very stable and all voting rights belongs to one owner- Familjen Persson
and his family. This way, we could claim H&M solves many problems which are very common in
other companies. There probably are no argues in making decisions. 70% of voting rights are
absolutely majority.

Human resource management
Human resource management is very important in order to reach the goals which company has set
up. Thereby, satisfaction of employee reflects directly the results of the company. Moreover,
human recourse management is one the most relevant reason of stable organization growth.
Thus, companies must be always focused on it.
3
Hence, H&M in Lithuania before they open a store
must think a lot what kind of people H&M should hire in order to achieve all targets. Furthermore,
H&M must analyze the culture and Lithuanians behavior to know the way how people think there.

1
http://about.hm.com/content/hm/AboutSection/en/About/Facts-About-HM/About-
HM/Organisation.html#cm-menu
2
http://about.hm.com/content/hm/AboutSection/en/About/Investor-Relations/The-Share/Ownership-
Structure.html#cm-menu
3
http://www.amillionlives.net/importance-of-human-resource-logical-and-strategic-approach-on-employee-
management.html

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While talking about the H&M, the director of human recourse department is Sanna Lindberg. Her
main aims in H&M are to create as much more sustainable environment and more sustainable
society in a company. She has set a few rules in H&M which must be followed: H&M employees
must work only under well working conditions (this is more relevant for a H&M employers in the
regions such as North Africa or Asia) and as H&M claims, the most central value is companys
belief in people. Furthermore, H&M is concentrated in making workers to take responsibilities of
everything they do in a company. It also means that everyones ideas are important. H&M believes
in close team-working and they expect employers to achieve better results when they work
together.
1

Win-Win model
In addition, as H&M expands in different markets (different countries) they always have to focus
on seeking new workers for a company in a country H&M enters to. That means H&M prefers local
workers. However, they offer them an opportunity to change working place in other cities or
counties but work also at H&M. This way, employee when he/she wants to change a job or try
himself in a different place can always do it. Thus, we could say worker is always happy because he
always maintains his progress even he stays working in the same firm. Same time, H&M wins
because it saves experienced and trustful worker. This is why H&M is named as one of the best
places to make a career in.
Thereby, we could predict that Lithuanians are going to get a great opportunity to find a
wonderful working-place when H&M enters to a Lithuania.
H&Ms Code of Conduct
H&M implements international rules which cover workers from unfair working conditions in
fabrics. H&M has signed contracts with its suppliers where it is stated that employees must get
right salary according to their productivity prescribed by law. Furthermore, this code of conducts
protects children from illegal working. There are more rules in this Code of Conduct and all of it is
suited for fair, legal and natural working conditions to set up.
2

1
http://about.hm.com/content/hm/AboutSection/en/About/Facts-About-HM/People-and-History/Our-
Employees.html#cm-menu
2
https://www.hm.com/gb/customer-service/faq/our-responsibility

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Technology development
As H&M is cloths retailer company, there is not much to develop them in this field. Internet is one
of the things H&M could keep on progressing. As H&M have over 2.500 stores in 44 markets, only
in eight countries (Denmark, Sweden, Norway, UK, Germany, Austria, USA, Netherlands), thus
H&M could expend online shopping in more countries. This way H&M could increase sales a lot.
The results from the survey says that Lithuanians are not used to buy clothes on the internet, thus
H&M do not have to hurry up in creating online store in Lithuania. However, H&M could create
more IT programs such as Apps in order to be closer to the customers.
Moreover, H&M has to always keep attention on customers changing needs. This is one of the
biggest advantages of H&M that they are changing together with their customers. Modern design
programs and well-educated designers is a key to the profitable future. Only leading in innovations
can make better business environment and increase companys profitability.
Furthermore, the constant development in logistics, marketing and management makes H&M
always stay profitable company and help in competing with competitors.
Procurement
The part of procurements helps us to see how companys earnings are depended on recourses
that H&M uses. As Hennes and Mauritz firm is the second Europes cloths retailer company, it uses
for a production a lot of material and workers. The main recourses that H&M needs are labour,
materials and energy. Thus, the small changes in prices could reflect a lot on the profit which H&M
is making. For example, last year the increase in costs of cotton and higher labour costs in Asia has
drop income down by 2.4%.
1
This reflection happened the first quarter of 2012 and it could be
seen more and more often in the future. The reason why H&M does not own any manufactories
and it causes problems in controlling the prices of production. Of course, macro-economical
aspects also influence H&Ms profit, but it is a gap where H&M cannot change anything.
On another hand, the fact that H&M does not own any factory is advantages in some cases. H&M
is able to switch suppliers very easily if something happens (earthquake in Thailand etc.) in
manufactory which supplies products to H&M. Moreover, the size of H&M helps to require the
best quality at the lowest price of production from the suppliers. H&M is able to manipulate with
its suppliers.

1
http://www.procurementleaders.com/news/news/cotton-price-and-labour-costs-weigh-on-hms-profitability-

Page 19 of 67
Primary activities
Inbounds logistics
Inbounds logistics for H&M could be named their suppliers. This part of value chain includes
transportation, material handling, material storage, communications, testing, information
systems. As I have mentioned before, there are more than 750 independent suppliers. Moreover,
the production function consists of 22 production offices. The 60% out of 750 manufactories in
from China, another part of suppliers are in Europe. Those 22 production offices are responsible
for:
To place order with a right suppler*.
The goods must be produced at the right quality and price.
To follow if suppliers match the Code of Conduct contract rules.
*the name of right supplier means not only the price of product, but also the time of
transportation and import quotas.
The production offices are the most important part in a part of inbounds logistics (buying and
production).
1

Operations
In H&M case, part of operations must be before inbound logistics. H&M does not make any
operations by itself except design. The design is the main thing in their business. H&M has 100
their own designer and 50 designers work by the patent. Before H&M places an order, designers
and market analyzers make huge job of seeking new trends in the streets, creating fashionable
clothes with highest quality at the best price. As it is stated in H&Ms website, Hennes and
Mauritzs company is focuses on creating good balance between fashion, quality and the best
price. H&M designers are looking inspiration from street fashion, films, travel and other cultures,
the media, trend institutes, trade fairs and exhibitions as well as fashion history. Most of clothes
are designed the same way in every culture. H&M produces same goods to almost whole world.
2

1
http://ec.europa.eu/enterprise/archives/e-business-
watch/studies/case_studies/documents/Case%20Studies%202004/CS_SR01_Textile_2-HM.pdf
2
http://about.hm.com/content/hm/AboutSection/en/About/Facts-About-HM/Idea-to-Store/Meeting-the-
Customer.html

Page 20 of 67
Outbound logistics
The part of outbound logistics in value chain includes transportation, material handling, packaging,
communications and information systems. As I have mentioned before, the H&M does not own
their suppliers. However, the logistic system has been developed very well. The way H&M
transports its production is:

1. Merchandise arrives at of the distribution centre. (The main distribution centre is in
Germany, Hamburg)
2. Goods from distribution centre are transferred to the stores.
3. Garments are being unpacked after it is allocated in stores (if garment is bought through
internet: cloth goes straight to a customer from distribution centre).
The keywords for H&M logistics are simplicity, reliability and transparency:
Simplicity logistics must not become too complicated. Reliability the fastest is not always the
best. Instead H&M prioritizes the most reliable and greenest method. Transparency information
exchange between all links in the logistical chain
1

The method of Green
In order to secure our planet from polluting, 90% of transportation is made via ocean, rail and
roads. Only in exceptional cases, H&M uses air. This is huge advantage of the company and it has a
positive reflection in the marketing.
Marketing and Sales
H&M is a cloth retailer company and this type of business requires a high level of marketing. In
order to analyze the part of marketing, I am going to split marketing in few main groups: price,
quality- durability, commercials and environment of shops. Each company targets a segment of
customers to whom they want to sell their productions. H&M concentrates on medium class
people with a medium size of wages and persons who do not wonder a lot about brand.
Moreover, taking into account that H&M enters to Lithuanian market, we could notice the type of
market in Lithuania is, in my opinion, the one of the best option for H&M to expand to.
Lithuanians prefers cheap, quality and fashion clothes. Lithuanians do not like spending money on
clothes-garments do not take the first place in the list of products they would like to buy. Thus,
people do not buy very fashionable, for instance Italian designers, clothes. However, as the
climate is cold in winter and hot during summers, Lithuanians always have to change their
appearance many times through a year. As a result, people in Lithuania usually buy quality clothes
in order they could wear it more than one season.

1
http://about.hm.com/content/hm/AboutSection/en/About/Facts-About-HM/Idea-to-Store/Logistics-and-
Distribution.html

Page 21 of 67
Price
Price is important in all cases when we talk about marketing, production and so on
1
. Moreover, it
becomes more particularly important when we talk about clothes retailer market. Leading in a
price is a one the main gun against competitors for H&M. As H&M is an enormous size, it has a
wonderful opportunity to reduce production costs. The way how H&M deals with the contractors
is very simple: H&M buys everything in huge quantity. H&M knows that they are very important
for fabrics, transportation companies as a customer. As a result, H&M always controls
negotiations. Moreover, we should consider the fact that H&M was opened in 1947, it has a long
experience in running this type of business. Thus, that helps a lot in many cases. Furthermore,
another important advantage for H&M is the huge range of suppliers of production. H&M is able
to offer cheap prices to any market they import its products. Different supplier could provide
production to different market.
H&M is obviously not the cheapest brand, but the proportion of the quality and a price is most
optional for customers.
Quality and durability
As I have mentioned before, H&M is focused on price, fashion and quality. As clothing quality
becomes more and more relevant again, it helps H&M to gain bigger market share. Few years ago,
people usually bought only cheap and nice clothes. Nowadays, customers pay attention on quality
more because they become to the idea that buying not quality garments is just wasting of money.
After few clothes washing, people have to throw poor quality cloth out. There are left two types
of buyers: still buying poor quality garments and have already stopped buying poor quality cloths.
2

Thus, durability helps companies to keep loyal customers during the years.
Secondly, people, especially men, prefer comfortable clothes. Therefore, the type of textile and
sewing is very significant as well as durability. For this reasons, H&M designers have to work very
hard in order to combine price, fashion and quality and make profit for the H&M at the same time.
Moreover, making mistakes in production could have negative reflection of loosing loyal buyers.
Managers have to follow the quality of selling goods all the time, because one mistake in a
production could lead disasters next few years.
Commercials
While talking about commercials, it has really huge impact on buying behavior in this type of
business. The contracts with models such as Rihanna, David Beckham have influenced a lot the
number of sold products.
34
As H&M is world-wide company, it has to choose the right models and
the right way of advertising itself. Models must be world-known stars and commercials must be
multi-culture in order to protect themselves of being anti-democratic.

1
http://www.mergerdigest.com/price_negotiations.html
2
http://www.kwika.org/resources/the-importance-of-quality-textiles-in-the-fashion-industry.html
3
http://www.youtube.com/watch?v=_hznmymFFqw
4
http://dbcollaboration.hm.com/

Page 22 of 67
Moreover, H&M controls more brands than one to take as much bigger market share. COS is made
for more rich and more fashionable people while Weekday, Cheap Monday and Monki are suited
for younger and less money supposed to spend people. However, even it is part of H&M, I do not
want to discuss about other brands.
Huge sales are one of the main advantages for H&M. H&M is well-known company where people
are able to buy very cheap clothes at during sales. Those sales with the app. 70% discount attract
many people to stores. In addition, when people visit shops to buy low-priced garments, they
usually take a look at new collection placed near the sales.
1

On another hand, the most effective way to advertise is a contact eye to eye. People must feel
that they are very welcome at the shops. The way how consultants in the stores behave is very
important for firms marketing. However, I am going to talk about it more widely in part
Services.
Environment of the shops
First of all, the location of stores is very important. In order to be a well-known company, firms
have to select very right place to open a shop. Most of H&Ms stores are in the main city streets.
The stream of people is one the main reason of choosing a location. Also, H&M selects shop centre
open a store in it, it also is a reasonable choice.
While talking about inside, we should considerate the features of brand. If company is targeting
the rich people, stores cannot be full of production and made of poor quality materials. In
opposite situation, if clothes retailers selling products to ordinary people, the environments must
be simple- little bit similar to warehouse. H&M is between those two categories, although shops
are always well structured: easy to find things which you want to and atmosphere is cozy there. As
I have worked in designs company, I could say the design and style of the company has a lot of
influence on buying behavior. Colors, type of shelves, the way how goods are allocated are very
important things when company opens a shop. Thus, before new store in Vilnius comes up, the
design of shop must be taken in consideration with specialists.
Thirdly, nowadays, internet shops are also very relevant. For example, to buy something on H&Ms
website is not only easy, but attractive too. There is a possibility to try clothes on. The modern
system helps you to change, zoom and rotate clothes on manikin before you buy it. It is a good
advantage for people to see what they purchase and see if clothes suit to each other. On other
hand, the buying on the internet will never become so much popular as shopping goods in real
shop.

1
http://www.ehow.com/about_5463003_effectiveness-sales-promotion.html

Page 23 of 67
Services
The last part of Value chain is Services of H&M. Services are always very important aspect when
we analyze a company. Moreover, it becomes more relevant than we talk about clothes retailer
business. First of all, skilled and kind employees are the part of chain when we analyze services.
Consultants implement the atmosphere of the store. Thereby, we could claim there is a straight
connection between level of service and type consultants. Everybody knows workers must be very
kind, walk and work with smile all the day, but it is also very important to know the limit of help.
This is how H&M works, when customer needs a favor, he can go and ask consultant- he will be
very welcome to do it.
Moreover, the things such as product mending are also very important in this case. Customers
would be very satisfied if they have a possibilities to bring a garment back to a shop even it has
been used. These small things make image of company. Furthermore, company by the time gets
being respected by clients. That makes customers be happy when they pay money for.
In addition, I could say from my experience that H&M is very flexible company. Also there are not
strict rules how consultant must behave with customers. I had an event when I wanted to buy a
garment, but it had spoilage. Therefore, I went to a sales man and asked a discount. He gave me
the more than 50% discount for a shirt. That made me really surprised.

Page 24 of 67
SWOT analyze of H&M
In order to see H&M company advantages and disadvantages are I am going to use SWOT analyze.
SWOT analyze will help us to make view of a company from a different side than ordinary client
see it. Moreover, I am going to include many aspects into a SWOT analyze from H&Ms
international development, but also from expected development in Lithuania. For this reason, I am
going to split each part of SWOT to a two groups: International and Lithuania part. SWOT analyze
includes four different categories such as Strengths, Weaknesses, Opportunities, Threats. In my
opinion, this analyze is one of the best way to analyze company.
STRENGTHS

Long experience in cloths' retail market
Wide market segmentations
Optimal price: Low price - high quality.
Financial performance is satisfactory. Profitability ratios are not the perfect but not in
the critical situation. The progress in turnover is seemed stable.
Solid results in marketing
H&M logo is valued as a one of the most expensive logo in the whole world
1

H&M does not prefer franchise: this way they control their business more easily than
competitors
Fashionable clothes. H&M always lead innovation in fashion
H&M does not owns shop, thus it helps them control capital
Wide assortment of productions. Goods come and changes every day in a shop. Thus,
that makes H&M's shops more attractive for customers.
Different style from Italian or French designers. H&M designers always are following
the newest trends or style.
Developed value chain. H&M is importer and seller.
As H&M is offering cheap products, it could advantage during economic crisis. People
would prefer buying not very fashion, but cheaper product.

Lithuania:
Experience in entering in a new markets.
Strong financial side of H&M helps in competing with local cloths' retailers.
Well known brand for Lithuanians. Lithuanian people are usually going abroad and
buying H&M clothes there.
H&M does not produce expensive products. Thus, it would be advantage which
Lithuanians prefer.

1
http://www.slideshare.net/hillknowlton/top-100-most-valuable-global-brands

Page 25 of 67
WEAKNESSES
Regarding to a size of H&M, H&M has to focus always on a changes in market or macro
economy.
H&M does not own any fabric. Thus, it sometimes is a trouble from them in dealing
with suppliers.
Even their brand is valued as one of the most expensive logo, H&M company does not
create fashion clothes such as Gucci, Armani Jeans etc. H&M is a price leader, therefore
if H&M will not be able to produce anything cheaper than other companies, it would
lose market share.
H&M production is easy to copy. Therefore, they should secure their products.

Lithuania:
Strong competitive. There is one huge company which holds Zara, Bershka and more
cloths' shops by franchise.
High unemployment rate.

OPPORTUNITIES
H&M has huge experience in running world-wide business. Therefore, using it H&M
could expand their business more. This is what H&M is doing at the moment -
expansion in Lithuania and other Baltic countries.
With an expansion in China, H&M could buy or build a factor and become their own
manufacturer.
1

New and growing economies (South America, Africa) could become a good niche for
H&M to expand their business.
Even unemployment rate is slowly decreasing, it could be one the reason why people
start buying at H&M more than they did last few years.
Expand selling on internet. This way H&M could increase turnover without a lot of
investments.
2

Lithuania:
To open not only one shop in capital. But also to make a network of shops in all
Lithuania.
Rising economy would have positive influence on sold products.
As Lithuanians are well educated people, H&M could find employers to work in not only
Lithuania.
Internet shopping is getting more and more popular in Lithuania. Thus, H&M could
work on it too.

1
http://news.bbc.co.uk/2/hi/business/6451485.stm
2
http://www.blackweb20.com/2011/11/28/cyber-monday-online-shopping-getting-more-popular-each-year/

Page 26 of 67

THREATS

Changes in currency could affect a lot. Liabilities taken in different currency could has a
negative shift in the future.
Decreasing buying power in Europe could reduce H&M's sold products and turnover.
High input costs could reflect H&M growing adversely.
New products from China could influence H&M development negatively. Chinese cloth
producers could push H&M out with a cheaper production.

Lithuania:

High corruption rate may have influence on running business.
Negative changes in EU could also affect Lithuania market.

In conclusion, we could claim there are any big doubts which could disturb H&M to enter to a
Lithuania market. However, there are still few things which H&M should focus on. In order to
expand their company into Lithuania, they should keep eye on macro-economic aspects and
problems such as corruption and competitive which is supposed to be strong.
While talking about advantages of H&M, we could say this company is more than enough big to
expand successfully their market to Lithuania. Comparing H&M size and experience, Lithuanian
clothes retail market is going to be conquered very slowly but easily by them according to a SWOT
analyze.
1
Moreover, SWOT analyze shows us opportunities which H&M could use or concentrate
on in the near future. Internet shopping is getting more popular not only in Lithuania but in whole
world also. Thus, H&M should create efficient, attractive, easy to use internet shop centre where
people could buy clothes cheaper than in the shop. This way H&M would be able to gain bigger
market share and increase their turnover significantly.
2

1
http://voices.yahoo.com/swot-analysis-hm-company-3630037.html
2
http://www.scribd.com/doc/44904318/h-m-profile

Page 27 of 67
Another part of the project is a survey. Questions are about the humans preferences when they
buy clothes. Furthermore, there were many questions related on the company H&M as well as this
project is about it (You can find list of questions and optional answers in Appendix 1, results of
survey Appendix 2). After a lot of consideration, I decided to create a survey in order to analyze
customers and Lithuanian market. Moreover, survey was made to see the tendencies of garments
buying behavior in Lithuania. The way questions were made was very simple and easy to
understand. Each question except only one had the optional answer for it. Whole survey was
based on the special internet site called www.apklausa.lt. Language was only in Lithuanian
because of the type of market which H&M enters in. Thus, only Lithuanians potential customer
participated in this research. Respondents were taken from the Facebook and in verbal way of
asking people to answer my survey in the real life. Also, I tried to collect as much more bigger
variety of respondents in order to make my survey more representative to the real situation in the
market. Thus, few people were given a task by me to invite theirs friends to answer these
questions. Finally, I ordered a service which www.apklausa.lt offered to me to pay money and get
more respondents. I used this service also to involve much more different types of people. In
overall, I got 53 answers. With the amount of recourses I used for this survey, I feel satisfied with
the numbers of people. However, after Goodness-of-fit (Test for given distribution) test in
program KeHa Tools was made for this survey, I find out answers are not representative with the
level of significance 5%. P- value was lower than 5% in both tests. For this reason, I rejected Ho
The distribution is the given distribution and accepted Ha The distribution is not the given
distribution. In the first test I compared age of people in Lithuania
1
with the age of respondents.
Second test was suited to test the representativeness of salaries which people get in Lithuania
2

and people answered my survey (T o see all tests and figures how those test of representativeness
were made, please look at Appendix 3). Despite the fact answers and respondents are not
representative, we are able to see some tendencies of Lithuanians buying behavior.

1

http://db1.stat.gov.lt/statbank/selectvarval/saveselections.asp?MainTable=M3010206&PLanguage=0&Tabl
eStyle=&Buttons=&PXSId=3212&IQY=&TC=&ST=ST&rvar0=&rvar1=&rvar2=&rvar3=&rvar4=&rvar5=&rvar6
=&rvar7=&rvar8=&rvar9=&rvar10=&rvar11=&rvar12=&rvar13=&rvar14=

2
http://www.veidas.lt/ketvirtadalio-pajamos-lietuvoje-yra-iki-1-tukst-lt

Page 28 of 67
Lithuanians preferences in buying behavior
As I have mentioned before, this survey was made to understand clearly Lithuanian market and
people. In conclusion of this analyze, I am going to set the rate of the persons interests in H&M.
This way, we will be able to see the size of retail clothes market H&M could gain with the
entrance to Lithuanian market.
52.8% of respondents were females and another part (47.2%) was males. Not many differences
between these two categories are met. There is only one and sure notice that most of females
answered they shop 1-2 times per month while men do it 1-2 times per half year. Moreover,
women are keen on spending 51 Lt 100 Lt during each shopping-spree while males: 101-200 Lt
each time. That is a proof shopping is not so loved thing by men.
While talking about the age group and status in society, mainly respondents were students
(52.8%) and 19-25 years old (62.3%). This activeness of young people does not make my survey
very correct, because of the different life-style or different buying habits between age groups and
statuses in society. After many considerations, I decided to split people into two groups: A group is
students and pupils; B group is not students and pupils (The reason why is that biggest differences
in buying behavior are supposed to be between these two categories). However, not many
differences in buying preferences were found. All Lithuanians prefer price and correct size of the
garments first of all. For this matter, H&M gets a huge advantage in this case. Hennes & Mauritzs
company is notorious for its low price and quite high quality of the production. Moreover, as the
assortment of products is wide as well as it is in Zara, Bershka or Mango stores. Therefore, with
the lower price of clothes H&M could take the leader position in the Lithuanian market of retail
garments.

Page 29 of 67
Here you can see more results of survey Expansion of H&M in Lithuania in tables*:
*the way I calculated is that I pointed each answer for the grade. For instance, Not important 1
point, Less important 2 points etc. Then, I summed all grades up and divided by the number of
students and pupils in order to get the average of the result. The higher number is, the much
important subject it is.

Students and Pupils Not Students and Pupils
Price 4,35 4,22
Quality of clothes 3,9 3,86
Right size 4,51 3,95
Wide assortment 3,93 3,86
The place of the shop 2,77 3,45
Type of Material 3 3,27
Brand 2,29 2,5
*Table was made by author of the project

0
0,5
1
1,5
2
2,5
3
3,5
4
4,5
5
Student and Pupils
Not Student and Pupils

Page 30 of 67
The question related to the wishes whether people would like to have H&M was answered like
this:

*Table 13 is taken from Appendix 2

The results of this question are bright for H&M. 86% of responses were Yes,. However, 27% of
all answers were only just because it is interesting. The answers Yes, because I expect lower price
there (37%) and Yes, because I do not find any clothes right now at existing shops (22%) are
strong positive things. These two features of H&M are the biggest advantages of H&M. Hennes &
Mauritzs firm is able to offer the low price according to the quality of goods and a wide
assortment of clothes for the buyers. Therefore, these results make H&M to expect a high rate of
popularity in Lithuanian market.
37%
22%
27%
5%
9%
Would you like to have H&M shop in Lithuania? (More than one
option is allowed)
Yes, because I expect lower price
there
Yes, because I do not find any
clothes right now at existing shops
Yes, it would be interesting
No, it is enough shops for me
already

Page 31 of 67
More Advantages of H&M
The number I really did not expect before making this survey was the amount of people who knew
Hennes & Mauritzs company before they filled this survey.

77 percent out of all respondents knew this brand. Therefore, this percentage makes H&M
entrance into Lithuanian market not so difficult. People know what they should expect from H&M
and what H&M produces. Moreover, 13% of persons matched as they have heard this name, but
they do not know exactly what it is. It also helps in our case! Development of marketing in
Lithuania must be easy to do and maintain.


Furthermore, as you can see from table 2, most of people knew H&M when they were abroad
(43%). That means, H&M attract Lithuanians attentions! People noticed H&M and they
remembered its name. Moreover, 20% of respondents find H&M out from friends.
77%
8%
13%
2%
Do you know (Have you heard) clothes' retail shop H&M?
Yes
No
I have heard this name, but I did not
know what it is
Did not answer to a question
12%
43% 20%
7%
9%
9%
If you said "Yes" or "I have heard this name, but I did not know what it
is", please answer where did you know it from? (More than one option is
allowed)
Internet
When I was abroad
Friends
Social networks
Press (Newspaper, journals etc. )
Other

Page 32 of 67
It is difficult to find the reason why friends told anything to our respondents about H&M. In my
opinion, because they wanted to say what kind of clothes they have bought abroad or where they
have been.

Finally, one third of the persons in Lithuania have already bought something in H&M and 6% has
been there, but no one bought anything. As a result, we could claim people need H&M in
Lithuania. The probability of these people (66%) buying clothes in Lithuania at H&M as they did
when they were abroad is very high.
In conclusion of these 3 tables, we must notice the situation in Lithuanian market is supposed to
be very bright for Hennes & Mauritzs company. The majority of respondents not only knows what
H&M is, but they have also bought something in H&M.
Disadvantages for H&M
Even the results of survey make us believe in H&M successful development in Lithuania,
disadvantages are also met here. As the last question was about the place or shop where people
usually are having shopping-spree, most of people answered Zara, Bershka or other stores from
Apranga Group.
See detailed results below in the table:
Mentioned names of shops where people shop: Times
Average of all
respondents
Zara 18
0,33
Bershka 5
0,09
Other stores from Apranga Group 29
0,54
For this reason, we could claim the competition for H&M in Lithuania is going to be really strong.
Even Lithuanians preferences of buying clothes are more same to the H&Ms customers buying
behavior, the strong humans habit of buying clothes from Apranga Groups stores could reflect
H&Ms turnover down.
66%
28%
6%
Have you ever bought anything in H&M before?
Yes
No
No, but I have been there

Page 33 of 67
Otherwise, people are always keen on changing something and innovations. As a result, it could be
the best time for those people they want to switch a brand to another H&M in our case.
However, H&M has to take this disadvantage into the consideration and work on changing
peoples buying habits in order to reduce the risk of unsuccessful expansion in Lithuania.
Opportunities of H&M

After analyze of the response, I found few possibilities how H&M could increase the number of
customers and get higher turnover with the expansion in Lithuania. The location of the store is the
one of the most important aspect which H&M must consider about. The results from survey show
us the majority of people go shopping straight to the shopping center and they sometimes do not
think about different stores in it. Lithuanians do not care so much about each different store. They
just go and seek for the best offer or product. Moreover, people in Lithuania do not love shopping
in the city center so much. Thus, as H&M always open its stores in the main city streets, the
location of the shop in Vilnius must be different if we consider about the place of H&Ms first store
in this city.
Mentioned names of shops or places where people shop: Times
Average of all
respondents
Shopping center (No exact name of the shop) 14 0,264150943
City center 1 0,018867925

Page 34 of 67
In addition, after this survey was analyzed, I found more opportunities for H&M. Many of
Lithuanians answered they have received or given a check to buy clothes (43%) or No, but idea
seems great (23%). Moreover, nowadays websites or discounts selling shops such us
www.groupon.com is getting more and more popular in social life. The way how this system works
is people buy discount on the internet for the product or they buy check at the price, for example,
100 DKK of the value of 130 DKK. This way of selling things on the internet became very popular
and it attracts a lot of potential customers for much kind of business firms. Furthermore, this
could be an innovation for not only Lithuanian market, but also for the whole countries where
H&M works.


Buying on the internet

While talking about the tendencies on the buying in the internet, we should notice there is a part
of Lithuanians (42%) who buys clothes on the internet. 29% of answers were No, 15% said I
would like to, but I do not know how to do it and 9% - Yes, I have bought, but I was not
satisfied. As we can see from the results, the majority of people would buy clothes online. On
other hand, H&M should decide whether it is profitable for them. Of course, the opportunity to
buy online would increase number of customers from not the biggest cities in Lithuania where
opening a store is not profitable enough. However, the cost of transferring goods to these
customers would be too much expensive (cost or warehouse, for example) or customers will have
to pay a lot for purchasing those products they bought on the internet.
43%
32%
23%
2%
Have you ever gotten/given clothes or check to buy clothes as a
present?
Yes
No
No, but idea seems great

Page 35 of 67
For these reasons, the idea of having online store must be considered later on after some time
sent in the Lithuanian market.

*Table 7 is taken form Appendix 2

Conclusion of survey Expansion of H&M in Lithuania
As the survey was filled by 53 respondents, results show the situation in Lithuanian retail clothes
market. However, the mainly part of answer were gotten from most active people in filling surveys
young people or students. However, results create a view of tendencies in buying behavior, even
answers are not representative. Moreover, as H&M sells simple garments not official working
costumes or working clothes etc., questions were made in order to answer only this type of
businesss features.
After analyze was made, we are able to see the perspective of H&Ms development in the
Lithuania. H&M should be welcome brand there and the competition between H&M and its
competitors should lead H&M to the victory. However, there is still small chance of risk to see
unsuccessful entrance of H&M. The existing company Apranga Group has a long experience in
Lithuanian market. Also it is seemed from the results of survey (A lot of people voted for Apranga
Groups brands). This company could know all needs of its clients already. Thus, there is a
possibility H&M will have to spend a lot of time on what Apranga Group has already done it. That
would cause a loss of the profit.
In overall, the market situation: buying behavior features and customers buying power in
Lithuanian is tended to be not perfect, but good for H&M. Therefore, the expected market share
for H&M could be amounted approximately 15% percents of the simple clothes market. These
percentages were taken according to variety of shops in this type of garments stores and the
tendency of buying preferences in Lithuania.
The address of website where this survey is based (language is Lithuanian):
http://apklausa.lt/private/forms/h-m-pletra-lietuvoje-u4uddcv/answers
42%
29%
9%
15%
5%
Do you buy clothes on internet shops?
Yes
No
Yes, I have bought, but I was not
satisfied
I would like to, but I do not know
how to do it

Page 36 of 67
H&M in figures
This part of project is suited in order to see H&Ms financial performance and situation. In my
opinion, these analyzes are the most important thing when we analyze the expansion into the
Lithuania. Moreover, technical analyze is important for investors, shareholders and also for public.
Thus, most of information of H&M is not hided and many calculations are made by H&M.
However, in order to see the financial performance better, I am going to add mine calculation to
analyze. Each table or calculation will have reference where the author will be shown. Also, I am
going to comment and explain the meaning of numbers in order to understand the real financial
situation of H&M. In other words, I am going to compare H&Ms data with competitors data in
Lithuania. This way we would be able to see the advantages and disadvantages of H&M in
Lithuania market. Furthermore, predictions could be done after this analyze.
In addition, I would like to notice that H&M places new information every day or every quarter of
the year. As a result, in few cases information could be not so new when reader reads this project.
This table (Table 1) shows us the last 5 years development of Hennes & Mauritzs company.
1

THE FINANCIAL YEAR
2011 2010 2009 2008 2007
Sales including VAT, SEK m
128,81 126,966 118,697 104,041 92,123
Sales excluding VAT, SEK m
109,999 108,483 101,393 88,532 78,346
Change from previous year, %
1 7 15 13 15
Operating profit, SEK m
20,379 24,659 21,644 20,138 18,382
Operating margin, %
18,5 22,7 21,3 22,7 23,5
Depreciation for the year, SEK
m
3,262 3,061 2,83 2,202 1,814
Profit after financial items, SEK
m
20,942 25,008 22,103 21,19 19,17
Profit after tax, SEK m
15,821 18,681 16,384 15,294 13,588
Liquid funds and short-term
investments, SEK m
21,277 24,858 22,025 22,726 20,964

1
Table was taken from the official annual full year report of H&M.

Page 37 of 67
Stock-in-trade, SEK m
13,819 11,487 10,2400 8,500 7,969
Equity, SEK m
44,104 44,172 40,613 36,950 32,093
Number of shares, thousands*
1,655,072 1,655,072 1,655,072 1,655,072 1,655,072
Earnings per share, SEK*
9.56 11.29 9.90 9.24 8.21
Shareholders' equity per share,
SEK*
26.65 26.69 24.54 22.33 19.39
Cash flow from current
operations per share, SEK*
10.53 13.19 10.86 10.86 9.29
Dividend per share, SEK
9.50** 9.50 8.00 7.75 7.00
Return on shareholders' equity,
%
35.8 44.1 42.2 44.3 45.4
Return on capital employed, %
47.1 58.7 56.7 61.1 63.7
Share of risk-bearing capital, %
74.9 76.2 78.5 75.7 78.5
Equity/assets ratio, %
73.3 74.6 74.7 72.1 76.9
Total number of stores
2,472 2,206 1,988 1,738 1,522
Average number of employees
64,874 59,440 53,476 53,430 47,029
*Before and after dilution. The number of shares has been adjusted for all periods of the two-for-one share split carried out by
H&M in 2010
**Proposed by the Board of Directors
Key ratios definitions:
1

Return on equity: Profit for the year in relation to average shareholders equity.
Return on capital employed:
Profit after financial items plus interest expense in relation to average
shareholders equity plus average interest-bearing liabilities.
Share of risk-bearing capital:
Shareholders equity plus deferred tax liability in relation to the balance
sheet total.
Equity/assets ratio: Shareholders equity in relation to the balance sheet total.
Equity per share: Shareholders equity divided by number of shares.
P/E ratio: Price per share divided by earnings per share.
Comparable units:
Comparable units comprise the stores and the internet and catalogue
sales countries that have been in operation for at least one financial
year. H&Ms financial year is from 1 December to 30 November.

1
http://about.hm.com/content/dam/hm/about/documents/en/cision/1573157_en.pdf

Page 38 of 67
Moreover, it is very important to see how H&M has developed since last year. Thus, this table will help us
to see the changes (Table 2).
1

Market
Year
established
No. of
stores 30
Nov
2011
New
stores
during
the
year
Closed
stores
during
the year
Sales 2011
including
VAT (SEK m)
Sales 2010
Including
VAT (SEK
m)
Changes in
% (SEK)
Changes in
% (Local
currency)
Sweden 1947 173 9 4 8,318 8,365 -1 -1
Norway 1964 104 4 1 5,397 5,858 -8 -5
Denmark 1967 90 4 1 4,195 4,358 -4 3
UK 1976 213 26 5 9,227 8,392 10 19
Switzerland 1978 80 5 5,995 6,122 -2 -7
Germany 1980 394 23 6 29,721 30,628 -3 4
Netherlands 1989 118 7 1 6,995 7,387 -5 1
Belgium 1992 66 6 4 3,157 3,345 -6 1
Austria 1994 66 1 1 4,793 5,255 -9 2
Luxembourg 1996 10 385 406 -5 1
Finland 1997 47 5 1 2,379 2,567 -7 -1
France 1998 168 18 1 9,336 9,14 2 9
USA 2000 233 26 1 9,691 8,916 9 21
Spain 2000 132 11 1 5,828 6,109 -5 2
Poland 2003 89 13 2,747 2,668 3 12
Czech
Republic 2003 24 2 722 707 2 6
Portugal 2003 23 2 899 937 -4 3
Italy 2003 87 15 4,41 4,331 2 9
Canada 2004 58 3 2,774 2,713 2 8
Slovenia 2004 12 1 500 568 -12 -6
Ireland 2005 15 3 514 517 -1 7
Hungary 2005 20 5 496 387 28 38
Slovakia 2007 10 3 254 225 13 21
Greece 2007 22 6 2 764 646 18 27
China 2007 82 35 3,598 2,527 42 55
Japan 2008 15 5 1,549 1,794 -14 -12
Russia 2009 19 8 1,512 916 65 78
South Korea 2010 6 4 410 255 61 69
Turkey 2010 8 7 309 28 1,004 1,254
Romania 2011 11 11 331
Croatia 2011 6 6 264
Singapore 2011 1 1 111
Franchise 2006 70 21 1 1,229 899 37 57
Total 2,472 296 30 128,810 126,966 1 8
Franchise: United Arad Emirates, Kuwait, Qatar, Saudi Arabia, Egypt, Bahrain, Oman, Lebanon and Israel

1
http://about.hm.com/content/dam/hm/about/documents/en/cision/1573157_en.pdf

Page 39 of 67
In addition, I have calculated a stock turnover ratios and profitability ratios of H&M Hennes and
Mauritzs company. The numbers I took from the official H&M annual report of 2011. Moreover,
after calculations you will be able to see my comments about the each number. The formulas ware
taken from the slides of UCN (University Collage Of Nordjyland) and my notes.
Stock Turnover Ratio and Period

Stock Turnover Ratio= Cost of Sales/Stock at the end of the year= 43.852/12653=3.465
Stock Turnover Period = 360/Stock Turnover Period= 360/3.645= 103.89
Stock Turnover Ratio and Period is a ratio which helps us to see the efficiency of companys
inventory. Moreover, it shows if investments in stock are proper limit or not. The stock turnover
ratio must be not so low and not so high. There are not standards for stock turnover ratio. Each
business has its own conditions and expenditures. The high ratio implements high profit, low ratio-
low profit. We should compare H&Ms stock turnover ratio with its competitors in order to see
how H&M works (This is going to be done after this calculations).
1

Current Ratio =Current Assets/Current Liabilities =39.918/14.757=2.705
This ratio is more suited for the short-term investors or those people who is interested only at the
current situation. The proportion of assets and liabilities shows the stability of the company. This
could be relevant for creditors and investors. The higher ratio is, the better situation in the
company is. The standard of the Current ratio is meant to be 2 : 1. However, we cannot blindly
believe this standard, because this ratio shows not the quality of the assets, but the quantity. As a
result, smaller ratio that company has could be better than higher.
2

In our case, current ratio is more than better. That is advantage of the company.
Profitability Ratios

ROI= EBIT/Average Total Assets= 15.821/59.685=0.265
This ratio means Return On Investments that company made during the year. The higher ratio is,
the better it is. Moreover, this ratio may include the satisfaction of customers, speed of
production and flexibility. Also, there is no standard for this ratio. It must be compared and
analyzed with the other companies in this type of business.

1
http://www.accountingformanagement.com/stock_turn_over_ratio.htm
2
http://www.accountingformanagement.com/current_ratio.htm

Page 40 of 67
ROE=EBT/Average Total Equity= 15.703/44.138= 0.355
ROE means a Return On Equity. This ratio is suited more for owners of the company. It is because
we use EBT in our formula and EBT is the left profit for the owners. Also, equity is a companys
reserves, profit for the year or share capital etc. As a result, this property belongs to owners. Thus,
ROE shows us the profitability of coming investments from the owners. Of course, as much ratio is
as much better situation in the firm is. This ratio is very important for the investors or banks when
H&M takes a loan.

ROD= Interest Expenses/Average Total Debt= 5/14.302= 0.00035
ROD is a Return on Debt. This ratio shows how company has used its debt. H&M has very low ratio
because of the very small interest expenses. That is also an advantage of the company.
Furthermore, we could say H&M borrows money under very good conditions (small interest
rates). Also, low ROD ratio generates higher profitability of the company. As much less company
spends money on interests, as much more money stays at the company as a profit.
ATOR=Turnover/Average Total Assets= 128.810/59.685=2.158
The higher rate is, the bigger profit company has. This ratio shows the efficiency of used assets.
This ratio is very important for investors in order to see how firms managers are investing money.
H&M has really nice result of this ratio. The value of asset generates twice higher turnover. Also,
this ratio indicates pricing strategy: companies with low profit margins usually have big asset
turnover, while those with high profit margins have low asset turnover.
1

ROS=EBIT/Turnover= 15.821/128.810=0.123
ROS is a Return On Sales. This ratio shows us how company earns money. For instance, how
company converts its turnover to the profit. There is no standard of the ratio. Each different type
of business could have totally different number. Many facts such as variable cost, expenses of
sales, administrative expense have the influence on the ratio. The higher ratio is the better it is. In
order to have high ROS ratio, company has to reduce all the expenses that cost to produce
product. We have to compare this number with competitors ratio in order to see whether this
ratio of H&M is advantage or disadvantage for the firm.

1
http://www.investopedia.com/terms/a/assetturnover.asp#axzz1t2G9ynCy

Page 41 of 67
In addition, I calculated profitability and stock turnover ratios of H&Ms biggest competitor UAB
Apranga Group. All the numbers were taken from their official annual report of 2011.
1

Moreover, all amounts are in local currency thousands of Litas. (1 Litas = 0.289 Eur = 2.577 SEK)
Stock Turnover Ratio = 180.820/ 55.292= 3.270
Stock Turnover Period = 360/ 3.270= 110.0825
Current Ratio = 87.989/ 33.908= 2.594
Solvency Ratio = 123.102/ 161.165= 0.763
ROI =29.749/ 152.370= 0.195
ROE =25.156/ 117.435= 0.214
ROD =219/ 152.370= 0.001437
ATOR =340.781/ 152.370= 2.236
ROS =180.820/ 340.781= 0.530
As Apranga Group is the main competitor for H&M, I am going to compare these two companies
profitability and stock turnover ratios in order to see whether H&M is going to have difficulties in
entering Lithuanian market. Also, I would like to note Apranga Group controls Zara, Bershka,
EMPERIO ARMANI, Massimo Dutti, Tommy Hilfiger, Mango, Mexx, Hugo Boss, Promod, Pull&Bear
and so on brands in Lithuania.

H&M UAB Apranga Group
Stock turnover ratio
3,47 3,27
Stock turnover
period 103,90 110,08
Current ratio 2,71 2,59
Solvency Ratio 0,73 0,76
ROI 0,27 0,20
ROE 0,36 0,21
ROD 0,00035 0,00014
ATOR 2,16 2,24
ROS
0,12 0,53

As stock turnover ratio seems better of H&M, stock turnover period is smaller than Apranga
Groups ratio. As this ratio is considered more important for investors, Apranga Group is supposed
to lose market share. While talking about current ratio, H&M shows its advantages again. On
another hand, Apranga Group has also nice ratio because it exceeds proportion of 2 : 1.
Moreover, this small difference between current ratios does not make huge importance because
current ratio shows situation at the moment and it is changing very often. Lithuanian company has
higher solvency ratio than H&M, but that difference is not much big to make problems for H&M.

1
http://www.apranga.lt/investuotojams/reports/omx_2011_ar_en_ltl_con_ias.pdf

Page 42 of 67
Solvency ratio over 20% is considered as the minimum limit that financially healthy company could
have.
Talking about ROI, the quite big difference is seemed and that is a pretty nice advantage of H&M.
As I have mentioned before, ROI shows the productivity of the company. For this reason, H&M is
meant to gain higher profit than Apranga Group in the future. Return on equity is also better of
H&M. If Apranga Group would face a problem or next economic crises, it would face with more
problems in getting money than H&M. Therefore, this is also a relevant aspect in our dilemma. As
these two firms do not pay any huge interest rates, the better proportion of interest expenses and
average total debt has Apranga Group. Furthermore, taking in a consideration two the most
relevant ratios of the company could show, Apranga Group is meant to be a leader in this field. For
this reason, H&M could face with the pricing problems in the future. As ATOR shows the firms
profitability of the assets, Apranga Group controls its assets better than H&M. Moreover, the
situation is getting worst when we take Apranga Groups experience in controlling Lithuanian
assets in to account. In other words, H&M does not have so much experience in Lithuania as
Apranga Group. The amplitude between ROS ratios is different significantly. However, in my
opinion, that is going to not last so much long. The reasons why Apranga Group has such a nice
number are Apranga Group being a monopoly in Lithuania and because this company sells not
their own production. As a result, the expenditures on administration, designers etc. are smaller
than H&Ms expenses on it. On the one hand, it could be named as a huge disadvantage for H&M,
but this is not going to happen because Apranga Group sells not its own products (Even Apranga
Group makes those products). Thus, the price of the production is set not only by them.
Conclusion
In conclusion of H&M in figures part, I am going to summarize all negative and positive
measurements of its financial performance. First of all, talking word-widely H&M increases
amount of shops every year. Thus, we could claim it has stable development in whole world.
However, we should note that most of the shops are in UK, USA and Germany. Therefore, small
changes in those countries economies could reflect H&M turnover a lot. In my opinion, they
should expand developing in China or Russia. As we can see from the Table 2, the biggest increase
is in those countries where H&M has just started their business. As a result, this expanding into
new markets each year would generate a high turnover growth rate.
Moreover, changes in sales from previous years (see Table 1) are slightly decreasing every year.
Hennes & Mauritz must get fresh year in the company in order to maintain profit rate. Changes in
currency (SEK increases) are going to make opportunities to purchase cheaper material for
production. On the other hand, H&M will lose some profit because of the reduction of Euro or
earn more if Euro will recover from recession. Euro is in app. 50% of market in countries where
H&M works in.

Page 43 of 67
All ratios seem nice and have changed a lot since last 4 year. Number of shops and number of
employers have been increasing each year despite the economy crises. Except, return on
shareholders equity and return on employed capital has changed significantly to a negative side.
These two ratios are more or less the same by the meaning. In my opinion, one of the most
important ratios is a return on capital employed. In our case, this ratio has decreased and that
makes the situation not so perfect. Return on capital employed must always be higher than
company borrows money in order to make shareholders getting profit.
Even Lithuanian market is small and it would not make any huge influence in the annual report, it
must be positive for H&M. We should take fact into the account that H&M has much more money
than Apranga Group has. Thus, it is going to be the main gun in competition against Apranga
Group. Furthermore, Apranga Group only holds those brands I have mentioned before only by the
franchise. That means they are not the owner of them place. However, H&M will have to work
very hard in order to gain market share in Lithuania.

Page 44 of 67
Business plan- Budgeting
In order to see the profitability of H&Ms investments in expansion in Lithuania, we need to know
all expenditures and incomes. In this part of project, I am going to analyze Lithuanian market and
give a list of things or services H&M needs to have selling clothes in Lithuania. Also the list will
consists of price of each subject. However, as final is set only after long negotiations, to find the
exact price is not possible for at this moment. Therefore, all prices will be given in average or
approximate.
Moreover, budgets could be done for different lengths of time: short-run (up to 1 year) or long-
run (3-5 years). In this project, I am going to make short-run budget which takes term of 1 year. In
addition, I am going to include ideas from the expected future.
After this business plan, we will be able to make an income statement in order to see the H&M
earnings in the end of the year. Hopefully, it will be with a positive value at the end of year. In
addition, I would like to note that the currency of all prices will be Litas. Of course, I am going to
add the loss of money transactions in the budget.
The best city to open a shop in would be the capital of Lithuania Vilnius. This city is, as I have
mentioned in PEST analyze, biggest in the country. Also Vilnius attracts a lot of tourists each year.
Tourists could be also potential clients. Moreover, most of tourists are from Belarus where not
many types of retail garments shops are in.
To begin with, the list starts with a one the most important part of the system the hall
and the place of the store. From the survey results (Look at Appendix 2), we saw a
tendency people are keen on having shopping in the stores centers than in city centre.
Therefore, the best location for a shop would be in the one of the shopping centers in
Vilnius. There are many of them (I am going to mention only the biggest ones) :
1. Akropolis Ozo street 25, Vilnius
2. Panorama Saltoniskiu street 9, Vilnius
3. Ozas Ozo street 18, Vilnius
4. Big Ukmerges street 369, Vilnius
The most popular shopping center for Lithuanians is Akropolis. Thus, it would be
the best place for H&M. The expected size of this kind of shop is app. 1400-1600 square meters,
as it was mentioned by delegate from H&M.
1

1
http://klaipeda.diena.lt/naujienos/ekonomika/-h-m-lietuvoje-planuoja-2013-metais-atidaryti-parduotuve-
421977#axzz1tiMk4jfj

Page 45 of 67
The price to rent one square meter per month in Akropolis costs app. 120 Litas per month
1
. The
prices are not published, thus I used an articles in newspapers in order to find the price out. Price
at 100Lt/ sq.m. was in the 2009, so I multiplied this price by the inflation rate and I got app. 120
Litas per month. Prices are given without VAT (VAT tax in Lithuania is 21% for renting hall).
Square meters Price per month
In total per
month
In total per year
with VAT
1500 120 Lt 180000 Lt 2613600 Lt
*Table is made by the author of project.
I took 1500 square meter to rent for H&M in order to make an average size of standard store. In
addition, I would like to repeat once again H&M does not own any shop, it always rents.

The second and also very important thing in all types of business is employees. First of all,
this size of shop needs app. 4 6 hall workers at the time. Of course, there could be more
employees employed but then the job will count only as not a full-part time job for them.
For this reason, even more than 6 workers would be employed, H&M would not pay more
than for 4 or 6 salaries. Furthermore, H&M needs an accountant and 1 or 2 managers
administrators as well.
The system how people get salaries in Lithuania is like this: for instance one person gets
1000 Litas, so company which hired him has to pay additional 30% from his wage. Also, 9%
from his wage must be paid by the person
2
. This means one worker for a company costs
1300 Litas. The minimum wage is expected to be raised in near future 900 Litas. Thus, I am
going to include this amount into my calculations than 800 Litas which is at this moment.

The average salary of accountant is 4561 Litas per month and managers 3182 Litas per
month.
3
I am going to take average wages into my calculations even H&M could find
workers cheaper or more expensive.

1
http://klaipeda.diena.slt/dienrastis/miestas/klientu-maziau-islaidu-daugiau-206224#axzz1tiMk4jfj
2
http://www.findraugija.lt/page2.php?category=1
3
http://www.stat.gov.lt/lt/news/view/?id=6819

Page 46 of 67
Type of worker
Amount of
workers
Size of Salary
per month
(Litas)
Costs for H&M to
pay salary per
month (Litas)
Costs for H&M to
pay salary per year
(Litas)
Hall worker 6 900 1170 14040
Accountant 1 4561 5929,3 71151,6
Managers-
Administrators
2 3182 4136,6 49639,2
Total 9 8643 11235,9 134830,8

In overall, H&M has to spend 134.830 Litas per year for employees. Also this amount of
workers is supposed to be for the first year or for controlling only one store.

Logistics. The main H&Ms warehouse of Europe is in Germany. Therefore, all production
will come to Lithuania from there. For this reason, I tried to find the price to send one truck
full of clothes from Germany to Lithuania. It costs app. 1500 Euro (5175 Litas) if the order is
placed in the company UAB Tranksekspedicija.
1
The amount of passages should be 2
times a month in order to fulfill all customers needs.
Costs of one passage (Litas)
Number of passages
during one year
Total costs (Litas)
5175 24 124200

Advertising. As H&M is very well-known company and its does not need a very big
promotion (It seems from the result of survey), H&M is still going to spend some money on
advertising. The expenditure of publicity is very different according to the type of
commercials. Therefore, calculating exact expenses on it is quite difficult for me. However,
as I have done my internship in Idea Artis which works with the same things, I could say
10.000 Litas with the all brochures are very enough for this kind of company such as H&M.
Advertising Expenses in Litas
(Brochures, newspapers,
commercials in the street etc. )
10000

1
The information was gotten by call to its office.

Page 47 of 67
Furthermore, the renting of the hall is not enough. H&M will need to buy equipment in it
and furnished hall. Thus, more expenditure must be added to H&Ms budget. In beginning
of the search, I tried to find prices at official furnitures retailer websites, however nobody
gives exact price because of differences of every plan. Hopefully, I found a offer in the
announcement
1
. They claim 300 sq. meters could be built at 18000 Litas (60Lt/1sq.m).
Therefore, as H&Ms store is supposed to be app. 1500 sq. m., the price would be app.
90000 Litas. This price includes special shelves for clothes, equipment and furniture.
Price to equip 1 sq. m. (Litas) The size of the shop Total price (Litas)
60 1500 90000
*Table was made by author of the project.

Another type of expenses is going to be utilities. I am going to find the average that people
pay for 1sq. m. per month. This way we will be able to see the total price which H&M
needs to pay for. In average, the 80sq. meter flat usually pays 350Lt per month. In order to
make a proportion, I calculate the costs for 1sq.m. 4.375 Litas per month.

The last expense concerning the H&Ms expansion in Lithuania is expenses on creating
website. As H&M already has their official website, they will only need to make a special
column for Lithuanian users. In other words, only language must be changes and few more
services (Availability t check whether garment exists in a store, contacts etc.) in the website
must be created. From my experience which I got during internship, this service would cost
app. 3000 Litas in Lithuania.

Price of service (Litas)
Website 3000

1
http://www.skelbimai.lt/prekybine-iranga-baldai-drabuziu-dovanu-parduotuvei-3618612.html
Costs of utilities for
1sq.m. (Litas)
Size of the store
(Sq.m.)
Expenses per
month (Litas)
Expenses per
year (Litas)
4,375 1500 6562.5 78750

Page 48 of 67

The final expenses without interest rates of loan would be:

Another very important aspect in this project is money H&M will need to have to make a
business in Lithuania. In order to see the profitability of H&M into Lithuania better, I will
calculate 3 types of loans (Annuity, Serial, Bullet) which H&M could take. In order to find
the exact interest rates, I was looking for it on the internet. However, after a lot of time
spent on this type of searching, I decided to make a call to a bank and ask them for it.
Unfortunately, banker could not tell me exact interest rate for a loan because of the lack of
information she knew. She told only one thing that the average of interest rates of loans
given for this kind of business is approximately 9%. I called to the Swedish bank
Swedbank. This bank is the biggest bank in Baltic countries and offers wide range of
services. As a result, Swedbank would be the best option to take a loan for H&M. The
currency which H&M would take a loan in, in my opinion, is Litas. According to the changes
in currencies between Swedish kronor and litas, the risk and losses in exchanging currency
would be reduced if H&M would choose Swedbank and take a loan in Litas.

Type of expenditure Price (Litas)
Premises 2.613.600,00 Lt
Wages 134.830,00 Lt
Logistics 124.200,00 Lt
Advertising 10.000,00 Lt
Equipment 90.000,00 Lt
Utilities 78.750,00 Lt
Website 3.000,00 Lt
Total 3.054.380,00 Lt

Page 49 of 67
Loan fee to take a loan in Swedbank is from 0.4% - 1.5%
1
. Thus, I will take an average of the fee
(0.95%) in loan calculation. This fee counts from the amount of money H&M receives from the
bank. Thus, in the beginning of the year H&M will get the less money by 0.95% than H&M needs in
overall. However, during the year H&M will collect money from sold goods to repay the last
repayment of the loan. This way, H&M will save some money from not taking the bigger loan!
Total Interest Paid EIR
Bullet 272.282,71 Lt 10,30%
Standing 170.176,69 Lt 9,308%
Annuity 172.069,69 Lt 9,308%
*Calculations were made by author of the project
More calculation of the loans could be found in Appendix 4.
In order to select the most suitable loan for H&M, I am going to analyze according to these
criteria:
1. Profitability
2. Flexibility
3. Liquidity
As I did not manage to get the real interest rates in the market, I assume H&M to take loan with
only fixed interest rate. For this reason, the risk of having flexible or fixed interest rate will not be
included in this analyze.
The most suitable loan for H&M would be Annuity loan. As Bullet loan is the most flexible, but the
costs of having it is very high. Thus, only two options left for H&M. Furthermore, as Standing
loans the biggest part of interest are paid in the beginning of re- payments, it does not suit for
H&M in this case. The risk would be very high if H&M would have to pay high interest rate just
after its entrance in Lithuanian market. As a result, the Annuity would be the best option for
Hennes & Mauritz AB to take loan. Even Annuity loan does not have good flexibility, the
profitability and liquidity of this loan seems the most perfect for H&M

1
http://www.swedbank.lt/lt/pages/verslo/paskolos

Page 50 of 67
Income statement
In order to see more clearly how H&M is going to develop in Lithuania, I am going to look deeply
into financial side of the expansion into new market. Therefore, according to the Apranga Groups
results I am going to calculate expected turnover for H&M in Lithuania. Moreover, expected
income statement is going to be done with the numbers from projects part of Budgeting- Business
plan. This way we will be able to see the real profitability of this Hennes & Mauritzs company
expansion into the Lithuania. However, variable costs or costs of sold goods cannot be calculated
in exact numbers because of the lack of knowledge where, how H&M is going to make those
products which will be supplied into the Lithuania and so on. Thus, I decided to count variable
costs by the proportion of turnovers and costs of sold production from H&M groups income
statement. The currency I am going to work with is Litas in order to make all calculations easy to
understand.
To begin with, as I have mentioned before, I am going to calculate the expected turnover of H&M
in Lithuania. As Apranga Group takes app. 30% of the whole clothes retail market
1
, the whole
turnover of the Lithuania must be in Litas including VAT tax:
Turnover (Litas m)
Apranga Group. 30% out of all
market
All Lithuania's
market
341 1136

Determination of expected market share for H&M in Lithuania

By demography
In order to find the expected H&Ms turnover in Lithuania, we need to find the market size
which Hennes & Mauritzs company will gain. After a lot of consideration, I decided to find
the way how the market size could be determined. First of all, potential customers could
be described geographically. As H&M opens store in capital of Lithuania Vilnius with app.
0.7 (21.6%) million livers out of 3.2 million of people in all Lithuania. Moreover,
Lithuanians from other cities or Belarusians usually come for shopping spree in Vilnius.
Thus, the range of clients could be bigger.
The second filter of the customers is the salary. As H&Ms production is suited for people
who get the average wage. This category of people in Lithuania is 53.6%. Of course, not all
these Lithuanians will be supposed to buy appearance from H&M, but the proportion
would stay more or less the same. The reason is that many people getting higher salary will
buy garments in H&M and not all persons who get average wage will shop in H&M.

1
http://www.mv.lt/lt/apie-mus/apie-mg-baltic/

Page 51 of 67
By production
The third criteria which market size could be determined by is the type of clothes H&M
produces. H&M sells ordinary or ,in other words, simple fashion garments. H&M does not
offer working clothes, suits and so on. This type of clothes (Jeans, jackets, dresses, shirts,
shoes, underwear, etc.) which H&M is producing takes app. 75%.

Result from survey Expansion of H&M in Lithuania and profitability ratios
After analyze of the questions from the survey and comparison of profitability ratios with Apranga
Group, the future for H&M could be assumed and predicted. The percentages of the size of the
market which H&M is supposed to gain after its expansion in Lithuania are app. 15%.
The way the calculations are going to be made is simple. The size of turnover is multiply by all
proportions in order to obtain the final size of return. Furthermore, I would like to mention once
again, the turnover is given with VAT tax.
All turnover of Lithuania clothes' market (Litas,
m.)
1136
The proportion of people in Vilnius comparing
with the whole population
0,21875
Proportion of people who get average of
Lithuanian salary
0,536
The proportion of production which H&M
produces
0,75
Expected size of the market share for H&M
production
0,15
Expected yearly turnover for H&M(Litas, m.) 14.984
*Table and calculations were made by author of the project.

The proportion of variable costs and turnover of H&M is (variable costs/turnover = 43.852
millions of SEK. / 109.999 millions of SEK) 0.398 . Therefore, expected cost of goods sold in
Lithuania is 2.933 millions of Litas + costs of logistics.

Page 52 of 67
The income statement would look like this:
Income Statement (Litas, millions) 20**

Sales including VAT 14,984
Sales excluding VAT (21%) 11,837
Cost of goods sold -2,933
+ Logistics -0,124
GROSS PROFIT 8,780
Selling expenses :
Premises -2,613
Advertising -0,010
Equipment -0,900
Utilities -0,788
Website -0,003
Administrative expenses (Wages) -0,134
OPERATING PROFIT 4,332
Interest expenses -0,172
PROFIT AFTER FINANCIAL ITEMS 4,160
Tax* -0,690
PROFIT FOR THE YEAR 3,471

All profit is attributable to the shareholders of the parent company H&M Hennes & Mauritz AB
*Data is taken from official Apranga Group annual report
1

Earnings per share, Litas (SEK)** 0,00209 (0,005)
Earnings per share of H&M in 2011 (SEK)** 9,56
Number of shares, thousands** 1,655,072
**Before and after dilution. Number of shares has been adjusted for both years due to the 2-for-1 share
split effected by H&M in 2010

After the income statement was shown, we can easily to see the real profit of the expansion and
investment into the Lithuania. The huge effect on the total profit of H&M will not be seen as
Lithuanian market is not big enough. However, the most important thing is this investment is
profitable.

1
http://www.apranga.lt/investuotojams/reports/omx_2011_ar_lt_ltl_con_ias.pdf

Page 53 of 67
Conclusion of the project

After a lot of analyzes and calculations were done, now I am able to come up with an idea that the
entrance into the Lithuania is profitable for H&M. As the PEST proved us, Lithuania is also meant
to be a good country to develop in for Hennes and Mauritz AB. Furthermore, the expansion of
H&M might be successful, but not easy because of the strong competitor in this type of business.
Moreover, from the results of made marketing analyzes and results from survey, H&M could be
claimed to be one of the leader of market share in Lithuania. As a result, the profit of the year
which H&M is expected to get after expansion in Lithuania is 3.471 million Litas or 8.944 Swedish
kronor. Even these amounts of money do not look very huge in comparison with the current
H&Ms profit, this investment still generates higher profit for a company. The effect on the
earnings of a share may be not very big also: 0.0021 (Litas) and 0.005 (Swedish Kronor). However,
H&M would maintain its expansion into new markets as H&M has set a target for itself after
expansion in Lithuania.

Page 54 of 67
Appendix 1
Sex:
Male
Female

Age:
0-13 years.
14-18 y.
19-25y.
26-35y.
Over 35 years

Your status in society:
Pupil
Student
Unemployed
Seniors
Other
Employee

Earnings per month (Salary, grants, money from parents etc.):
0-500 Lt (0 -1086 DKK)
501-1000 Lt (1088 -2173 DKK)
1001-2000 Lt (2176 4347 DKK)
2001- 3000 Lt ( 4350 6521 DKK)
Over 3000 Lt ( Over 6521 DKK)

How often do you buy clothes (Shoes, appearances, lingerie etc.)?
1 or 2 times per week
1-2 times per two weeks
1-2 times per month
1-2 times per half year
1-2 times per year

Page 55 of 67

Have you ever gotten/ given clothes or check to buy clothes as a present?
Yes
No

Yes
No
Yes, I have bought, but I was not satisfied
I would like to, but I do not know how to do it
I did not know this service existed

How much money do you spend in average at once time you buy clothes in a shop?
Less than 50 Lt (108 DKK)
50-100 Lt (108- 217 DKK)
101-200 Lt (219- 434 DKK)
201-300 Lt (437- 652 DKK)
301-400 Lt (655- 869 DKK)
Over 400 Lt (869 DKK)

Do you know (Have you heard) clothes retail shop H&M?
Yes
No
I have heard this name, but I did not know what it is

If you said Yes or I have heard this name, but I did not know what it is, please answer where did you
know it from? (More than one option is allowed)
Internet
When I was abroad
Friends
Social networks
Press (Newspaper, journals etc.)
Other

Page 56 of 67

Yes
No

Have you ever bought anything on the internet in H&M?
Yes
No

Would you like to have H&M shop in Lithuania? (More than one option is allowed)
Yes, because I expect lower price there
Yes, because I do not find any clothes right now at existing shops
No, it is enough shops for me already
I do not care

When you buy clothes, the most important things for me are:

Not
important
Less
important
Medium
important
Quite
important
Very
important
Price . . . . .
Quality . . . . .
Correct size . . . . .
Wide assortment . . . . .
Location of a
shop
. . . . .
Type of material . . . . .
Brand . . . . .

Where do you usually buy clothes at? (Name of shop or market)
.

Page 57 of 67
Appendix 2
1.
Sex:
Male 25
Female 28

2.
Age :
0-13 years. 2
14-18 y. 1
19-25y. 33
26-35y. 8
Over 35 years 9

47%
53%
Sex:
Male
Female
4% 2%
62%
15%
17%
Age :
0-13 years.
14-18 y.
19-25y.
26-35y.
Over 35 years

Page 58 of 67
3.
Pupil 3
Student 28
Unemployed 1
Seniors 6
Other 6
Employee 9

4.
Earnings per month (salary, grants, money from the parents etc.)
0-500 Lt (0-1086DKK) 13
501-1000 Lt (1088-2173 DKK) 7
1001-2000 Lt (2176- 4347 DKK) 12
2001-3000 Lt (4350- 6521 DKK) 10
Over 3000 Lt (Over 6521 DKK) 10
Did not answer to a question 1

6%
53%
2%
11%
11%
17%
Pupil
Student
Unemployed
Seniors
Other
24%
13%
23%
19%
19%
2%
Earnings per month (salary, grants, money
from the parents etc.)
0-500 Lt (0-1086DKK)
501-1000 Lt (1088-2173 DKK)
1001-2000 Lt (2176- 4347 DKK)
2001-3000 Lt (4350- 6521 DKK)
Over 3000 Lt (Over 6521 DKK)

Page 59 of 67
5.
How often do you buy clothes (Shoes, appearances,
lingerie etc.)?
1 or 2 times per week 3
1-2 times per two weeks 4
1-2 times per month 22
1-2 times per half year 16
1-2 times per year 7

6.
Have you ever gotten/given clothes or
check to buy clothes as a present?

Yes 23
No 17
No, but idea seems great 12

6%
8%
41%
30%
13%
2%
How often do you buy clothes
(Shoes, appearances, lingerie etc.)?
1 or 2 times per week
1-2 times per two weeks
1-2 times per month
1-2 times per half year
1-2 times per year
43%
32%
23%
2%
Have you ever gotten/given clothes or check to buy
clothes as a present?
Yes
No

Page 60 of 67
7.
Yes 23
No 16
Yes, I have bought, but I was not satisfied
5
I would like to, but I do not know how to do it
8
I did not know this service existed 3

8.
How much money do you spend in average at
once time you buy clothes in a shop?

Less than 50 Lt (108 DKK) 1
50-100 Lt (108-217 DKK) 19
101-200 Lt (219- 434 DKK) 15
201- 300 Lt (437- 652 DKK) 8
301-400 Lt (655- 869 DKK) 4
Over 400 Lt (869 DKK) 6

42%
29%
9%
15%
5%
Yes
No
Yes, I have bought, but I was not
satisfied
I would like to, but I do not know
how to do it
I did not know this service existed
2%
36%
28%
15%
8%
11%
How much money do you spend in average at
once time you buy clothes in a shop?
Less than 50 Lt (108 DKK)
50-100 Lt (108-217 DKK)
101-200 Lt (219- 434 DKK)
201- 300 Lt (437- 652 DKK)
301-400 Lt (655- 869 DKK)
Over 400 Lt (869 DKK)

Page 61 of 67
9.
Do you know (Have you heard) clothes' retail
shop H&M?
Yes 41
No 4
I have heard this name, but I did not know
what it is 7

10.
If you said "Yes" or "I have heard this name, but I did not know
what it is", please answer where did you know it from? (More than
one option is allowed)
Internet 9
When I was abroad 33
Friends 15
Social networks 5
Press (Newspaper, journals etc. ) 7
Other 7

77%
8%
13%
2%
Do you know (Have you heard) clothes' retail shop H&M?
Yes
No
I have heard this name, but I did not
know what it is
12%
43% 20%
7%
9%
9%
If you said "Yes" or "I have heard this name, but I did not know what it
is", please answer where did you know it from? (More than one option is
allowed)
Internet
When I was abroad
Friends
Social networks
Press (Newspaper, journals etc. )
Other

Page 62 of 67
11.

Yes 35
No 15
No, but I have been there 3

12.
Have you ever bought anything on the
internet in H&M?

Yes 6
No 46

66%
28%
6%
Have you ever bought anything in H&M
before?
Yes
No
11%
87%
2%
Have you ever bought anything on the
internet in H&M?
Yes
No

Page 63 of 67
13.
Would you like to have H&M shop in Lithuania? (More than
one option is allowed)

Yes, because I expect lower price there 30
Yes, because I do not find any clothes right now at existing
shops 18
Yes, it would be interesting 22
No, it is enough shops for me already 4
I do not care 7

14.
Not
important
Less
important
Medium
important
Quite
important
Very
important
Average of
points per
respondent
Price 1 1 5 20 26 4,30
Quality 1 5 12 16 19 3,88
Correct size 1 5 5 9 33 4,28
Wide assortment 0 7 9 19 18 3,90
Location of a shop 6 10 19 11 7 3,05
Type of material 2 16 15 14 6 3,11
Brand 17 12 14 7 3 3,37

15.
Mentioned names of shops where people
shop:
Times
Average of all
respondents
Zara 18 0,34
Bershka 5 0,09
Other stores from Apranga Group 29 0,55
Shopping center (No exact name of the shop) 14 0,264150943
City centre 1 0,018867925
37%
22%
27%
5%
9%
Would you like to have H&M shop in Lithuania? (More than one
option is allowed)
Yes, because I expect lower price
there
Yes, because I do not find any
clothes right now at existing shops
No, it is enough shops for me
already

Page 64 of 67
Appendix 3
In order to find wheter answers of survey are representitive, I did Goodness-fit- test.
0-13 years 14-18 years 19-25 years 26-35 years
Over 35
years
Total
Population
by age in
Lithuania
444436,5 210764,75 344199,2 437899,4 1796147,4 3233447
Category
proportion
0,13744975 0,065182678 0,10644961 0,135428033 0,555489934 1
Survey
Results
2 1 33 8 9 53
Expected no.
of
respondents
7,284836485 3,454681919 5,641829351 7,177685735 29,44096651

Goodness-of-fit test for given distribution

Hypotheses

H
0
: The distribution is the given distribution

H
A
: The distribution is not the given distribution

Calculations

i Category p
i
E
i
O
i
Testst
1 Category 1 7,284836485 386,0963 2 382,1067
2 Category 2 3,454681919 183,0981 1 181,1036
3 Category 3 5,641829351 299,017 33 236,6589
4 Category 4 7,177685735 380,4173 8 364,5856
5 Category 5 29,44096651 1560,371 9 1542,423
Sum

53 2809 53 2706,878

The result

Degrees of freedom 4

Test statistic 2706,877903

p-value 0,000

After the analyzes were done, I am able to claim survey answers are not representitive to the age
population in Lithuania. With the 5% level of significance and P-value of 0%, I rejected H0 and accepted Ha
the distribution is not the given distribution.

Page 65 of 67

Earnings per month
(salary, grants, money
from the parents etc.)
Population
Population
proportion
Survey Results
Expected no. of
respondents
0- 1000 Lt (0 - 2173 DKK) 798661,409 0,247 21 13,091
1000 Lt - 2500 Lt (2173 -
5425 DKK)
1733127,592 0,536 17 28,408
Over 2500 Lt (5425 DKK) 701657,999 0,217 15 11,501
3233447 1 53

Goodness-of-fit test for given distribution

Hypotheses

H
0
: The distribution is the given distribution

H
A
: The distribution is not the given distribution

Calculations

i Category p
i
E
i
O
i
Testst
1 Category 1 13,091 693,823 21 652,4586
2 Category 2 28,408 1505,624 17 1471,816
3 Category 3 11,501 609,553 15 579,9221
Sum

53 2809 53 2704,197

The result

Degrees of freedom 2

Test statistic 2704,196679

p-value 0

After the analyzes were done, I am able to claim survey answers are not representitive to the real wage
distrbution in Lithuania. With the 5% level of significance and P-value of 0%, I rejected H0 and accepted Ha
the distribution is not the given distribution.

Page 66 of 67
Appendix 4

Bullet
3.054.380,00 Lt
Fee 29.016,61 Lt
9% Quarter 1 Quarter 2 Quarter 3 Quarter 4
Received

3.025.363,39 Lt

Interest

68.070,68 Lt

68.070,68 Lt

68.070,68 Lt
68.070,68 Lt
Repaymnet 3.054.380,00 Lt
Total C/F

3.025.363,39 Lt
-
68.070,68 Lt
-
68.070,68 Lt
-
68.070,68 Lt
- 3.122.450,68 Lt

Effective
interest rate
per quarter
Effective interest rate
per year

2,481%
10,300%
By formula:
eff.i.r.=(1+i/n)^n-1

Serial
3.054.380,00 Lt
Fee 29.016,61 Lt
Received

3.025.363,39 Lt

Balance

2.269.022,54 Lt

1.512.681,70 Lt

756.340,85 Lt

- Lt
Interest
-
68.070,68 Lt
-
51.053,01 Lt
-
34.035,34 Lt
-
17.017,67 Lt
Repayment
-
756.340,85 Lt
-
756.340,85 Lt
-
756.340,85 Lt
-
756.340,85 Lt
Total cash
flow

3.025.363,39 Lt
-
824.411,52 Lt
-
807.393,85 Lt
-
790.376,19 Lt
-
773.358,52 Lt

Effective
interest rate
per quarter
per year

2,2500%
9,308%
By formula:

Page 67 of 67

Annuity
3.054.380,00 Lt
Fee 29.016,61 Lt
Received

3.025.363,39 Lt

Annual
payments

-
799.358,27 Lt
-
799.358,27 Lt
-
799.358,27 Lt
-
799.358,27 Lt
Total

3.025.363,39 Lt
-
799.358,27 Lt
-
799.358,27 Lt
-
799.358,27 Lt
-
799.358,27 Lt

Effective
interest rate
per quarter
per year

2,2500%
9,308%
By formula:

Total Interest paid EIR
Bullet 272.282,71 Lt 10,30%
Standing 170.176,69 Lt 9,308%
Annuity 172.069,69 Lt 9,308%

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