Turning

a Global Epidemic into a Business Opportunity

Elin Larsson, Cand. Merc. IMM |Max Josef Jger, Cand. Merc. IBS Svenja Troll, Cand. Merc. IMM |Hanna gren, Cand. Merc. AEF COPENHAGEN BUSINESS SCHOOL

ExploiJng the Plus-Size segment ensures $63M of new sales in otherwise stagnaJng markets
Challenge Maintain annual sales growth target of 10 to 15% Keep the business simple Western Europe (82% of sales): stagnaJng market USA (9% of sales): declining market Changing consumer needs due to growing obesity How can H&M ensure for sustainable growth in their stagna5ng/ declining key markets? Exploit opportuniJes within new segments: Introduce plus-size product line for men, women and children Expected yearly sales of $63M and sales growth of 0.5% Ensure success through improved HR funcJon

ComplicaJon

QuesJon

Answer

H&M should focus on a new recruiJng strategy and a line extension for achieving growth targets
Market expansion PotenJal revenue Demand High costs of implementaJon High risks
High Low

Por;olio expansion

Recrui@ng strategy

Line extension

Choice of strategies with lowest risk, lowest costs, and high expected returns - Current market expansion strategy is sucient - Porfolio expansion has proven to be too costly and risky in recent years - H&M is adding complexity to corporaJon due to internaJonalizaJon - Huge market potenJal in plus size market

H&M can uJlize their core competencies to exploit the plus-size trend
Market share by region
Americas Asia Pacic Eastern Europe Western Europe Middle East & Africa

Plus-size trend
Apparel Plus-size

H&M's Core Competences

% Total Growth

# # #
Women 2010E Men Children

Fashion forward Aordable prices Western core market Can meet the Plus-size demand

2005 - 2010

Asia Pacic, MEA and Eastern Europe are H&M's growth markets H&M faces declines in Americas and Western Europe
Source: Report linker, Euromonitor, Package Facts

Key trend in Americas and Western Europe: Plus-size demand increase Customer needs not saJsed: Fashionable low-priced clothing

With the implementaJon of the line extensions H&M can reap higher margins in core markets
MEN Big & Tall
Target Group Demographics PromoJon Plus size and tall Age: 20 - 45 Spokesperson: sports focus

WOMEN Big is Beau@ful

Plus size Age: 20 - 45 Spokesperson: style icon focus, e.g. Beth Dimo

CHILDREN Bumblebee
Plus size ge: 10 - 15 A Spokesperson: teen star focus, e.g. Hillary Du

Product

New collec5on based on H&M LOGG Full range (50 items) Fashionable 10% above H&M price Below compe5tors plus-size price Internet sales Catalogue sales

Price Sales Channel

Expanding the plus-size line will lead to posiJve revenue streams

Western Europe popula@on Overweight/obese % in WE H&Ms current market share
2,3% 1% 0,5%
Best case (current) Most likely Worst case

397,475,574 ppl

93,009,284 ppl

Best case
Es#mates pr. year, in tsd. USD.

Most likely
Es#mates pr. year, in tsd. USD.

Worst case
Es#mates pr. year, in tsd. USD.

Market share (2,3%) Projected revenue Projected costs* Prot

2,139 63,430 31,715 31,715

Market share (1%) 930 Projected revenue 27,578 Projected costs 13,789 Prot 13,789

Market share (0,5%) 93 Projected revenue 2,757 Projected costs 1,378 Prot 1,378
2011 Deloime

* EsJmated to 50 % of revenue

Aqer exploiJng Western markets, emerging economies oer growth potenJal

In China obesity rates are 25 % and growing

In Brazil 48 % of all women and 50 % of all men are overweight

Source: World Health OrganizaJon

To overcome the added complexity of the line extensions, new HR pracJces need to be set up
SecJon for thesis and project wriJng PotenJal research topics Download center for H&M documents Network Expansion Coca Cola benchmark

Student zone

Graduate Program

The right people for the right job Academics with theorecJcal management knowledge InternaJonal rotaJon Vestas benchmark

The risks that could occur with the strategy implementaJon can easily be overcome
Possible risks Deteriora@ng brand image Sunk costs Heavy compe@@on Opportunity costs
Risk of diluJng H&Ms core segment. Can be avoided through e.g. online channels. If the launch is proven unsuccessful, H&M will not incur large sunk costs due to minimal xed costs. Many established clothing lines within these categories will make it harder for H&M to get a strong foothold in the market.

Level of risk

Risk of missing opportuniJes in other markets. Can be overcome if H&M conJnues their current market strategy,

Within a four year Jme horizon H&M can roll out their new strategies internaJonally
Ac@vity Product line extension New style development Spokesperson search Online Launch and sales Retail Launch and sales InternaJonal Launch Human Resource Restructuring Student zone Network expansion Graduate Program 2011 2012 2013 2014