Introduction
This marketing report covers strategic marketing for H&M within the context of New Zealand. It considers recent sector performances, risks, and opportunities for H&M. Marketing strategies and outlook presented are based on major indicators of the apparel and accessories sector in the country to provide real-world experiences for the retailer, H&M.
Thorough and Rigorous Analysis of the Apparel and Accessories Sector in New Zealand
H&M must appreciate the importance of retail in New Zealand. It is the largest sector with about 186,000 workers in the year 2014 and generated some $12.7 billion in value, which was 5.5% of the country’s GDP (Westpac, 2015). The retail sector, however, is among the most challenged in the country (Whiteford, van Deventer, & Patterson, 2014). For instance, online retailers now offer fierce competition, low margins are noted, and risks associated with low-cost are some few issues H&M is most likely to encounter.
According to Euromonitor International report of 2015, the New Zealand retail sector recorded a favorable growth, reflecting the recovery process the market has maintained throughout the year. It reflects consumer and business confidence, increasing employment rates, and managed inflation rate (Euromonitor International, 2016). Further, the report also indicated that New Zealand consumers improved their relationships with local products and generally wished to purchase ‘local’.
However, as previously noted, competition from cheaper products, especially in China, retailed through online platforms, has attracted many New Zealanders as overseas merchants offer free shipping services. Moreover, New Zealand does not apply GST on products worth less than NZ$400. Consequently, many domestic retailers now consider pricing as a major factor to attract and retain local customers.
McGrathNico (2016) conducted a recent survey for the financial year 2016 covering clothing, footwear, and accessories. Results indicated a stronger performance in the current year compared to the year 2015 (McGrathNico, 2016). McGrathNico (2016) also points to specific challenges associated with increased competition from online retailers and pressure on prices. In addition, H&M will also face other large global retailers, such as Top Shop and Zara. Specifically, in the retail sector, clothing, toiletries, cosmetics, and pharmaceuticals have recorded impressive growth since the year 2000, but flat growth was witnessed from the year 2008.
Notably, clothing, accessories, and footwear are responsible for vital growths noted in value addition and employment. Major product differentiation is expected, as well as an increased entry into the market by importers and manufacturers. It is expected that retail chains would face a difficult market environment because of a strong and growing online presence driven by click-and-collect services instead of home delivery, which allows customers to visit retail outlets (Westpac, 2015).
It is observed that the apparel and accessories sector is under-recovery but faces intense competition. Since the year 2014, the sector has grown to 8.4% (McGrathNico, 2016). Although the recovery has been appreciated by the sector, the arrival of international stores makes it even more difficult for small retailers.
To this end, several apparels and accessory retailers have posted poor results and issued profit warnings, including Hellaby, Pumpkin Patch, and Hallenstein Glasson. In addition, the number of failed retailers has increased, and the latest include “Wild Pair, Valleygirl/TEMT, Identity, Nicholas Jermyn, Jean Jones, and Laura Ashley all falling into insolvency in FY16” (McGrathNico, 2016, p. 5). Overall, the following trends have been observed in the sector.
- More discounting is expected in the sector for most retailers to survive.
- Large margins will result from cost management and not price increments.
- Product and service differentiation will create a competitive edge.
- External factors, such as an online purchase from China coupled with free delivery will most likely hurt local business.
- Product and distribution innovation will drive the sector (Gover, 2013).
Assessment of the Market Potential for H&M in New Zealand
From the above analysis, facts have been established about the current New Zealand apparel and accessories sector. That is, failures and entry of new international brands are common. According to Paul Keane (2015), more stores, including Kircaldie and Stains, were expected to close shops in the current year.
Failure aside, it is observed that H&M, Zara, and Top Shop will all enter the New Zealand market in 2016 while Chanel, Prada, and Tiffanys are most likely to enter the market next year. International brands will provide more choices for consumers as New Zealand consumer-spending power is now rising. This is good news for H&M in a market that has not been occupied by major international brands for long. Nevertheless, the company must observe that fierce competition and price pressure are two critical success factors.
New Zealand presents a favorable business environment for H&M in terms of market potential. Factors related to demographics, consumer purchasing power, the growing economy, stability, low political risks, good human rights record, and environmental sustainability efforts are all witnessed in New Zealand.
A recent report by Colliers International has shown that H&M and its peers have entered the New Zealand market during a period of lengthy economic success that has encouraged consumers to spend more as retailers continue to offer more great deals (Devlin, 2016). Observers have also noted that consumers have developed interests in international brands, specifically H&M and Zara that have shown interest to open outlets in New Zealand.
These brands appear to promise better products for the market. These stores are thought to improve consumer confidence based on a wide range of selections, brand, experience, and value. Further, confidence among retailers is also observed in their rush to occupy the CBD, which is considered a better strategic location due to a strong catchment it offers.
Online stores and price factors are now the two major threats for apparel and accessories retailers. On this note, one expects H&M to perform better because of its aggressive online expansion strategy (H&M, n.d). The country’s economy has been growing as income levels increase and, thus, consumer willingness to spend on the best brands would rise steadily. In such an environment, H&M and its international peers are most likely to thrive through increased profit margins. Nevertheless, H&M must understand that it remains vulnerable to competition and price pressure, especially when cheap products with free shipping offers are considered as external sources of threats.
Two Potential Risks of Implementing the H&M Marketing Strategy
The current H&M marketing strategy is characterized by ‘rapid online expansion and opening stores at a fast pace’. Generally, an expansion strategy should be a low-risk business growth strategy, but business risks are real for any retailers, and global brands are no exception in New Zealand. First, H&M has an aggressive expansion marketing strategy that could lead to overexposure in a foreign market that has witnessed several retailers issue profit warnings and others falling into insolvency.
Although going into the New Zealand market is important because of the low presence of global brands, the company requires some risk-mitigating strategies (Walton, 2015). Against the backdrop of relatively slow growth, many international brands now focus on New Zealand as a part of their ambitious expansion strategy to create awareness for consumers with rising incomes. Overexposure is mainly linked to competitive risks noted in unknown market segments, an unfamiliar business environment, and aggressive competition from both the domestic market and online retailers who offer free shipping.
While H&M has already conducted a market potential analysis, unanticipated outcomes should be expected. Second, location is vital for H&M as it seeks to open more retail outlets (McGregor, 2015). The fact that the company focuses on opening at least three new stores per day implies that the best locations will not always be readily available because it must compete for them against Zara and others. Moreover, as H&M strives for strategic locations, costs associated with acquiring or leasing store spaces could also be extremely high, which would present financial risks to the company.
Business and competitive risks are real for H&M. Therefore, the company must assess these risks against its marketing strategy. In a market in which some brands have been forced out, limited opportunities are left for rapid expansion as envisioned by H&M. Moreover, online retailers are now gaining considering market shares from brick-and-mortar stores. Competition and pricing strategies would ultimately determine the market leader in New Zealand.
Alternative Marketing Strategy Approaches
For physical locations, H&M must insist on the best locations for retail business in New Zealand. The company claims that leasing allows it to attain flexibility to manage a constantly changing retail environment. It is imperative to gain representation in ideal locations and attractive shopping malls, H&M should consider cost factors for cost-cutting strategies. The company must work on a strategy to sustain its rapid expansion efforts.
That is, business sustainability should be a major priority for the company. Cost-cutting measures will ensure that H&M can manage its marketing strategy amidst rapid expansion. With effective cost management, H&M will be able to increase value to their customers (Mascarenhas, Kumaraswamy, Day, & Baveja, 2002). As income levels increase, customers have demonstrated their desire for foreign brands. Although cost control is important, H&M must understand that effective strategy must also lead to profitability, implying that New Zealand will need suitable pricing strategies (Kilroy, MacKenzie, & Manacek, 2015).
Distribution channel innovation is important in a competitive retail sector (Kuswantoro, Rosli, Abdul, & Ghorbani, 2012; Reynolds & Hristov, 2009). In this case, the focus is on the use of online platforms and retail outlets. The company’s marketing strategy must also concentrate on online platforms, including smartphones, tablets, and computers. This approach would not only help H&M to meet increased demands from its customers, but it would also ensure that the company remains competitive against other online retailers. Most importantly, these online digital platforms should be easy to navigate for a positive user experience.
Internet retailing has been growing significantly in the last few years in New Zealand as mobile technologies become widely available and accessible to majorities (Euromonitor International, 2016). The increased use of online technologies has created intense competition for traditional retail outlets, ultimately resulting in the closure of some brick-and-mortar stores in the year 2015. In the face of this, H&M should consider innovation in its marketing strategies.
Specifically, it should create omnichannel approaches with both robust online and brick-and-mortar stores (Brynjolfsson, Hu, & Rahman, 2013; Rigby, 2011). Today, many retailers have also created mobile apps to ensure that shopping is simple and enjoyable to customers (Fabio, 2010). Moreover, mobile Internet growth is expected to increase throughout New Zealand. In this case, H&M should design Omni-channels that include computers, smartphones, and tablets to ensure that it can deliver a holistic customer experience (Piotrowicz & Cuthbertson, 2014). It is noted that online marketing has been expanding in New Zealand as firms strive to exploit new channels and social media platforms to reach a wider customer base and facilitate interactions.
Given that price competition would result in relatively low-value sales, H&M should realize optimal results with limited resources as it strives to stay competitive and improve service delivery. More importantly, H&M will have to align its marketing strategy with the overall global expansion initiatives based on the market potential that New Zealand and other countries can offer (Giffi, Kambil, & Mahidhar, 2009). Today, Zara, Top Shop, and other international brands have preferred New Zealand because of a favorable business environment, implying that H&M must contend with competition from peers (Lopez & Fan, 2009).
Conclusion
The report has presented strategic marketing for H&M within the context of New Zealand. It shows that New Zealand offers a favorable business environment when demographics, consumer purchasing power, the growing economy, stability, and low political risks are considered. As such, H&M should expand here. However, further analysis has shown that the apparel and accessories sector now faces serious competition and price pressure, forcing many small players out of the market. It is recommended that H&M should concentrate on omnichannel marketing and strategic location strategies.
References
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