Enter the dragon
I recently read an interesting article about how H&M sales were up 10 per cent in the UK in 2011, one of the toughest years in retail especially in the UK and Europe.
This got me thinking about the potential impact H&M could have in Australia if they enter this market and replicate their success in the UK and Canada, which are two countries comparable to our own.
H&M could potentially carve out up to a $500 million share of the Australian fast fashion market based on overseas results in similar countries. I have estimated the value end of fast fashion in Australia to be worth $1.36 billion – and this segment will be impacted the most.
H&M could potentially take more than a 30 per cent market share out of the value end of the market.
As a result, there would be several causalities among H&M Australian competitors, with all retailers in the fast fashion segments having to lift their game in order to compete and grow.
Some current Australian players are ill-equipped to meet this challenge, with little point of difference, variable quality of product, poor presentation, lack of format innovation, thin management structures and a lack of focus on people capability and service.
The H&M phenomenon
H&M is ranked as the ninth largest fashion retailer in the world with revenue of US$16 billion, from more than 2472 stores and over 64,000 employees. In the UK, where it has been established since 1976, it generates US$1.38 billion from 213 stores with an average of US$6.47 million per store. In Canada, H&M opened its first store in 2005, and at the end of 2011 was generating US$414 million from 58 stores.
With H&M’s focus and expansion shifting to Asia, and with the success of its major rival Zara’s expansion into Australia, it will not be long before we see their attention focus towards this market.
There are several reasons Australian fashion retailers should admire and fear H&M’s market entry into Australia. These include:
• The customer experience – better value, more choice, visually appealing stores.
• Size and financial muscle of the parent company, which carries little debt.
• Superior management expertise and marketing that comes with being the ninth largest fashion retailer in the world.
• It has created differentiation in their brand and merchandise.
• It will negotiate favourable rental deals as anchor tenants.
• Successful e-commerce strategy and website.
• This company represents global best practice in fast fashion (compare your own results to figure 1).
So what is the potential impact of H&M and other fast fashion global retailers entering the Australian market?
I have estimated that within five years of H&M entering the Australian market, it could carve out a market share of $500 million based on mirroring its success in the UK and Canadian markets. While H&M would have the largest impact in the Australian market, the likes of Zara, Top Shop, Forever 21, and Uniqlo will also have a devastating effect.
I have detailed below my estimates on the market share potential of top global retailers within five years of entering the Australian market (fig. 2).
But it is not all bad news. These global retailers will also typically grow their market segments by 20 per cent or more as they draw in customers from traditional retailers and older demographics.
In Inside Retail Magazine’s June/July issue I will reveal the impact of H&M and other large international fast fashion platters on the Australian fast fashion industry, which retailers are most vulnerable and potentially most effected, and in the following issue I’ll discuss how much lead time you will need and strategies for retailers to counter these companies.
Footnote: The figures above on potential Australian market size for H&M and the other fast fashion global retailers are based on like performance in comparable markets overseas obtained from published financial statements and other available data. The size of the Australian market segments these are a best estimate based on analysis of key players in each segment, store numbers, and a reasonable estimate of average revenue per store. Detailed analysis has been prepared to back up each of these figures, however, no responsibility is taken for their accuracy.
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